Student loan delinquency hit an all-time high this last quarter, for the first time jumping above credit card, car loans, and any other kind of debt consumers take on.
According to the New York Fed, outstanding student loan debt is currently at $956 billion, “an increase of $42 billion since last quarter.” Of the $42 billion increase of debt this last quarter, $23 billion of it is new debt, while the remaining $19 billion is associated with previously defaulted student loans.
“As a result, the percent of student loan balances 90+ days delinquent increased to 11 percent this quarter,” the New York Federal Reserve Board announced Tuesday.
Previously, the more than 90 day delinquency rate for student loans hovered around 9 percent. This last quarter increase is a sharp increase in student debt, and sheds light on the impending higher education loan bubble.
The 11 percent delinquency rate only accounts for about half of the total delinquent loans — “almost half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle” — implying that the delinquency rate of loans being repaid is roughly double what the Fed reported.
“There is actually no rational reason for a borrower to be delinquent or default on their loans,” Mark Kantrowitz, president of MK Consulting in Cranberry Township, Pa., and operator of the FinAid.org website, told Bloomberg Businessweek.
The government currently holds roughly 85 percent of outstanding student debt and is very forgiving and flexible when it comes to repayment methods. They government offers six options: graduated repayment, extended repayment, income-based repayment, income-contingent repayment, income-sensitive repayment and pay-as-you-earn repayment.
“In other words, the federal government will do just about anything to keep borrowers from giving up and walking away completely,” Businessweek writes.
Part of the problem with getting students to repay debt is that debt is not granted based on ability to pay it back. Instead, the federal student loan system is designed so that students of all backgrounds and income levels may have the opportunity to seek a college education.
“That willful blindness also sets up the government for huge losses,” Peter Coy writes for Businessweek.
President Barack Obama made talks of student loan forgiveness programs while on the campaign trail, though a survey shows that what students want more than loan forgiveness is jobs to repay those loans.
“Sixty-four percent of millennials said what’s more important to them upon graduation is a full time meaningful job, not a lower student loan interest rate,” Generation Opportunity president and former Labor Department official Paul T. Conway told The Daily Caller News Foundation.
Many economists have also attributed the skyrocketing cost of a college degree to the federal government entering the student loan market. When the government offers cheap loans without regard to credit status and ability to repay the loans, as with the housing bubble, prices go up. The loan acts as a subsidy. The Wall Street Journal editorial board noted last year that “education is a rare industry where prices have risen even faster than health-care costs.”
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