For the past few years, financial experts far and wide have been warning that student loans will bring about the next financial crisis. With high balances and high default rates, it’s a widely held perception that America’s ballooning student loan debt will soon lead to a real-estate-bubble-esque collapse.
But Torsten Slok, chief international economist for Deutsche Bank AG, argues otherwise. In his soon-to-be-released book, he offers a different look at our nation’s collective student loan debt.
According to Slok, 93% of outstanding student loans have balances lower than $30,000, which is a reasonable amount for most people to manage. Just 1.5% of the American population has a student loan for more than $50,000.
He points out that large loan balances most often belong to professionals with graduate degrees, like business executives, doctors and lawyers. They can reasonably carry this debt because of their professions’ higher incomes and lower relative unemployment rates.
Slok also points out that the vast majority of borrowers–about 70%–owe less than $25,000.
Americans have a lot of student loan debt–around $1.27 trillion. But Slok shows us that our outstanding credit card debt is around $873 billion, and is a much more dangerous kind of debt. While credit card debt can be carried indefinitely and at higher interest rates, most student loans have a ten-year maturity period and lower interest rates.