Trends in College Pricing, last accessed February 5, 2015. BIS central bankers’ speeches  3  levels more than double those at public institutions, average net tuition and average loan sizes were considerably higher at for-profit educational institutions. In addition, a much larger proportion of students at for-profits took out subsidized direct loans. [Chart 4] Returning now to the surge in aggregate student debt, an increase in borrowing for college is not by itself a concern, given the high average lifetime payoff to college. In fact, in part the increase in debt reflects an arguably sensible increase in educational investment during a period of weak labor market opportunities. However, the growth in debt has important implications for the overall economy, and there are several worrisome aspects of the increase in student debt. Many of these problems have to do with the high rates of delinquency and default on student debt, and the generally low repayment rates on these loans. Over the past eight years there has been a considerable increase in payment difficulties for student loan borrowers. The most common measure of inability to meet the debt obligation is the proportion of borrowers 90 days or more past due on their payments. We refer to this as the “measured delinquency rate.” As of the fourth quarter of 2014, about 17 percent, or 7.3 million borrowers, were 90 days or more delinquent on their student loan payments; see the left panel of Chart 5.
Federal and State funding of subsidized higher education is heavily reliant on tax revenues and competes with other forms of public spending, and within education budgets competes with pre-school, elementary and secondary education spending. During the recession we saw severe revenue declines at the federal and state levels. Being highly credit constrained, with university subsidies being part of operating budgets which must be funded with current tax revenues, many states cut planned education funding while allowing public universities to increase tuition levels. This in turn contributed to a significant shift of education cost to students and parents. In research conducted at the New York Fed, we found that since 2007 those states with the largest funding cuts also had the highest tuition increases, with an average annual tuition growth rate of 3.4 percent. As shown in Chart 2, this compares to an annual average tuition growth rate of 1.7 percent during the 2007–2010 period for all other states combined. That is, we observe an economically meaningful relationship between public funding and public institution tuition changes since 2007. Higher tuition has forced many students to take on larger student loans. Student debt and tuition increases were not limited to public institutions. Research conducted at the NYFed found that over the same period there was even larger tuition and student loan growth at forprofit institutions. [Chart 3] Despite larger average support through Pell grants, with tuition  1  National Center for Educational Statistics, 2012. “Digest of Education Statistics”. 2  College Board, 2013.