Student loans have received plenty of attention in recent months, and for a good reason. The aggregate amount of student debt in the U.S. has now surpassed both the credit card and auto loan totals and keeps growing, even as the other debt categories are still shrinking. Moreover, it turns out that college debt is a problem for borrowers of all ages, including for consumers in their sixties.
As we’ve never covered the student debt issue on this blog in much detail before, I thought that we should start by giving you the straight facts. So here they are.
Student Loan Facts
According to the latest available data from the Federal Reserve Bank of New York (FRBNY), the total outstanding student loan balance in the U.S. was $870 billion in the third quarter of 2011, up 2.1 percent, or 18 billion, from the previous quarter. That exceeds the total for credit card balances ($693 billion) and the one for auto loan balances ($730 billion). With the exception of student loans, all types of consumer debt remained flat in Q3 2011. Of the 241 million Americans with a credit report (the FRBNY uses data from Equifax), 15.4 percent had an outstanding student loan on their file.
Two-thirds of student loan borrowers were Americans under 40 years old. Here is the distribution:
The under-forty also owed two-thirds of the total outstanding balance ($580 billion of the total of $870 billion). Here is the distribution:
The average student loan balance is $23,300 per borrower. However, the median balance is only $12,800, which means that a small number of borrowers owe much larger balances. In fact, about ten percent of all borrowers owe more than $54,000 and a quarter of borrowers owe more than $28,000. Here is the distribution:
A very high ratio of student loan borrowers — 14.4 percent — had at least one past due student loan account in Q3 2011. In aggregate, $85 billion, or 9.8 percent of the total, were delinquent. By contrast, credit card delinquencies now stand at 2.86 percent, an all-time low. Here is how past due student loan balances were distributed among age groups:
How Did We Get Here?
The very fast rate of growth of student debt is a recent phenomenon. In fact, until 2004, student loan balances grew in step with the rest of the household debt. Here is the chart going back to 1999:
The rise of college costs, on the other hand, began to outpace the growth of the median family income much earlier than that. More alarmingly, the gap between the two has been growing bigger at an accelerating rate, as you can see in the chart below:
The last two graphs seem to indicate rather strongly that Americans had not much difficulty coping with the rising cost of college tuition and fees up until 2004, but not after that. And looking at the rate of growth of college cost post-2004, we can easily understand why.
Even the slightest glance at the numbers reveals that the current rate of growth of college costs is clearly unsustainable. Yet, that rate is still accelerating, even as the growth rate of the median household income has fallen in the aftermath of the financial crisis of 2008. Even if college costs stopped growing today, which will not happen, the already-high student loan delinquency rate is likely to keep rising for some time, damaging borrowers’ credit scores in the process.
The Obama Administration tried to “increase college affordability” by limiting the monthly student loan payments of more than one and a half million current student loan borrowers to 10 percent of their discretionary income (this program will not start until 2014). Additionally, the plan will forgive the remaining debt balance after 20 years of payments. However, these measures are not dealing with the core issue — the skyrocketing college cost — but are designed to alleviate the symptoms. That’s not going to get it done.
Image credit: Wvco.com.