Student Loan Delinquencies Surge as Outstanding Debt Tops $1.1 Trillion

U.S. student loan balances rose again, reaching a record $1.16 trillion by the end of 2014 while delinquencies rose as young Americans struggle to keep up with their mounting piles of debt.

U.S. student loan balances rose again, reaching a record $1.16 trillion by the end of 2014 while delinquencies rose as young Americans struggle to keep up with their mounting piles of debt.

In the last three months of the year, student loans rose so much that young Americans are having difficulty moving out of their parents’ houses and buying new homes, according to Donghoon Lee, Research Officer at the Federal Reserve Bank of New York. “Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households,” he said, suggesting that young peoples’ ability to propel the national economy is worsening.

In total, student loan debt rose $31 billion in the last three months of 2014 and rose $77 billion for the full year. Student loan debt is the second largest category of debt behind mortgages ($8.17 trillion), far above car loan debt ($955 billion), credit card debt ($700 billion), and home equity lines of credit debt ($510 billion)

Generational Shift

While debts that hit the young are rising, debts typically held by older adults are actually falling. HELOCs, or home equity lines of credit, are typically held by homeowners in their thirties and older, and this category of debt fell by $2 billion in the last three months of 2014, while falling $19 billion for the full 2014.

According to analysts, two trends are driving the fall in HELOCs. First, rising income inequality between generations is providing more liquidity and less need to take on debt for older Americans, who are benefitting from a rise in asset prices such as stocks and bonds. Additionally, discretionary spending among older Americans is falling, as a fear of economic uncertainty is driving more to save their wealth and reduce discretionary spending.

Despite the thriftiness of the increasingly richer older generation, America as a whole is becoming more indebted, and the debt-to-income ratio is increasing most dramatically for young Americans. Total debt rose $326 billion, with student loan debt account for 24% of the total increase.

“Concerning” Trend

According to Lee, the trend of greater student loan debt is combining with rising delinquency rates in a trend that indicates that too much debt saddles many young Americans. “Although we’ve seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning,” Lee said.

The report comes a few weeks after President Barack Obama suggested offering free community college tuition to all Americans, regardless of income bracket or age. However, President Obama has not radically altered legislation regarding student loan debt or tuition rates since 2010. In that year, Obama’s student loan overhaul legislation made it harder to discharge private student loans, while also creating an income-based repayment program to help low-income earners.