Student Loan Bubble Data
The New York Fed has posted a new analysis of student loan debt. Depending on how you read the data, student loan borrowers are either in serious trouble, or are no worse off than consumers with credit card debt or car loans. The bad news is that only 39% of borrowers are paying down their student loan debt. The rest are either in deferment, income-based repayment (which permits paying less than the interest coming due), or default. On the other hand, only 14% of borrowers are contractually delinquent in payments. The NY Fed bloggers have yet another way to slice the delinquency data: of those borrowers who appear to be in repayment, rather than in deferment or income-based repayment, about 27% are delinquent.
As for the total debt, it grew to $870 billion as of September 30, exceeding total credit card debt and exceeding total auto loan debt. The median loan amount is $12,800, which does not seem so unmanageable, but the average is $23,300, meaning a small percentage of borrowers have large amounts of debt. Borrowers like the law students we worry about, with $100,000 of debt or more, are a very small percentage of the student loan population, about 3% of borrowers. On the other hand, many of those with small balances are college drop-outs, who also struggle.
The bubble aspects of student loan debt are suggested by two statistics. First, 40% of all borrowers are under 30, and they hold 33% of all the debt and 25% of past due loans. Given that this group includes every student who has just signed up for her first loan, the future of student loan debt is clearly worrisome.
Second is the 39% figure mentioned earlier; 61% of borrowers are in deferment or income-based repayment paying less than the interest coming due each month.
So, how many student loan borrowers and how many student loan dollars are in income-contingent repayment and in negative amortization, i.e. the student loan equivalent of Option ARM's? (Actually, not quite equivalent, because unlike neg. am. mortgages, neg. am. student loans are paid off by taxpayers after 25 years, not by borrowers.) The NY Fed data cannot distinguish borrowers in income-contingent repayment from those who aren't repaying because they are still in school. After some fruitless googling at the Education Department, CBO and think tank web pages I can't seem to find the answer to this obviously important question. Readers?