Student loan delinquency rate climbs above 20%
A recent study by the Federal Reserve Bank of New York found that nearly 1 in 4 borrowers – mostly young Americans – are struggling to repay their student loans.
The average student loan borrower owes $23,300, according to the report. Faced with a weak job market after college, many Americans under age 40 are having trouble paying back their student loans. The report found that 27% of the borrowers have past due balances and as many as 47% of the borrowers have asked for forbearance or deferrals last year.
The U.S. student loan debt is estimated at $870 billion, which surpasses credit card ($693 billion) and car loan ($730 billion) debt, and the number is expected to rise as tuition fees grow and more Americans attend college in the coming years.
“Student loan debt is not just a concern for the young. Parents and the federal government shoulder a substantial part of the postsecondary education bill,” concluded the report.
To ease the student debt burden, the White House announced the “Pay As You Earn” initiative in October. Starting in 2014, the “Pay As You Earn” would cap monthly student loan repayment at 10% of the borrower’s discretionary income and allow the loan balance to be forgiven after 20 years. The initiative is expected to help more than 1.6 million students.
Moreover, President Barack Obama called on Congress to extend the tuition tax credit during his State of the Union address. Extending the tax credit would “saves millions of middle-class families thousands of dollars, and give more young people the chance to earn their way through college by doubling the number of work-study jobs in the next five years.”
But the President also pointed out that colleges and universities need to do more to hold down costs and contain soaring tuition rates.
“We can’t just keep subsidizing skyrocketing tuition; we’ll run out of money,” said Obama. “So let me put colleges and universities on notice: If you can’t stop tuition from going up, the funding you get from taxpayers will go down. Higher education can’t be a luxury – it is an economic imperative that every family in America should be able to afford.”
Key findings from “Grading Student Loans”:
- Outstanding student loan balance is about $870 billion compared to $693 billion in credit card balance and $730 billion in auto loan balance.
- Americans under the age of 40 holds 66.7% of student loan debt totaling $580 billion.
- Average outstanding student loan balance per borrower is $23,300.
- 47% of student loan borrowers are in forbearance or deferral periods.
- 27% of borrowers have past due balances.
- 21% of student loans are delinquent.
- Federal Reserve Bank of New York: Grading Student Loans (March 5, 2012)
- WhiteHouse.gov: Fact sheet:”Help Americans Manage Student Loan Debt” (Oct. 25, 2011)
- WhatTheFolly.com: State of the Union 2012: Obama on college financial aid and student loans
- Federal Reserve: Chart comparing loan delinquency rates