Why is student debt different from other kinds of debt?
When it comes to consumer debt, Americans are slowly but surely starting to dig themselves out of the hole of the recent downturn. Severely delinquent mortgages, credit card bills, and car loans have all been in decline over the last two years, according to the New York Federal Reserve.
But Americans have had significantly more trouble paying back one particular kind of loan. “Student loan debt continues to grow even as consumers reduce mortgage debt and credit card balances,” Donghoon Lee, senior economist at the New York Fed, said in a statement. “It remains the only form of consumer debt to substantially increase since the peak of household debt in late 2008.”
The overall student debt load has risen to more than $900 billion, in part, because more students are going to school, and the cost of tuition continues to balloon. But it’s also because consumers have more trouble paying off their student loans than other kinds of debt. In the first quarter of 2012, the delinquency rate for student loans actually rose to 8.69 percent — the only kind of consumer debt whose delinquency rate increased. That’s still below the 2010 peak of 9.17 percent. But it’s taken significantly longer for student loan delinquencies rates to come down.
What’s more, the delinquency rate alone doesn’t capture the full picture. The rate above doesn’t include, for instance, the student loans that have entered forbearance, which gives borrowers a temporary reprieve from making payments. Sallie Mae said earlier this year that 4 percent of all its private student loans were in forbearance.
Why are Americans having more trouble paying off student loans, as compared to other kinds of debt? It’s partly because of the types of consumers who tend to have high student debt. They’re younger than those who tend to take out house or car loans, at a time when half of all recent college grads can’t find full-time work. The pool of struggling borrowers also includes college dropouts, who are four times more likely to default on their loans than graduates, having accumulated debt but no degree to improve their employment prospects.