New data on student debt from the NY Fed

The Federal Reserve Bank of New York is out with some new data on student debt (“Grading Student Loans”). Two major highlights: beware of using simple averages, and, more strikingly, more than one in four borrowers is behind on payments—more than twice the share of other forms of personal debt.

First, the debt levels. Total student debt is about $870 billion—more than credit card balances ($693 billion) and auto loans ($730 billion). That’s an enormous number, but economists have paid it little attention—surprising, considering the attention paid to household finances. And student debt continues to rise, even though most other forms of personal debt are flat or even down, as consumers engage in the process that Wall Street likes to call “deleveraging.”

About 37 million people owe student loans, or 15% of the population. But the age profile of the debtors, not surprisingly, skews young. Over 40% of people in their 20s are on the hook, and 25% of those in their 30s. But just 7% of those 40 and over have student loan balances. Two-thirds of the debt is owed by people under 40, who are not known for their high incomes.

If you divide debt outstanding by the number of debtors, you get an average of $23,300. But that average is pulled upwards by a minority who are deeply in debt. The median debt is about half that mean, or $12,800. Here’s the New York Fed’s breakdown of the high-balance numbers:

About one-quarter of borrowers owe more than $28,000; about 10 percent of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1 percent, and 0.45 percent of borrowers, or 167,000 people, owe more than $200,000.

Or, in a picture:

How are debtors doing in servicing the debt? On first glance, about 1 in 10 borrowers is behind on payments, which is about the same ballpark as credit cards, mortgages, and auto loans. But that first glance is very misleading because many borrowers—nearly half, in fact—are enjoying deferments until graduation and even grace periods beyond that. Adjusting for those, the New York Fed finds more than 1 in 4—27%—of borrowers at least one payment behind.

That’s an enormous level of distress—and it suggests than many more debtors are really stretching to make payments. And with debt levels rising, the level of distress isn’t likely to subside anytime soon.

As I wrote in LBO a while back (“How much does college cost, and why?”):

It would not be hard at all to make higher education completely free in the USA. It accounts for not quite 2% of GDP. The personal share, about 1% of GDP, is a third of the income of the richest 10,000 households in the U.S., or three months of Pentagon spending. It’s less than four months of what we waste on administrative costs by not having a single-payer health care finance system.

But we can’t do that—it’d be un-American.

6 Comments on “New data on student debt from the NY Fed

  1. This was a most informative article. Thank you for publishing this and making it a knowledge. To be honest we should make school free and just be tough and very involved with students. You know we could probably hire more staff and people that would be focus on student turn out and make this plan a success. i say this because you know some one is thinking this would be a waste of money because “what abou the students who dont take school serious” and what about those who wont go to class because they are depressed they owe money or figure it better to work to pay the next student loan. We are streched. Im the student in the 16.5 braket and let me tell you Sallie Mae is an aweful company who works by doing tricks and scams. And they even emply people over seas instead of creating jobs at home. Republicans or Democrats their is your aim of focus for elections. Lets focus people, focus!

  2. I think it important to emphasize that student debt cannot be discharged by bankruptcy except in very rare circumstances (insanity). This distinguishes it from ordinary credit card debt or mortgages. This distinction ought to be made every time the subject is raised. The rise of the for-profit educational establishment is entirely due to this peculiar aspect of student debt, as well as the fact that the debt is then guaranteed by the federal government, thus making default that impacts the school impossible. This is how culinary academy graduates can have $60,000 in debt for a job whose average wage is less than $40,000. Such people will never get out of their debt and are doomed to perpetual dunning and denial of credit.

  3. It’s also the one type of debt for which Social Security payments can be garnished — not a big issue now, I suppose, but liable to become one.

    Another important question — on which I very much hope to write something substantive at some point — is how much the extension of student loans has contributed to rising college costs. To the extent that it has, a system of universal genuinely public universities — as opposed to public support for higher ed students — could be considerably cheaper even than the numbers here.

  4. Good points, Josh. No doubt administrations figure, hey, we can charge whatever we like – it’s just going on the tab. The right applies a similar analysis to government aid enabling eduflation (hey, did I just coin that? well not exactly, but just 364 hits on Google), but government aid is shrinking and loans are increasing.

  5. Right. And government support that flows to institutions, as opposed to students, will not be eduflationary. (I like it!)

  6. Too bad working class productivity is so much higher than when I went to school and tuition was easily affordable. Too bad real wages have been relatively flat since Nixon closed the gold window.

    Do you think our rulers are sending us a message?

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