Student Loans: A Trillion Dollar Black Hole or Perhaps Credit Card Debt Is Not So Bad

by Brian Riley 0

debt

Rising student loans are a well-intended left over from the Obama administration.  It is still hard to believe that student loan debt dwarfs US credit card debt.  In the Federal Reserve’s last report, credit card debt was $1.0 trillion, versus student loans at $1.5 trillion.  In 2013, credit cards were at $855 billion, and student loans were 1.1 trillion, which illustrates the rapid growth in the student market.

Today’s read comes from the CFPB and The National Law Review where the latter cites a recent report on repayment patterns for student loans.

  • The CFPB’s analysis focuses on borrowers when they first pay off individual student loans.  The report uses data from the Bureau’s Consumer Credit Panel, a nationally-representative sample of approximately five million de-identified credit records maintained by one of the three nationwide credit reporting companies.

Now, I’ve worked in credit for literally 40 years and try to avoid credit like the plague.  I am one of the few people in Florida to have 14 months left on a 25-year mortgage.  I have a handful of credit cards that I use to reap points and pay them off quickly, usually in the first billing cycle.  Moreover, I have three adult kids who owe no student loans.  Call me crazy, but I am risk manager by trade.

  • Most borrowers paying off a student loan do so before the scheduled due date of the final payment, often with a single large final payment.  The median final payment made on a student loan is 55 times larger than the scheduled payment (implying a payoff at least 55 months ahead of schedule), with 94 percent of final payments exceeding the scheduled payment and only 6 percent of loans paid off with the final few payments equal to the scheduled payments.

This report is interesting but very light on the delinquency rates found in student loan.  The NYFed pegs the delinquency rate for student loans in the 10% range more than twice that of credit cards.  While it is interesting to see how doctors, lawyers, and Indian chiefs pay off their debt, it is the non-payers that make the student loan debacle so messy, not to mention the average student that might carry the burden for 20 years.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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