NY Fed Announces 2014 Was Again the Year of Student Loan Delinquency

…And you thought it was the year of the horse.

The Federal Reserve Bank of New York’s Household Debt and Credit Report gives us worrying news, again:

Percent of Balance 90+ Days Delinquent

If this keeps going I won’t even need to use an arrow to draw attention to the 90+ day delinquency line for student loan debtors. It’s already starting to look like a fish jumping out of the running river.

All household debt grew by $310 billion in 2014, but student loans accounted for only 20 percent of that, unlike last year, which was also the year of student loan delinquency. (Maybe they’ll have to throw out the Chinese zodiac altogether.) The year-over-year rate for student loans fell in 2014 as well, so at least that’s good news. The NY Fed people, though, are becoming … less restrained about student loans.

“[T]the increasing trend in student loan balances and delinquencies is concerning,” said 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.”

But don’t worry: The folks on Liberty Street are on the case. They plan to spend the rest of the week blogging on describing the debtors, explaining how the delinquency rate is calculated, and showing how debtors are (allegedly) paying down their balances. I doubt I’ll have time to comment on such things, but you ought to read it—if student debt is your thing.

For another perspective, data from the Department of Education also say things aren’t looking so hot for the American student loan debtor. As of Q1 2015, the number of guaranteed federal loan debtors who have defaulted on their loans has held at 4.4 million, and the number of total FFEL debtors is falling. The number of direct loan debtors in default has risen to 2.9 million from 2.4 million, about 10 percent of that total (9.1 percent in Q1 2014). Now, only 52 percent of all federal loans are in active repayment. More than one million direct loan debtors signed on to an income-sensitive repayment plan since last year. The number of people on PAYE nearly quandrupled. (It’s less than half a million, so that’s just big numbers divided by little ones.)

In short, people are starting to use IBR and its pals more, but they’re also defaulting.

Meanwhile, hours before the NY Fed worried that student loan delinquencies were on the rise, I read a Salon article suggesting that IBR isn’t very effective because it will forgive large student debt balances that are owed not by poor people but by those from affluent families, specifically law students. No relevant citation is given as to how we know that affluent law students will be IBR’s chief beneficiaries, but I’m sure all those poor people who attend for-profit law schools and graduate into chronic underemployment would beg to differ. It’s also odd that the article dismisses IBR on the logic that affluent families can bear it. If those debtors are so well off, why are they on IBR? Why should affluence matter when law school debtors can’t afford to pay their debts?

Nevertheless, isn’t it interesting that liberals and conservatives see IBR as a “debt-forgiveness” program? For conservatives it’s wasteful spending; for liberals its welfare for the wealthy. Sadly, these opinions have less to do with IBR itself and more to do with the Grad PLUS Loan Program. If people couldn’t borrow huge sums to begin with, everyone would see IBR in a better light.

The Salon article also apparently cleaves to the Elizabeth Warren assertion that the government is profiting on federal loans, even though that doesn’t make sense. If IBR cancels big loans while millions of people who aren’t on IBR are defaulting, then when, exactly, is the government going to be repaid?

Naturally, I don’t foresee IBR as a long-term success for the government; I agree with the CBO that losing $39 billion over a decade is probably not to the program’s credit. But it sounds to me like the 500,000 debtors who defaulted on their direct loans last year would benefit from IBR, and they’re probably not law school lucky duckies.

5 comments

  1. Congress could use its regulatory and conditional spending power to drive down tuition everywhere, tomorrow.

    Congress has unlimited power over price.

    They don’t give a damn about the tuition inflation they created or how few people can avoid it – obviously “loan” programs exist FOR SCHOOLS.

    Congress deserves 1.3 trillion in “losses” on the program – but since they lent money previously collected in taxes…MEH.

    1. I stated these problems would effect the economy back in 2008, when the government saw fit to bailout the bankers and the wealthy, while throwing everyone else under the bus. Obviously young people graduating with debt, poor wages, and little to no job security will struggle mightily to form households, buy houses and other consumer goods.

      The proper choice was either to bail everyone out at that moment, or bail out nobody and just let the system reset. Bankruptcy is just as good an option for over-leveraged student debtors as it would have been the banks and what happened to most of the unconnected in the bloodbath.

      Now, 7 years later, the solution seems to be the import immigrants and pretend only now that these problems came out of nowhere. Subprime student loans are as bad or worse as subprime mortgages, only an imbecile or a profiting party could have missed this coming. And the latter is only willfully ignorant.

      Really, it should have never gotten to this, and the parties that let this happen should be held accountable.

      But of course nothing will happen.

    2. “obviously “loan” programs exist FOR SCHOOLS”

      Exactly.

      And the same dynamic applies for 80% of government “beneficiary” programs…look for the obscured actual *recipient* of *cash* (not alleged “services”) and you will find the rip-off artists actually benefiting…and paying the kickbacks to the politicos who make the whole scam/sham work.

      Obamacare/Medicaid/Medicare – Who really benefits more – doctors/pharma or patients?

      Military industrial complex – Who really benefits more – defense contractors or general US population?

      Bridges to nowhere – for no one – Who really benefits more – contractors or non-existent bridge travelers?

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