Student Loans, The Next Big Threat to the U.S. Economy?

January 16, 2014
Bloomberg Businessweek 
student loan news
Balances and delinquency rates on U.S. student loans are soaring to record heights, even as Americans reduce their borrowing overall. Outstanding student debt surpassed $1 trillion in the third quarter of last year; and the share of loans that were delinquent for 90 days or more reached 11.8 percent, according to the Federal Reserve Bank of New York. New York Fed President William Dudley warned in November that the rapid increase in student debt can have negative consequences on the economy. “People can have trouble with the student loan debt burden—unable to buy cars, unable to buy homes—and so it can really delay the cycle,” he said.

Economists at the New York Fed are including student debt in their quarterly reports on national household credit, finding that there has been little data available. The U.S. Department of Education releases default rates on federal student loans annually, but only for borrowers who have failed to make required payments for at least 270 consecutive days during the first two to three years after they graduate or drop out. Default rates also do not include students who get extensions on their loans nor do they include private loans, which make up about 15 percent of the market.

Wilbert van der Klaauw, an economist involved in the New York Fed analysis, says that he and his colleagues are trying to understand how the student loan burden influences living arrangements -- for instance, when graduates cannot afford to leave their family home and form their own household -- as well as marriage and birth rates.

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