Student Loan Delinquencies Rose in Q4 of 2014
Posted By Abby Perkins on March 20, 2015 at 11:38 am
According to a recent press release by the New York Federal Reserve, there was a significant rise in the number of 90 day delinquencies on student loans during the 4th quarter of 2014. And while college degrees continue to be a strong investment, with graduates earning approximately 80% more than those without degrees, the cost of earning those degrees has risen. The amount borrowed through the student loan system has increased from approximately $380 billion in 2004 to more than $1.2 trillion in 2014.
Why has student borrowing increased so exponentially? More students are attending college and receiving loans – and many are staying in school longer and earning post-graduate degrees. The cost of tuition and related educational expenses has risen faster than almost any other expense. And for many families, applying for student loans often seems to make more sense than paying for college outright (or considering less expensive schools).
However, all this borrowing is catching up to us: in 2012, student loan delinquencies surpassed credit card delinquencies, and they continue to rise.
The reasons for high delinquency rates
Student loan debt has now surpassed all other types of household credit, with the exception of home mortgages. The typical student has borrowed approximately $27,000, a 74% increase from 2004. And repayment of this high debt can be challenging, especially for new graduates just entering the job market. Several factors contribute to loan delinquency, default, or deferral, including lack of degree completion, low income, unemployment or underemployment, high debt balances, and more.
Many graduates want to meet their student loan repayment obligations, but are unable to obtain employment in their respective fields or earn less than they expect due to economic conditions. And although recent reports show that employment is on the rise, new graduates still struggle.
The impact of high student debt
Graduates enter the workforce carrying a significant amount of debt. And that debt limits their ability make other major purchases, such as automobiles and homes. “Although we’ve seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning,” said Donghoon Lee, a researcher at the Federal Reserve Bank of New York, in a recent press release issued by the organization. “Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households.”
Student loans cannot be discharged through bankruptcy proceedings, and many of the deferral processes available to students can actually increase the total amount of their debt. As balances grow, graduates seek longer payment options, which increase interest on the loans as well as the amount they need to repay.
The effects of outsize student debt include decrease in home ownership among those in their late 20s and early 30s, as well as a larger percentage of graduates living with their parents. The high rate of student loan defaults also has a negative impact on lenders, which includes American taxpayers.
A college education continues to be a valuable resource to those seeking employment, and student loans are often necessary to fund that education. However, students who attend not-for-profit institutions, complete their degree, and borrow the least amount necessary to reach this goal have the best chance of successfully repaying their student loans – and avoiding delinquency or default.