Student Loan Debt Skyrockets—and So Do Delinquencies

Last week, President Obama

boasted, “We’ve helped more students afford college with
grants, tax credits, and loans, and today, more young people are
graduating than ever.” What he didn’t add is that “we’ve” also
piled a growing load of crippling debt on young college student
that they’re increasingly unable to ear. As Ericka Davis
writes for the Federal Reserve Bank of Dallas, “Over the past
decade, student debt has skyrocketed and delinquency rates have
nearly doubled to levels much higher than for other consumer
lending products.”

Even as Americans have largely taken a good grip on their debt
load and finances in other areas of life, college students take out
loans at an accelerating pace to pay for
ever-more expensive college educations that they hope
will deliver enough income to let them pay off the debt.

That’s a big hope. When I was a college freshman in 1983,
average tuition, fees, room and board at private, nonprofit
colleges added up to
$18,143 in 2013 dollars. This year, that number has risen to
$40,917. Starting pay for recent college graduates has definitely
not kept pace. Lots of
recent college grads are underemployed, many in gigs that don’t
require the degree they have yet to pay for.

In the
Dallas Fed report, Davis wrtes that student loans are
especially risky, as debt goes.:

The unique circumstances of student loan borrowers coupled with
the distinctive characteristics of student loans may lead to
excessive borrowing, more delinquent payments and lower credit
scores. Student loans are often originated when borrowers earn
little income. Many borrowers have only a vague idea of their
future earnings potential and ability to repay. Borrowers can defer
payment of unsubsidized loans while enrolled in college, which
results in an even larger debt burden. And many borrowers do not
understand the structure and repayment options associated with
student loans. Moreover, with the exception of certain programs or
an undue hardship petition or death, student loans are rarely
forgiven.

Unshockingly, while defaults decline for credit card debt,
mortgages and auto loans, they’re on the rise for student loans.
“At 10.9 percent, the second quarter 2014 delinquency rate on
student loans was more than three times that of mortgages and auto
loans, and more than 3 percentage points higher than the rate of
serious delinquencies on credit cards.” Apparently, young grads
with overpriced sheepskins and no decent jobs in the offing have
trouble meeting the tab.

Growing student loan defaults have lingering impacts on
borrowers’ lives. Since 2008, 30 year olds with student have, on
average, seen their credit scores slide relative to 30 year olds
free of such debt. That means add-on financial problems across
their lives, in addition to the load they carry.

The Fed report says “more research” is needed of the growing
debt problem. Hopefully it won’t carry the soaring price tag of
your average college study session.