There was a time when most people thought of a college degree as something that delivers opportunities; now, it often delivers overwhelming debt and unemployment.
Currently there are $986 billion in outstanding student loans in the United States, and of that, over ten percent of the loans are more than 90 days delinquent.
According to credit company Equifax, student loan delinquencies outpace most other loans. In the first quarter, auto loans have the lowest 90-day default rate, coming in at less than four percent. Mortgage delinquencies stand at 5.4 percent, and credit cards are slightly higher at 10.2 percent. The worst of the four groups are held by students hoping to make a better life for themselves through education. In the fourth quarter, 11.2 percent of student loans were 90 days delinquent.
The demographic with the highest delinquency rates are 30-39 year-olds. They have the most debt per person, on average, at about $33,000, versus the overall average of $25,000.
Nick Colas, chief market strategist at ConvergEx, told “Big Data Download” that student debt will have a ripple effect on the economy for years to come. He said it will delay household formations, marriages, births, buying and home upgrades.
The price of tuition itself has risen by more than 26 percent since 2005, according to the National Center for Education Statistics, and student “fees” can add a substantial amount to a loan on top of that. ConvergEx points out that $100 fees for things such as registration and technology don’t seem like much but as they add up, the original price tag falls farther and farther below the “real cost.”
Student loans are not dischargeable in bankruptcy and continue to accrue penalties if not paid. In a classic catch-22 scenario, defaulting on a student loan default can ruin a person’s credit – and chances of landing a job. Prospective employers are able review credit reports prior to hiring.
Colas told “Big Data Download” that one of the few happy points with regard to student loan debt is that the US government is on the hook for the majority on the debt rather than financial institutions or bondholders. The government could take write-downs against non-performing loans but the country is not in a situation where the entire financial system could take a major hit.