Despite recent headlines cheering positive trends in the economy, there is still much to be concerned about, according to FICO's new quarterly survey of bank risk professionals.
More than two-thirds of risk managers are seriously concerned about the debt loads held by students in the country. 67% of respondents believe delinquencies of student loans will rise, up a considerable 19% from the previous survey.
"They are worried about the amount of student loans that are out there and the ability of those students to repay them," says Mark Greene, CEO of FICO, which provides credit scores used by both consumers and creditors and is widely considered the industry standard.
With tuition prices on the rise each and every year, it is no surprise that the total amount borrowed is also on the upswing. The student who graduated in the class of 2009 had an average of $24,000 in student loans. But that's just the average. Some students are accountable for sums totaling $100,000. (See: The Economic Agony of Today's Twenty-Somethings)
The Federal Reserve reported last year that student debt has actually surpassed credit card debt and predicts the total amount owed has topped $1 trillion.
Greene's advice to students is: "Be careful what you borrow."
"Clearly education has a great return on investment so there is no suggestion you should avoid taking out loans, but be careful what you are getting into," he says. "Manage your student loans as carefully as you would your mortgage, your credit card or something else."
Other problem areas listed in the survey include credit card debt and mortgage debt.
Credit card debt increased 8.5% to $5.6 billion in November from October, the biggest gain since March 2008. 45% of risk managers surveyed expect credit card delinquencies to rise while 21% expect a decline. And 54% of respondents believe credit card balances will rise. Those figures are more pessimistic than the previous quarter.
As for mortgage debt, 47% of risk managers predict mortgage delinquencies will rise while 13% expect to see a decrease.
"If you are looking for risk managers to declare that we've turned the corner, they are not declaring that yet," says Greene.
Do you think the economy is improving or still has a long way to go?
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- Mark Greene