The student loan bubble is a unique debt situation that spans multiple generations, with the younger doing its best to remain independent, and the older finding itself impotent to help even if it wanted. This requires students to reexamine their consumption patterns, which may have included using a credit card for discretionary items. While this can be seen as a good sign, more troubling is the notion of using short-term debt, including credit cards, in a futile effort to pay for the longer term.

The practice of leveraging credit cards against student debt is a recipe for disaster, because it isn’t the interest rate of credit cards that makes this behavior attractive, it is the debt repayment terms that make the more expensive option attractive. Students are unable to default on their educational loan debt, but they may have more options for dealing with poorly managed credit card debt.

Excerpt from: http://online.wsj.com/article/SB122756709839854439…

Recent graduates traditionally live on a shoestring, but they were often protected by a financial safety net: their parents. Now, as 401(k) balances erode and home values plunge, many families are coping with other financial problems and are less able to help the children.

Mandy Kakavas graduated in 2007 with $25,000 in student loans and $3,000 in credit card debt. Her mother raided her 401(k) to help her daughter pay for a degree in mass communications from the University of California, Berkeley, and can no longer help her financially.

“I look at the headlines about the bad economy, and I feel like I’ve already been there for a while,” she says.

Although Ms. Kakavas has cut corners on dining out and taken a second job to earn extra cash, she says she often uses her credit cards to pay her student-loan bills. In January, a new batch of student loans that were deferred will land.

“It’s going to catch up to me,” she says. “It’s hard to see financially where you’re going to be 20 years from now when you don’t know how you’re going to make payments next month.”

Some are taking out loans to cover the loans. Lindsay Fletcher of Wilmington, N.C., has $50,000 in student loans. To make ends meet for the next couple of months, she has taken out a $2,500 personal loan at a 13.9% interest rate to help pay off her credit cards and student loans, which come out of forbearance — deferment due to financial hardship — in November.

“There’s been a lot of tearful calls to Mom,” Ms. Fletcher says. “And I know that if she could help me, she would. But I don’t want her to have to. That’s why I went to college.” Unlike mortgages and credit cards, student loans are not forgiven in bankruptcy proceedings.