Student loans had a higher delinquency rate than credit cards, auto loans and home mortgages over the past three years, the Federal Reserve Bank of New York reported recently.
Outstanding student loans in the country have reached $1.16 trillion, an increase of $77 billion from a year ago. About 11.3 percent were in default – more than 90 days delinquent – in the last quarter of 2014, compared with 11.1 percent in the previous quarter.
By comparison, 3.5 percent of car loans were past due, as were just 3.1 percent of mortgage loans.
“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,” Donghoon Lee, research officer at the Federal Reserve Bank of New York, said in a statement
But even as borrowers struggle to make payments, more continue to jump into the loan pool to help finance their schooling.
Moreover, the age of student-loan borrowers is creeping upward. More than a third are older than 40, according to the New York Fed’s Liberty Street Economics blog.
Outstanding household debt increased to $11.83 trillion, a 1 percent rise over the previous quarter. Home mortgages and student loans, which increased by $39 billion and $31 billion, respectively, are the biggest contributors to the rise in debt.
The student loan delinquency rate – payments missed for fewer than 90 days – may be much bigger than the default rate shown in the report. An earlier report by the New York Fed said the delinquency rate for student loans was 21 percent in 2012.
The findings come amid a push by President Barack Obama to boost funding for higher education by promoting two years of free community college tuition. He’s proposed a Pay as You Earn plan that would cap student loan payments at 10 percent of monthly discretionary income, for all student borrowers.
For Katie Tamola, a recent Boston University graduate with a master’s degree in journalism, “the whole situation is very stressful and intimidating.”
She’s repaying $75,000 in student loans for college and graduate school. That’s after her mother took out $60,000 in parent loans to help pay for her daughter’s education. Tamola will owe monthly payments of nearly $900.
Tamola works part time at a yogurt store and is struggling to find full-time work. With entry-level salaries in journalism averaging around $30,000, she said, her debt won’t give her much financial leeway if she’s successful finding a job in her field.
“I thought about this all the time, actually,” said Tamola. “Sometimes I wish I had a different job that makes more money, but I’m born with the love for writing and I want to do a job that I love. I don’t have any regrets on that, and nobody forced me to take a student loan.”
But she’s “really scared” of what might happen in the future.
During the recent financial crisis, Americans reduced other debts but they continued education financing, according to the New York Fed.
“I’m not that surprised, too much, about the findings,” said Mike Branch, a certificated financial planner at Focus Financial, based in Minneapolis.
He does college-planning workshops for parents of high school students.
“Schools are selling kids the idea of student loans,” Branch said. “They tell those young students, particularly teenagers still at high schools, not to worry too much about the money because they can borrow. But those kids really have no idea what it takes to pay those loans back, and how much money they’ll have to make, and how that’s going to affect their lives after college.”