Student Debt and Delinquencies: Have They Reached Alarming Levels?

Rising delinquencies

There has been a marked rise in serious delinquencies on student loans over the years. Serious delinquency means a loan is more than 90 days past due. As of 1Q16, 11% of total student loans were more than 90 days past due. This figure stood at 9% five years ago.

Even among the new balances of debt, delinquencies in the student loan category are rising faster than any other category of consumer loans, as you can see the graph below.

Student Debt and Delinquencies: Have They Reached Alarming Levels?
Are rising student delinquencies hinting at a systemic risk?

The rise in the number of student loans may be benefiting the financial sector (IYF). But the corresponding rise in delinquencies is an area of growing concern for the following:

  • individuals who take these loans
  • the financial sector (XLF) (VFH) institutions (KBE) (KRE) that give out these loans
  • the policymakers who need to safeguard the economy from any systemic risk

A rise in defaults on student loans could leave the country’s economic base vulnerable. The big question is this: Will America’s youth, which is entering a lackluster US labor market where wage growth still remains a concern, be able to repay its debt?

About 70% of the US economy is run by consumer spending. When people are no longer able to spend on homes, cars, or other frills of a middle-class life, it spells caution.