Cambridge Consumer Credit Index: Burden of Student Loans Growing Larger for Consumers

Agawam, MA ? Almost two-thirds of Americans with outstanding student loans (64%) say these student loans prevent them from making other major purchases, such as a house, car or other large ticket items, according to the Cambridge Consumer Credit Index. 30% of those with loans say they are a major burden, up from 26% who felt that way last year. On the other hand, 37% of Americans with student loans say this debt does not pose a burden, up sharply from 25% who said so last year. 21% of American households have outstanding student loans, up by 2 points from a year ago, and nearly back to the 22% level of September 2003.

“The results of the Cambridge Consumer Credit Index wildcard indicate that student loans are becoming a growing burden for about one-third of the Americans who have them because their incomes are not rising fast enough to pay off the loans quickly. Those with rising incomes, now 37% of the public with loans, are not burdened by their student loan payments. As with other wildcard questions, this level of burden shows a widening gulf between the credit haves and have-nots in America,” says Jordan Goodman, spokesperson/financial analyst for the Cambridge Consumer Credit Index.

These findings are the result of monthly nationwide telephone poll of 800+ adults conducted by ICR/International Communications Research in the past week, sponsored by Cambridge Credit Counseling Corporation.

The overall Cambridge Consumer Credit Index rose seven points in September to 65. The Index rose in the past month and coming month question about taking on debt, but remained unchanged in the question about taking on debt in the next six months. The “Reality Gap,” which is the difference between the amount of debt consumers say they will pay off in the next month versus the amount of debt they actually paid off a month later, increased by 13 percentage points from August to 23 percentage points, matching the all time high last reached in May 2005. A month ago, 83% of Americans planned to pay off debt, while a month later only 60% actually did so.

The Cambridge Consumer Credit Index is a forward looking economic indicator gauging consumer spending and debt. It is released on the fifth business day of every month to coincide with the Federal Reserve Board’s G19 release of consumer credit outstanding data.

Chris Viale, President & C.E.O. of Cambridge Credit Counseling Corp. said, “The rising cost of a college education makes a solid financial plan imperative for American families. The average college graduate begins his adult life with $20,000 in student loan debt. The only way to avoid this level of debt is to start saving as early as possible. This has become difficult for many families, whose incomes have not kept up with inflation over the past few years. However, many of us can help ourselves by taking simple steps like sticking to a budget, paying close attention to our spending habits, and educating ourselves on sound financial management. I encourage everyone to visit our financial education website, GoodPayer.com, for budgeting sheets, money saving tips, and information on the proper management of credit and debt. You can also download free copies of our ‘Learn Now or Pay Later’ financial education guides for both adults and young adults. An education lasts forever, debt does not have to.”

In conjunction with the Index, the Cambridge Credit Counseling Corp. is releasing its monthly survey of people who have called in for credit counseling services over the past month. Cambridge representatives ask callers for the primary reason that they found it necessary to get help with their debts now. Of the 381 people who answered, this was the order of their responses:

1. My income has been reduced from a lower salary, less overtime or layoff (32%)

2. I am frustrated with high bank rates and fees (24.4%)

3. I want to improve my ability to achieve future financial goals like buying a house or saving for retirement (17.1%)

4. I got into too much debt by overspending (8.4%)

5. Other (7.6%)

6. My lack of financial education caused me to take on too much debt (4.7%)

7. Large medical expenses forced me to take on huge debts (3.9%)

8. Recently divorced or widowed (1.8%)

For more information on the survey see http://www.cambridgeconsumerindex.com/index.asp?content=client_survey

The Cambridge Consumer Credit Index number is a composite of these three questions:

1. In the past month, have you taken on more debt or paid off debt?

The Index reads 80 on this question, an increase of 14 points from August.

In September, 40% of Americans say they have taken on more debt, with 27% taking on a little and 13% taking on a lot more debt. Conversely, 60% of Americans have paid off debt, with 42% paying off a little and 18% paying off a lot.

2. In the next month, do you anticipate taking on more debt or paying off debt?

The Index reads 40 on this question, up by six points from August.

In September, 20% plan to take on more debt, with 5% planning to take on a lot and 15% planning to take on a little debt. Conversely, 80% plan to pay off debt, with 59% paying off a little and 21% paying off a lot. In August, 17% planned to take on debt and 83% planned to pay off debt.

3. In the next six months, do you expect to take on debt because you are thinking of making a major purchase such as a car, education, appliance, medical procedure, furniture or carpeting?

The Index reads 74, unchanged from August. In September, 37% of Americans plan to take on more debt to make such purchases, with 10% taking on a lot of debt and 28% taking on a little more debt. In contrast, 63% of Americans plan to pay off debt in the next six months, with 46% expecting to pay off a little and 16% expecting to pay off a lot. In August 37% of Americans planned to take on more debt, while 63% planned to pay off debt.

“The results of the Cambridge Consumer Credit Index show a sizeable jump in use of credit in the past month and planned for his coming month. Normally, a big jump in use of credit is seen as a sign of increased consumer confidence, but in this circumstance, I think consumers are anticipating having to use more credit to finance sharply higher energy costs over the next month. The fact that intentions to use credit to make big-ticket purchases over the next six months remained unchanged from August shows that consumers are cautious about making major purchases in this environment,” says Jordan Goodman, spokesperson/financial analyst for the index.

The Index survey is conducted by ICR (International Communications Research) of Media, Pennsylvania over five days in the week before the Index is released. Over 800 households are polled based on random-digit dialing, with all demographic and regional groups in America fairly represented. The Index has a margin of error of plus or minus three and a half percentage points.