Two years after the nadir of the recession in early 2009, the household credit market is slowly stabilizing. According to the latest data from the Federal Reserve Bank of New York, loan defaults and delinquency rates are falling for car payments, mortgages, and credit cards, with total household debt down over a trillion dollars from its peak. In other words, Americans are finally getting their borrowing and debt payments under control—with one major exception. Student debt continues to rise ominously, with loan delinquency up 30 percent since 2009, and a whopping 400 percent in the last decade.
Bucking the deleveraging trend, total student loan debt has multiplied fivefold in the last ten years, from just $120 billion in 2001 to around $550 billion today—and shows no signs of stopping. Contra the NY Fed, the New York Times estimates that student loan debt has already outpaced credit card debt, and will likely top a trillion dollars this year.
Source: New York Federal Reserve Bank
The graph above illustrates how much better Americans have gotten at meeting their loan obligations on time: delinquency rates are generally back to where they were in late 2006, before the beginning of the financial crisis. But student loan delinquency has continued to rise, surpassing Home Equity Line of Credit (HELOC) and mortgages in growth.
The graph below zooms in on the change in loan delinquencies since 2009, at the trough of the recession, highlighting the seriousness of the problem: while students have less money than ever to pay for college, demand for higher education has only grown. Loans are the only available option for most students, even though they are finding them harder and harder to pay back.
Part of the problem is that, over time, the federal government's commitment to student aid has changed in focus—increasingly relying on loans, rather than grants. Richard Kahlenberg, a Senior Fellow at The Century Foundation and an expert on education policy, is worried:
“Students, particularly those from low-income and working class families, are trapped in a double-bind. On the one hand, over time, federal financial aid has shifted from grants to loans. On the other hand, the institutional funds provided by colleges and universities has shifted from need-based to non-need merit aid. Low-income students are especially hurt by these trends, but in the end, we all lose out.”