According to the Federal Reserve, non-real estate consumer debt increased by $7.2 billion during the month of April, as consumers borrowed with abandon to buy cars and pay for college. Farewell, new-found thriftiness.
It’s the seventh consecutive month of consumer debt increases. In other words, we can pretty much throw out the thousands of stories that have run over the past few years suggesting that the recession marked a permanent change in the psyche of the American consumer: one where conspicuous consumption was out, and thrift and savings was in. It made a nice story, but it didn’t happen.
[time-link title="(Read about signs a few months ago that consumers had halted their new-found thriftiness)" url=http://moneyland.time.com/2010/12/15/so-much-for-the-new-normal-is-the-era-of-mindful-frugal-consumers-already-over/]
We can take some comfort in the fact that credit card debt fell slightly for the second time in three months, widening the recent development of student loan debt outstanding surpassing credit card debt. Cliches about knowledge being power and education being an investment aside, here’s the problem: Credit cards are dischargeable in bankruptcy and student loans aren’t. In other words, for consumers, the worst-case scenario involving excessive student loan debt is much, much worse than the worst-case scenario with credit cards. As Elizabeth Warren, a Harvard Law School professor and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau, once put it this way: “Student-loan debt collectors have power that would make a mobster envious.”
Student loans have an ability to haunt people for their entire lives — statutes of limitations on collecting credit card debt make it a much less lethal form of financial struggle than student loan problems. Until people recognize the huge potential risks associated with student loan debt, a generation of young people will continue to build the framework for personal financial collapses.