US Student Loan Debt Accumulation Showing No Signs of Slowing

(January 19, 2019) Student loans in the United States represent the second largest type of household debt after home mortgages and were not only impervious to the 2009 recession, but are steadily rising along with total US household debt. As of the third quarter of 2018, student debt outstanding expanded by 2.6 percent, reaching a peak of $1.44 trillion, which is higher than total US auto loans and credit card debt.

• Total student loan debt has more than doubled since 2009 and grown six-fold over the last 15 years. 
• The cumulative value of student loans in default has also increased, jumping almost 90 percent during the last five years to a record $168 billion. 

Such rapid debt growth is traced in part to the nature of the benefits of student loan the payments. US federal student loan benefits include fixed interest rates, income-driven repayment plans, and the possibility to postpone or temporarily reduce payments. Student loans can be postponed, temporarily suspended, or reduced as a result of certain life circumstances, such as returning to school, being unemployed, military service, or economic hardship. In addition, undergraduate students who demonstrate financial need may qualify for subsidized loans.

• As of the fourth quarter of 2018, the 53 million recipients of student loans owed a total of $1.43 trillion, yet only half of these recipients were in active repayment status.
• In addition, $4.9 billion worth of student loans entered into default status during the fourth quarter. Looking back further, after 2012, the amount of seriously delinquent student loans—more than 90 days overdue—soared, hitting 11.5 percent of aggregate student debt in the third quarter of 2018, the highest value among all household debt types.
• The options to postpone or temporarily reduce payments has driven a dramatic extension of repayment periods and consequently the accumulation of outstanding debt. According to the US Department of Education, only 38 percent of borrowers who began their secondary educations during the 1995-1996 academic year had paid off all federal loans without default within 20 years.

Student loans help nearly two in every 10 American students get an education, the benefits of which cannot be quantified. The rapid growth of outstanding debt coupled with persistent difficulties paying it off, however, not only causes people to delay decisions about buying a house, getting married, and having children, but it also affects government budget sustainability, making this a concern for all Americans, debt carrying or not. Over 90 percent of all student debt is ensured by the US federal government, suggesting that the federal budget will suffer from the consequences of unemployment that contributes to default in addition to the large-scale student loan defaults.