Student loan debt and delinquency rates rising as students continue to cover increasing higher education costs

Earning a college degree has long been touted as a prerequisite for getting a good job with the wages needed to support a middle class lifestyle, or better. However, as tuition rates have continued to rise across the country, so too has the burden of student loan debt.

Outstanding student loan debt increased by $20 billion from the second quarter of 2019 to a total of $1.5 trillion in the third quarter, according to the New York Federal Reserve Bank’s most recent quarterly report on household credit and debt. This amount — second only to mortgages at $9.4 trillion — accounted for nearly 11 percent of total household debt in 2019, increasing from roughly 4 percent in 2005. The most pronounced rise (37.8 percent) comes from people aged 18 to 29 — the age group for most college students — swelling from approximately 15 percent in 2005.  Not only has the total value of student loan debt increased, but so has its delinquency rates.

The total share of student loan debt that is seriously delinquent — defined as accounts that are 90 or more days late on payments — ticked up slightly to 10.9 percent, remaining the highest of any household debt category in serious delinquency by a margin of 2.6 percentage points.

The increasing levels of student debt do not appear to arise from an increase in the student population. As recently covered by SSTI, new Census Bureau data shows that total enrollment in two- and four-year colleges declined by approximately 1.5 million students from 2011 to 2018, while graduate enrollment increased by just 300,000 over the same period. The number of students who have taken out loans to finance their own education has risen sharply — increasing from 19 million borrowers in 2003 to 43 million in 2019. A report from the Federal Reserve Board of Governors indicates that the current share of U.S. adults who have attended college and took on debt to finance their education now stands at 43 percent. However, students under 30 report having taken on student loans at a significantly higher rate than those over 30. For individuals aged 18 to 29 whose highest completed degree is a bachelor’s degree, 60 percent reported acquiring debt for their own education compared to 48 percent of individuals aged 45 to 59 with bachelor’s degrees.

In addition to a greater percentage of students are taking out loans, the average amount they borrow has also risen — increasing by more than 151 percent from an average of $13,300 per borrower in 2003 to $33,500 in 2019. The share of borrowers with balances above $25,000 increased from 30.4 percent in 2012 to 36.8 percent in 2018 with the greatest bracket increase coming from those who owe between $50,000 and $100,000 (2.8 percent).

The need for students to take on greater levels of debt seems to originate from the disparity between the increasing costs at colleges and universities and how universities are covering those cost burdens. Recent research from the State Higher Education Executive Officers Association (SHEEO) shows that tuition revenue per Full Time Equivalent (FTE) has continuously increased since the Great Recession while state appropriations used for university funding — excluding funds for used for student aid but including ARRA funds — initially decreased after the recession, but began to climb back in 2012. As a share of total university funding, tuition jumped from 37.7 percent in 2009 to 47.7 percent by 2013. Tuition’s share has dropped only slightly to 46.6 percent by 2018.

The problem has been exacerbated as the federal share of total grant aid and access to low-interest federal direct loans continues to decrease. The federal share of total grant aid fell from its peak of 44 percent in 2010 to a post-Great Recession low of 30 percent by 2019 — accounting for a reduction of more than $6 billion — while federal loans experienced a 10-year decrease of 6 percentage points — equating to a reduction of roughly $16 billion. Simultaneously, private student loan balances — carrying average interest rates that are double that of federal student loans — increased by 10.9 percent from the third quarter of 2012 to the third quarter of 2019, equating to a rise of approximately $6.43 billion.