New York Fed Reports Auto and Student Loans on the Rise
November 18, 2013

Today’s post is good news / bad news about the economy. The good news is that consumer spending is on the rise, which is a positive sign for our economic growth. Part of the increase in consumer spending is new auto loans which are a further boon to the economy when the auto market had been stagnating. And now for the bad news… The bulk of the increase in consumer spending is from student loans!

Overall, household debt increased $127 billion. Of this, $56 billion was attributed to mortgages and $31 billion to auto loans and a whopping $33 billion to student loans. A comparatively meager amount ($4 billion) is attributed to credit card spending. Donghoon Lee, senior researcher at the New York Fed said, “This quarter, we observed an increase of household balances across essentially all types of debt.”

Also on the good news / bad news front are delinquency statistics for each of the categories of debt. Balances that are 90 plus days late decreased in every category except two. HELOC (home equity lines of credit) delinquency increased by a half-percent from 3% up to 3.5% and student loans by a full percent from 10.9% up to 11.8%.

With balances increasing as well as delinquencies in the student loan category, this is a red flag that the student loan crisis is not abating and continues to grow. What’s also disturbing about the rising student loan balances is the lack of recourse for debtors that may not be able to shoulder their debt loads. Rising delinquency in this category indicates this is an issue, but what’s a cash-strapped debtor to do?

Bankruptcy is an available option for every other category of consumer debt. You may have to relinquish your vehicle or home in a bankruptcy, but at least you can unload the financial burden. Credit cards and HELOCs can be similarly discharged in bankruptcy. But to get bankruptcy relief for student loans, you have to meet a much higher standard and pay additional fees for an additional filing called an adversary proceeding.

These numbers have us asking – where does it end? How much more student loan debt can our economy support before the bubble bursts? And if (or when) the student loan crisis hits the point of implosion, what will the fallout be? And on a personal level, what does this data mean to an individual borrower? How are they dealing with delinquencies?

The Department of Education is required to send out information on Income Based Repayment options to eligible borrowers this month. Let’s keep fingers crossed that this initiative succeeds in getting in-distress borrowers enrolled in more affordable repayment plans to help them get back on track and deal with the growing delinquency in student loans!

If you are dealing with student loan debt, no matter if you’re current, struggling or delinquent, you can use our student loan tool to help get back on track. Sign up here for free. Also check out our blog for student loan repayment tips and our Student Loan Help Center for How To guides to sign up for IBR or forbearance to get relief!