Student loan bubble collapsing as delinquency rate reaches 11.7%

The student loan bubble continues to collapse as the Q4 Quarterly Report on Household Debt and Credit Report from the Federal Reserve Bank of New York shows that the 90-plus day delinquency rate on student loans now stands at 11.7 percent. Student loan debt is now at $970 billion and higher than credit card debt, automobile loans and other forms of non-mortgage debt.

In the fourth quarter of last year, the student loan delinquency rate officially surpassed all other forms of debt. The 90-plus day delinquency rate for credit cards was 10.6 percent, mortgages were 5.6 percent, home equity line of credit was 3.5 percent and auto loans were 4.2 percent.

Since 2004, student loan debt has risen from $260 billion and it is inching towards the $1 trillion mark. In the same time period, credit card debt has decreased by $10 billion from $690 billion to $680 billion and auto loan debt is up from $720 billion to $780 billion.

Total outstanding consumer debt increased in the fourth quarter by $31 billion, or 0.3 percent, to $11.34 trillion, which is actually down from $12.64 trillion in the third quarter of 2008. Meanwhile, non-housing debt reached $2.75 trillion in the last quarter, up 1.4 percent due to the increase in debt in all non-housing components.

What should be noteworthy is that student loan debt is the only form of non-mortgage debt to rise since the Great Recession began in the height of the economic collapse in 2007 and 2008. Everything else has slowly declined.

“The data provides early evidence that consumers may be reaching the end of the four year deleveraging cycle, though we’ll need to see if this is sustained in upcoming quarters,” said Andrew Haughwout, vice president and economist at the New York Fed, in a press release. “At the same time, we observed mixed developments, mortgage originations increased and fewer accounts entered the foreclosure pipeline but delinquency rates remain considerably higher than pre-crisis levels.”

Roughly two-thirds of all student loan debt is held by those under the age of 40: one-third held by students in their 20s and another one-third held by borrowers in their 30s. Although older individuals maintain a level of student loan debt, their portion of the total student loan bubble is smaller.

The delinquency rate is much higher among the younger generation. The report found that 35 percent of people under the age of 30 and 33 percent of those between 30 and 49 didn’t or weren’t able to pay their loan payments.

“Student loan debt is the only kind of household debt that continued to rise during the Great Recession and has now the second-largest balance after mortgage debt,” wrote Donghoon Lee, an economist at the New York Fed, “With delinquent student debt, mortgage origination is very difficult. The mortgage origination gap across the size of student debt has declined between 2005 and 2012.”

With a tough economy, a growing number of post-secondary students and graduates may find it rather difficult to find a job. The youth unemployment rate in the United States for young people under 25 was 16 percent, while elsewhere around the developed world the jobless number is anywhere between 21 percent to 50 percent.

Economic Collapse News also reported in January that more than 5,000 PhDs are working as janitors. A large numer of young Americans with Bachelor’s, Master’s and PhDs are working in such jobs as telemarketing, parking lot attendants, waiters, customer service representatives and bartenders.

Despite the bleak economic numbers, a survey conducted late last year by State Street Global Advisors and the Boston Research Group found that 82 percent of those under 25 believe they were on track to have saved enough for retirement. This figure is a lot higher than their older counterparts.

However, a different study by LIMRA found that 56 percent of Americans between 18 and 34 were not saving at all for retirement. Overall, one in two Americans are not saving for their retirement at all.

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