Student Loan Delinquencies Continue to Climb Across the U.S.
Inside Subprime: Nov 1, 2018
By Ben Moore
Since the Great Recession, federal student loans have become the only consumer debt group to see continuous cumulative growth year after year. As the costs of college tuition have risen, the country has seen an increase in consumer borrowing and the detrimental result of a growing default crisis.
Over the past eleven years, student loans have seen a cumulative growth of 150 percent. In comparison to auto loan debt, which grew by 52 percent, or mortgage and credit card debts, which fell by 1 percent, the increase is staggering. Student loan debt has become the second largest consumer debt segment in the United States, totaling more than $1.5 trillion, a number that continues to climb. Interest on undergraduate loans increased to 5 percent this year, making it the highest rate increase since 2009. According to the U.S. Department of Education, interest on graduate loans jumped to 6.6 percent. Students are also spending more time working through college than studying, with about 85% of current, full-time students working paid jobs. Many students even turn to payday loans to offset the costs of their education.
The growth in student loan debt is now causing concern as the next generation of graduates could see a huge increase in student loan defaults. Out of all household debt, the student loan segment has the highest 90+ day delinquency rate, with more than 1 in 10 student loan borrowers at least 90 days delinquent on their monthly payments. Analysts attribute the high delinquency rate to “social and institutional factors” as opposed to the average debt levels graduates possess. John Hupalo, founder and CEO of Invite Education, an education financial planning company, recognizes that “students aren’t only facing increasing costs of college tuition” but are “facing increasing costs of borrowing to afford that degree”.
Student loan delinquencies began to rise after the Great Recession of 2008, when for-profit colleges advertised their degrees as a path to higher earning potential. Many students found these degrees useless, making it difficult to pay back student loan debt. Surprisingly, those who are most risk of delinquency are borrowers who have incurred small amounts of debt.
The increase in delinquencies and defaults on student loans hurts more than just students and graduates. There is also a residual effect on the economy. Student debt has delayed the formation of households across the country and led to a decline in home-ownership. Over 16 percent of young workers between the ages of 23 to 35 lived with their parents last year, a jump of 4 percent when compared to ten years ago. Ira Jersey, the chief U.S. interest rate strategist for Bloomberg Intelligence, believes that the weight of student loan debt is “crimping demand” for goods and services. “As people live with their parents or cohabit with a non-partner, millions of houses and apartments aren’t being purchased. Neither is WiFi or that extra sofa. We think this is having a significant impact on the economy.”