Which type of debt is continually on the rise? Student loan debt.

9 June 2014
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9 June 2014, Comments 1

Which type of debt is continually on the rise? Student loan debt.

 

A recent report from The Federal Reserve Bank of New York revealed that consumer debt is back on the rise, albeit in a healthier form, as approval standards have changed since before the recession.

But while Americans are taking on credit card, auto and mortgage loans at a renewed and more responsible rate, one type of debt continues to accumulate and pose a serious threat to the lending environment going forward: That of student loans.safe_image (1)

According to a recent New York Times report, not only are levels of student loan debt and delinquencies still on the rise, but people continue to borrow for their education without necessarily expressing ample ability to repay. Concerns about the repercussions this trend could have on the housing finance and consumer credit environments have circulated for some time now. With so many young Americans and recent college graduates saddled with massive amounts of debt, their ability to save for a down payment and their chances for qualifying for future loans are both severely compromised.

The Times report contends that the fallout could ultimately be even more widespread and damaging. The extent and nature of student debt is beginning to create problems that could persist for decades – ones that “will impoverish some borrowers and serve as a drain on economic activity.”

The ‘non-completers’ Based on New York Fed data, young people with student debt are now not only less likely to buy a home or purchase a car, they’re also more likely to have poor credit profiles and, increasingly, live with their parents. Those who owe the most, surprisingly, are not necessarily the most likely to default on their student loans, as is often the case with other forms of borrowing. Since 2010, the percentage of delinquent student loans has soared, with 11.5 percent of all outstanding loans behind on their payments by 90 days or more through the fourth quarter of 2013. By comparison, credit card payments – the type of loan historically most subject to default – were just 9.5 percent delinquent through the same period.

“This suggests that borrowers who default are overwhelmingly non-completers,” said Rohit Chopra, student loan ombudsman for the U.S. Consumer Financial Protection Bureau. “These borrowers take on some debt but do not benefit from the wage increase associated with a degree.”

Potential repercussions aside, the most pressing issue seems to be the one that contributed to the recession in the first place. The parties extending loan offerings need incentives for those loans to be repaid – a mentality that does not appear to be pervasive throughout the student loan market.

 

One response on “Which type of debt is continually on the rise? Student loan debt.

  1. Patriciapar says:

    Everything is very open with a really clear description of the issues. It was truly informative. Your website is very useful. Thank you for sharing!

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