As most Americans have come to expect, there’s both good news and bad news when it comes to their finances. We have been diligent in paying down our credit card debt in recent months, but we’re falling woefully behind in student loan debt. For the third quarter in a row, according to the Federal Reserve Bank, total consumer debt dropped.
As part of its Quarterly Report on Household Debt and Credit, the numbers tell the tale. Our consumer debt has been falling, as has our delinquency rates. As of the end of the third quarter, Sept. 30, only 8.9 percent of outstanding household debt was in some stage of delinquency, with 6.6 percent at least 90 days late.
While that’s impressive, and really, surprising, the one area that’s still lagging is student loans. It’s been steadily increasing every quarter for a few years. 2012 is the worst on record and totaled more than $956 billion (yes, billion with a “b”) as of September 30th.
That’s a $42 billion increase from the second quarter with half being considered new debt with the rest being debt that’s already been reported.
And now, the Fed estimates 11 percent of student loans are now at least 90 days delinquent. Also new in this report is the rates are officially into or past the “serious delinquency” rate for credit card debt for the first time in history. But how accurate are those numbers?
There was a caveat with the numbers released this week. In a footnote are the words,
…these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment or in grace periods and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.
So why are student loan debts so resistant? It could be that it’s not allowed in bankruptcy proceedings. Another reason why credit card debt and other unsecured debt has been declining could be because more creditors are writing off bad debt.
Those are two logical reasons and when working in tandem, it can highlight both the decline of some debt and the lack of movement in another debt classification.
The report also revealed other third quarter details. Non-real estate household debt jumped by 2.3 percent to $2.7 trillion and it’s being reported this increase is due to the student loans increase.
Meanwhile, auto loans and credit card balances were at $18 billion and $2 billion respectively. Total consumer debt was down by $74 billion for a total of $11.3 trillion. Mortgage debt and home equity lines of credit are down as well.
It should be mentioned mortgage originations increased for a fourth consecutive quarter.
The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position,
said Donghoon Lee, senior economist at the New York Fed.
As consumers feel more comfortable, they may start to make purchases that were previously delayed.
Home equity lines of credit delinquencies are still considered high at 4.9%, foreclosures are down by 242,000 and new mortgages came in at $521 billion.
With college enrollments increasing – partly because of the tough job market – and the costs of attendance, tuition and other fees rising, it’s believed this sector will continue to increase. Discerning the details is difficult because there are so many different loan types that are umbrella-ed under this debt type.
Between private, government and state loans, along with the number of families who tap into home equity to finance their or their children’s education, it becomes difficult to categorize it to any accurate degree.
It’s important to remember, too, that student loan debt has been in the spotlight this year as new trends emerge that are troublesome for economists. The debt is heavy and with more college graduates exiting their education careers and beginning to make their way into their careers, only to discover the complicated job market, there’s a reason it’s so complicated.
Not only that, but like every other sector, new concerns are that a lack of funding from government sources could prove problematic for those wishing to go back to college.
Remember, too, that the Health Care and Education Reconciliation Act, signed into law last year, ended private lending of federally subsidized loans, approved expansion of Pell Grants, and appropriated funds to invest in institutions that serve minority and low-income populations.
The tug of war between student advocates who say more should be done to increase funding for education and those concerned about the economy and specifically, the fiscal cliff, continues.
With even more budget cuts on the state level slated for the new year, this isn’t a quagmire that has a remedy in the short term. Currently, the average outstanding student loan balance per borrower is $23,300.
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