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Carrying More Debt Than Textbooks As Students Head Back to School

In 2010 headlines about the tipping balance between student loans and credit card debt splashed across major media outlets. As the 2011-2012 school year begins, a record 19.1 million students will attend American colleges and universities. As promissory notes abound in financial aid offices at the nation's 5,000-plus colleges and universities, will student loans be the next credit bubble to burst?

The Good -- and Bad -- News

Student loan delinquency rates, according to the New York Federal Reserve Bank, are up just .1% over last year. That's good when compared to the bad -- 90-day delinquency rates on student loans rose from 10.6 to 11.2 percent between the first and second quarters of 2011.

Twenty to 40 Percent Default Rates for Government Student Loans

In July 2010 the Chronicle of Higher Education reported that since 1995, one in five government-subsidized loans has gone into default. Even worse -- for students at for-profit colleges, the default rate reaches 40 percent.

The takeaway from the Chronicle's investigative piece isn't the default rate itself, but the fact that the federal government systematically underreports the default rate.

And these rates are for government loans. What about private loans?

Private Student Loan Default Rates Rise

The Wall Street Journal reported on August 17, 2001 that Moody's Investors Service Unit research showed a 5.4 percent default rate on private, securitized student loans for the second quarter of 2011.

While the new figure doesn't touch the 7.6 percent default rate seen in 2009, it remains higher than average and, in combination with government loan default rates, may signal a credit bubble for investors.

Joblessness On the Rise for College Graduates

Is joblessness triggering the default rates? Default rates on other forms of consumer debt have remained relatively flat, but student loan delinquencies in the second quarter of 2011 come on the heels of a rise in unemployment among college graduates.

In December 2010, unemployment among college graduates hit 5.1 percent, the highest since 1970. July 2011 unemployment rates for this group, according to the Bureau of Labor Statistics, is at 4.3 percent, a decline in joblessness that may improve the default rate. Default rates lag behind job loss, while a return to on-time payments lag behind new hiring as well.

Disclosure: Melanie Zoltan works for or has worked for the following colleges and universities: Kent State University, Carnegie Mellon University, The Art Institute of Pittsburgh, Nichols College, Bay Path College, Harvard Law School, and Brandeis University.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.