Households staggering under student loans

NY Fed debt report highlights concerns about economic impact


American households are carrying their rising debt load lightly, with one big exception: Late payments on student loans are high and rising, as borrowers stagger under nearly $1.2 trillion in obligations, according to new research from the Federal Reserve Bank of New York.

"Although we've seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning," Donghoon Lee, research officer at the New York Fed, said in a written announcement.

The debt load may be blocking people from forming their own households, he added, putting a crimp in an important driver of economic strength.

Payments more than 90 days late climbed to 11.3 percent for student loans in the fourth quarter of 2014, while delinquencies overall declined, according to the New York Fed's fourth-quarter Household Debt and Credit Report.

Auto loan delinquencies ticked up as well in the quarter, from 3.1 percent to 3.5 percent, and the rate of loans going bad sped up, according to the Fed.

However, late payments on auto loans are still near historic lows, while student loan problems continue to climb into uncharted heights, researchers said, having climbed substantially since the New York Fed began tracking them in 2003.

Highlighting the growing concern, Fed researchers said they will examine student loan debt in a series of three reports, starting with Tuesday's. The problem already has the attention of President Obama, who expanded the federal "Pay As You Earn" flexible repayment plan last year. The plan caps payments for eligible federal student loans at 10 percent of income.

The U.S. Consumer Financial Protection Bureau in January called for private lenders to make their student loan repayment plans more flexible as well.

Looking at all forms of household debt, the New York Fed found that consumers boosted their balances in the fourth quarter by 1 percent, or $117 billion, with growth in all loan types except home equity lines of credit.

Credit card debt
Credit card debt grew $17 billion to about $700 billion during the quarter, but problems with repayment eased. The 90-day delinquency rate fell to 7.3 percent from 7.5 percent.

"Credit card delinquencies have been steadily improving, and are now at some of the lowest levels we've seen since the start of our data in 1999," Lee and other researchers said in a paper released today.

The delinquency rates, which are weighted by loan balance, and other debt figures from the report come from a representative sample of Equifax credit reports.

People with credit inquiries in the past six months -- a barometer of loan demand -- rose by 4 million from the previous quarter, to 175 million.

Home mortgages, by far the largest form of household debt, rose $39 billion to $8.17 trillion, while delinquencies edged down to 3.1 percent from 3.2 percent. The rate remains higher than the pre-recession norm of about 1.5 percent, and researchers place part of the blame on the slow-moving foreclosure process in many states, which leaves problem mortgages on the record books for long periods.

Type of debt Quarterly change Annual change Total debt, end of 2014
Mortgage +$39 billion +$121 billion $8.17 trillion
Student loan +$31 billion +$77 billion $1.16 trillion
Auto loan +$21 billion +$92 billion $955 billion
Credit card +$20 billion +$17 billion $700 billion
Home equity line of credit -$2 billion -$19 billion $510 billion
Total debt +$117 billion +$326 billion $11.83 trillion
Source: Federal Reserve Bank of New York, Household Debt and Credit Report for the fourth quarter of 2014
Quarterly change compares Q3 2014 to Q4 2014; annual change compares Q4 2013 to Q4 2014.

See related: Infographic: Millennials swap credit cards for student loans

Published: February 17, 2015

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