Student Loan Delinquency Rate Defies Overall Downward Trend in Household Debt and Credit Report for Fourth Quarter 2014
February 17th, 2015
by Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw - Liberty Street Economics, Federal Reserve Bank of New York
Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2014. The report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Overall, aggregate balances increased by $117 billion, or 1.0 percent, boosted by increases in all credit types except home equity lines of credit.
Delinquency rates improved overall, although the improvement was not across the board, as there were upticks in the delinquency rates for both student loans and auto loans. The chart below shows balance-weighted 90+ day delinquency rates by category of household debt.
The delinquency rates for mortgages, home equity lines of credit (HELOCs), auto loans, and credit cards peaked noticeably in the years following the recession, and have since fallen. In the case of mortgages, the 90+ day delinquency rate is now about 3.1 percent - still considerably higher than the roughly 1 to 1.5 percent rates we saw before the Great Recession. To some degree, this can be explained by the fact that the lengthy foreclosure process in many states is slow to clear out the stale stock of defaulted mortgages; however, a quick look at page 11 in our Quarterly Report reveals that the flow into serious delinquency also remains somewhat high by historical standards.
Credit card delinquencies have been steadily improving, and are now at some of the lowest levels we've seen since the start of our data in 1999.
Auto loan delinquencies have followed a similar trajectory, although we should note that in the most recent quarter, there is an uptick in the 90+ day delinquency rate. This uptick is even more pronounced in our measures of flows into delinquency, and we'll continue monitoring this going forward.
The 90+ day delinquency rate for student loans, however, is different from the others - the rate has increased substantially since our student loan data began in 2003, and has now reached 11.3 percent. Student loans have the highest delinquency rate of any form of household credit, having surpassed credit cards in 2012. There are several reasons for this. Student debt is not dischargeable in bankruptcy like other types of debt; thus, delinquent or defaulted student loans can stagnate on borrowers' credit reports, creating an ever-increasing pool of delinquent debt. Additionally, the measures of new delinquency in our Quarterly Report do reflect high inflows into delinquency.
Yet even these rather grim statistics don't tell the whole story. This week, in a series of three blog posts, we will use our dataset to further investigate student loan balances and delinquencies. In the first post, we will update some descriptive statistics on student loan borrowers - we'll look at who is borrowing, and how much they owe. In the second post, we'll take a long look at how we calculate delinquency rates. We'll use our data to approximate graduation cohorts, and use those cohorts to calculate default rates. In the third blog post, we'll use the established cohorts to examine borrowers' progress in paying down their balances. By the end of the week, readers will have a better understanding of student borrowing in the United States.
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
About the Authors
Meta Brown is a senior economist in the Federal Reserve Bank of New York's Research and Statistics Group.
Andrew Haughwout is a senior vice president in the Bank's Research and Statistics Group.
Donghoon Lee is an officer in the Bank's Research and Statistics Group.
Wilbert van der Klaauw is a senior vice president in the Bank's Research and Statistics Group.