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.