At the end of last year outstanding U.S. student loan debt reached a new record of $1.465 trillion. This is impacting one particular set of borrowers and their ability to pay back their college loans which is raising fiscal risks.
More About Doubling College Loans
“Over 90% of student loans are guaranteed by the U.S. Department of Education, meaning that if a recession causes a rise in youth unemployment and triggers mass defaults, this contingent liability could prove burdensome for the U.S. government budget,” says Paul Della Guardia, an economist at the Institute of International Finance.
Since June 2009 when the recession ended, the $675 billion in college loans has more than doubled.
Students who took out college loans in 2012 have defaulted at a faster rate than any other loan cohort since the financial crisis.
College loans issued six years ago have the highest cumulative loss percentage compared to any other year since the financial crisis took place. Which means borrowers who took out a student loan in 2012 have had a much more difficult time making their monthly payments compared to students who received loans shortly before or after.
The Reason for It
Most people who took out these college loans in 2012 are now 24-33 years old, and trying to establish their careers. When these borrowers entered the labour force, unemployment rates were twice as high and finding a career in their field was very difficult for most. It took almost three times longer to find a position in 2012 than it does today meaning their ability to pay back their loans was impeded by low incomes.
What is also adding to concerns about the size of outstanding student debt in the US, is interest rates. Rates for a direct student loan between July 1, 2018 and July 2019 is more than 100 basis points higher than those issued in 2012.
Over 2.7 million borrowers owe in excess of $100,000. From that group about 700,000 owe $200,000 or more, according the U.S. Department of Education. This means many college loan borrowers face significant debt burdens.
In the third quarter of 2018, student borrowers in the 25-34 age group owed $489 billion, only slightly less than $530 billion balance for 35 to 49-year-olds.
College Loans into the Golden Years
And it doesn’t stop there, many Americans are taking their college loans well into the age of retirement. At the end of September 2018, 1.8 million borrowers age 62 and older owed $62.5 billion in federal student loan debt. And in on year, the aggregate amount owed by borrowers over the age of 50 increased by 11.6% ($28.8 billion) with those aged 50-61 age group owing $213.6 billion.
For more information on student loan debt, click here.