In a recent report released by Bloomberg, the student loan debt crisis may get worst despite a booming economy. The main figure that is still a cause of concern is the lack of higher wages for college graduates. Coupled with this is the cumulative growth of student loan debt, which is the only consumer debt segment to have such growth since the Great Recession.
In comparison to auto loan debt that saw a 52 percent increase and mortgage and credit card debt that fell by 1 percent, student loan debt has ballooned by 157 percent. This data was pulled from a Bloomberg Global Data analysis of federal and private loans. However, the Federal Reserve has revealed that it is the second largest consumer debt in the country right now, currently resting at $1.5 trillion, and resting behind mortgages.
The driving force behind this massive growth is the demand for higher education degrees. Many people are seeking degrees, which is, in turn, increases the cost of tuition, leading to greater amounts of debt. With rising interest rates, experts and analysts fear that this next generation that is taking on student loan debt will default on their loans at even higher rates than previous generations.
According to Bloomberg Global Data, “student loan debt currently has the highest 90+ day delinquency rate of all household debt.” The data also found that “more than 1 in 10 borrowers is at least 90 days delinquent, while mortgages and auto loans have a 1.1 percent and 4 percent delinquency rate, respectively.” In comparison to mortgage and auto loans, delinquency rates have actually decreased. However, student loan delinquency remains within a percentage point of their all-time high in 2012.
In a previous article we published, we highlighted how in 2015 there was a movement against for-profit colleges. This was because many for-profit colleges were using predatory practices to get people into their programs. These individuals often took on large amounts of debt for a degree they thought would get them a higher paid job. What they came to find was that their degree didn’t mean anything, and was not able to get a job to pay off their debt effectively.
In fact, at the beginning of 2011, students who were attending for-profit universities and community colleges represented nearly half of the borrowers that were leaving school and started paying back their loans. These individuals ended up representing 70% of the defaults that skyrocketed to an unprecedented 11.73% percent rate.
Fed Chairman Jerome Powell is one who believes that the student loan debt crisis is a problem that can have wider economic implications. In an address to Congress, he stated that delinquencies could negatively impact the economy more broadly.
A key takeaway from the report is the lack of transparency shown by loan servicers. Acting as a warning cry, current borrowers should be wary to trust wholeheartedly their loan servicers. And coupled with this, we have stated in previous articles that those who have yet to borrow should consider what sort of return on investment they will be getting for their desired higher education degree. If you won’t end up with a job that pays well and enables you to pay off your debt, then you should perhaps consider alternate options.
To read the full Bloomberg report, you can follow the link here.