Student Loans Is There a Crisis?

Transcription

1 Student Loans Is There a Crisis? Economic Education Advisory Council of the Federal Reserve Bank of Kansas City September 27, 2012 Kelly D. Edmiston Federal Reserve Bank of Kansas City Access to full report at

2 Outstanding Student Loan Debt 1.0 $trillions $trillions $ $ Source: Federal Reserve Bank of New York

3 Outstanding Debt (July, 2012) 1, $billions $914 $billions $ Student Loans Credit Cards Source: Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, August,

4 Growth in Student Loan Lending $120 Billions ($2010) Billions ($2010) $120 $100 $100 Federal $80 $80 $60 $60 $40 $40 $20 Other $20 $ $0 Source: The College Board, Trends in Student Aid 4

5 Outstanding Student Loan Debt Most of increase coming from increased number of borrowers increases in average debt is moderate Largely driven by enrollments Modest moderate increase in share who borrow Fairly substantial increase in average debt in past year however (Equifax) millions 17.8 millions What are the issues? Borrower capacity to repay 4 4 and burden 0 0 Fiscal burden

6 Capacity to Repay / Burden Individual Student Loan Debt Statistics (First Qtr, 2012) Median $13,662; Average $24, % under $5,977 25% over $29,155 > 3% with debt over $100, % over $200,000 Average mortgage debt (all) $52,000 40% of borrowers under 30 (1/3 over 40) Sources: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel; Federal Reserve Bank of New York 6

7 Capacity to Repay / Burden Individual Student Loan Debt Statistics $15,155 $19,544 D.C. $27,351 Source: Authors calculations using data from the Federal Reserve Bank of NY Consumer Credit Panel 7

8 Capacity to Repay / Burden Credit Profile of Student Loan Borrowers Profile of Student Loan Borrower Credit Conditions, First Quarter, 2012 Student Loan Borrowers Non-Student Loan Borrowers First Third First Third Credit Item Average Median Average Median Quartile Quartile Quartile Quartile Student Loan Debt $24,218 $13,662 $5,977 $29,155 n/a n/a n/a n/a Total Debt 82,994 24,576 6, ,027 $66,227 $3,522 $0 $68,440 Consumer Debt /*/ 31,883 17,999 5,500 41,097 13,084 1, ,850 Revolving Debt 6, ,470 7, ,349 Credit Score /*/ Total debt less first mortgage. Source: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel / Equifax 8

9 Student Loan Delinquency (h (share of outstanding loans) 14% 4-month moving average 14% 12% 12% 10% 10.6% NY Fed: 27% delinquency in repayment 8.8% 10% 8% 8% 6% 6% 4% 4% 2% 0% 1.0% 0.2% 0.5% Past Due days days days 120+ days 2% 0% Sources: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel 9

10 State Delinquency Rates (past due) Sources: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel 10

11 Cohort Default Rates 25% Share of cohort ever in default 22.4% 21.4% 25% 20% 17.6% 17.2% 17.8% 20% 15% 15.0% 15% 11.6% 10% 10.7% 10.4%9.6% 10% 9.6% 8.8% 8.8% 10% 5% 6.9% 5.6% 5.9% 6.7% 7.0% 5.4% 5.2% 5.1% 5.2% 4.5% 4.6% 5% 0% Source: U.S. Department of Education 0% 11

12 Capacity to Repay / Burden Issues Driving Delinquency Recession and Recovery Younger hit hard Peak unemployment 17.1 percent (Apr 2010) Underemployment Slower wage and salary growth AP: 50% unemployed/underemployed Noncompletion Better prospects for completers Especially high hfor for-profitfi No credit consideration Poor borrower information i 12

13 Fiscal Impact Accrual-based budgeting NPV (incl disbursements, subsidies, payments) Federal Credit Reform Act (FCRA, 1990) method Federal Government Costs using FCRA FY2011: -$47.3b FY2012: -$34.3b (est.) FY 2013: -$32.2b (proposed) Updates vs. fair-value 13

14 Fiscal Impact Accrual-based budgeting g( (cont) Fair-value estimates CBO: 11 percent of disbursements Implies $13.3b 3b (+$3b consolidation) Indirect Greater income tax revenues; lower costs Interest deductions Outlook Not expected to see much higher default rates Could see continued rapid increases in borrowing Reform options 14

15 Contact Information: Kll Kelly D. DEdmiston Senior Economist Community Development 1 Memorial Drive Kansas City, MO (816) Kelly.edmiston@kc.frb.org September 27,