Student Loan Borrowing and Repayment Trends, 2015 Cleveland Fed 2015 Policy Summit

Transcription

1 Student Loan Borrowing and Repayment Trends, 2015 Cleveland Fed 2015 Policy Summit June 18, 2015 Andrew Haughwout, Research Group The views presented here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York, or the Federal Reserve System.

2 Student loans defy business cycle Billions of Dollars Non - mortgage balances HELOC Auto Loan Student Loan Credit Card Billions of Dollars Source: New York Fed Consumer Credit Panel / Equifax 2

3 Total student loan balances by age group Billions of Dollars 1,200 under % 1,000 12% % % % 9% 14% 33% 32% 42% Source: New York Fed Consumer Credit Panel / Equifax 3

4 Age 60+ Borrowers: 2014Q4 Balances by Origination Age How old were the borrowers when they took out their loans? origination unknown 2% under 45 1% % % % % % 4

5 Distribution of borrowers by 2014Q4 balance 18.5% 7.2% 2.9% 1.0% 0.8% 2.4% 20.8% Balance in 2014Q4: $5k >$5k and $10k >$10k and $25k >$25k and $50k >$50k and $75k >$75k and $100k >$100k and $150k >$150k and $200k >$200k 18.0% 28.5% 43.3 million borrowers Mean balance: $26,700 Median balance: $14,400 Source: FRBNY Consumer Credit Panel/Equifax 5

6 Who is borrowing now? Millions 14 Number of originating borrowers by age* less than Source: FRBNY Consumer Credit Panel/Equifax; * excludes small number of borrowers with missing age 6

7 Increase, then decline in borrowers from lower and middle income areas Millions 14 Number of originating borrowers by ZIP code income* up to 40k 40k-60k 60k-80k 80k+ 7 Source: FRBNY Consumer Credit Panel/Equifax; Internal Revenue Service; * excludes small number of borrowers with missing ZIP code incomes

8 Larger rise in level of lower income borrowers following recession Index, 2004=1 1.5 Active borrowers by ZIP code income up to 40k 40k-60k 60k-80k 80k-100k 8 Source: FRBNY Consumer Credit Panel/Equifax; Internal Revenue Service; * excludes small number of borrowers with missing ZIP code incomes

9 Larger rise in level of lower income borrowers following recession Index, 2004=1 1.5 Active borrowers by ZIP code income 1.4 Number active borrowers rose 40% in 6 years up to 40k 40k-60k 60k-80k 80k-100k 9 Source: FRBNY Consumer Credit Panel/Equifax; Internal Revenue Service; * excludes small number of borrowers with missing ZIP code incomes

10 Larger rise in level of lower income borrowers following recession Index, 2004=1 1.5 Active borrowers by ZIP code income Number active borrowers returned to 2004 levels up to 40k 40k-60k 60k-80k 80k-100k 10 Source: FRBNY Consumer Credit Panel/Equifax; Internal Revenue Service; * excludes small number of borrowers with missing ZIP code incomes

11 Wrapping up, part 1 Student debt continues to increase, especially for older borrowers Increase reflects new borrowers, higher balances and slow repayment There is significant heterogeneity in amounts owed Highest balances are owed by borrowers in their 30s The number of active borrowers peaked in 2010 Significant decline since then Increase and subsequent decline driven by borrowers from relatively lower-income areas 11

12 Student loan default & repayment for internal use only

13 Distribution of payment history Snapshot of Borrowers in 2014:Q4 11% 6% 29% Percent of Borrowers always current, balance decreasing always current, balance increasing current with previous blemish now delinquent now in default 34% Source: New York Fed Consumer Credit Panel / Equifax 13

14 Defaults and default rate Thousands per year 1,400 Annual rate 4.0% 1, % 1, % 2.5% 2.0% % 1.0% % defaulted borrowers rate of default 0.0% Source: FRBNY Consumer Credit Panel/Equifax 14

15 Default rate by school leaving cohort Share ever defaulted by years after leaving school 25% 2009 Cohort 26% 5 years later 2007 Cohort 24% 7 years later 2005 Cohort 25% 9 years later 15% 10% 5% 0% 1 year later 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years (after entering repayment) Source: New York Fed Consumer Credit Panel / Equifax 15

16 5-year cohort default and delinquency rates by ZIP income 60% 2005 school leaving cohort 60% 2007 school leaving cohort 60% 2009 school leaving cohort 50% 50% 50% 40% 40% 40% 30% 30% 30% 10% 10% 10% 0% less than 40k 40k-60k 60k-80k 80k+ 0% less than 40k 40k-60k 60k-80k 80k+ 0% less than 40k 40k-60k 60k-80k 80k+ default 120+ dpd Source: FRBNY Consumer Credit Panel/Equifax 16

17 5-yr Cohort default and delinquency rates by age 2005 school leaving cohort 2007 school leaving cohort 2009 school leaving cohort 60% 60% 60% 50% 50% 50% 40% 40% 40% 30% 30% 30% 10% 10% 10% 0% less than % less than % less than default 120+ dpd Source: FRBNY Consumer Credit Panel/Equifax 17

18 Student loan repayment behavior Student Loan Repayment Status in 2014 current, balance increasing 33% delinquent or in default 17% current, same balance 13% current and paying down 37% Source: New York Fed Consumer Credit Panel / Equifax 18

19 5-year cohort repayment difficulties, by ZIP income 80% 2005 school leaving cohort 80% 2007 school leaving cohort 80% 2009 school leaving cohort 70% 70% 70% 60% 60% 60% 50% 50% 50% 40% 40% 40% 30% 30% 30% 10% 10% 10% 0% less than 40k 40k-60k 60k-80k 80k+ 0% less than 40k 40k-60k 60k-80k 80k+ default 120+ dpd debt increase 0% less than 40k 40k-60k 60k-80k 80k+ Source: FRBNY Consumer Credit Panel/Equifax 19

20 2009 cohort repayment rates by income Proportion of balance remaining by ZIP income 100% 95% 90% 85% 80% 75% 70% 65% 60% 1 year 2 years 3 years 4 years 5 years (years after leaving school) less than 40k 40k-60k 60k-80k 80k+ Source: FRBNY Consumer Credit Panel/Equifax 20

21 Wrapping up These results are further evidence of the important heterogeneity we see in the outcomes of higher education investments financed with student debt Borrowers who left school in the Great Recession had particular difficulty with their student loan repayment, with many defaulting, becoming seriously delinquent, or not being able to reduce their balance Borrowers from lower and middle-income areas as well as borrowers who originated loans in their 30s are also at greater risk of default and delinquency The low overall repayment rate helps explain the steady growth in aggregate student debt, now at nearly 1.2 trillion dollars 21