What are the statistics?
You’ve probably already heard many discussions over explosive student debt in America. In fact, you often hear the figure being anywhere from $1.1 to $1.3 trillion. So, why is there a $200 billion disparity? Truth be told, no one really knows the answer – which gives you a warm and fuzzy feeling inside, doesn’t it?
There are actually a few reasons these “ranges” exist.
First, there are delays in “the reporting of student loans by servicers to credit bureaus which could lead to some undercounting of student loan balances” as stated in the report from the Federal Reserve Bank of New York.
Second, private debt isn’t included in that statistic. The Federal Reserve makes an estimate that private student debts rest around $100 billion or about 7.5% of the overall student debt (Federal Reserve Breakdown). Now, we come to the $1.3 trillion. To put that number in perspective, consider that the entire home market for mortgages rests at $8.26 trillion.
The chart below breaks down America’s total household debt and credit.
(Home equity debt balance is debt against the equity in a home. This does not include the mortgage).
If you analyze the Total Debt Balance image properly, you start to see a significant dip in home ownership and mortgage debt beginning in 2008. No surprises there, as the economy was hit with one of the worst recessions in recent history. More alarming, however, is the rapid expansion of student debt. Each year it seems to consume more and more of our overall debt burdens.
Again, I’m sure this isn’t a revelation to anyone who has read or watched the news in the past few years, but the Non-Housing Debt Balance graph to the left displays just how quickly student debt is growing. In fact, it wasn’t until 2009 when student debt took over as the largest burden on household debt and grew last year at 7%.
In fact, when you look at the 10-year Consumer Credit Panel data, you can see exactly what is occurring. There are more students taking out student debt (40%+) while the average student debt a person takes out has increased around 40%. Again, no surprise there.
However, what is really telling is the next few pieces of information. To no one’s surprise, home ownership for those under the age of 30 was extremely high until 2008. Whether a person had student loans or not, generally about 30% of people under the age of 30 were planning to own or already owned a home.
This next graph shows a dramatic drop of about 5% for individuals without student debt and a much steeper drop of 10% for those with student debt. This leads one to wonder why individuals with student debt would initially have a higher rate of home ownership. The answer: it is likely due to those with student debt generally having higher levels of education and, therefore, higher incomes.
As you can see, this relationship has changed a lot over time. And, as the recent data from the Q3 report shows us, it is continuing the trend in which those with student debt struggle to secure homes. While some of the changes may be a result of millennial hesitation to own such an asset given the recent reasons for our last economic downturn, I also ponder if the rapid increase in loan amounts have anything to do with it. Essentially, are the loan amounts now so crippling that they have damaged our ability to own homes at younger ages? Data only tells so much of the story, but anecdotally we seem to confirm this theory through articles, default rates increasing, and the reference to this being the Boomerang Generation.
For me, what really confirms the theory are the statistics behind student debt defaults and delinquencies. As outlined here, student loans passed credit card delinquencies quite some time ago in 2010. They sit around 12%. But, guess what? Those are the loans that are three months past due and don’t include Forbearance of Deferment. Those two categories could push that statistic all the way up to 25% of the outstanding loans being in some sort of trouble.
Why Should I Care?
For parents and current high school students out there, the writing is on the wall. Curb your student’s loans as best you can. You can do this two ways with the end in mind. Know what type of degree you want (by educating yourself on your options *cough cough* our College Solutions Course) and learn how to drastically reduce your costs (College Savings Course).