Consumer debt falls while student loan debt continues to rise

These days, most reports on consumer spending and debt in the United States contain more good news than bad. Unfortunately, every such report contains one caveat. Although consumer debt and delinquency is down in Georgia and throughout the U.S., there is one form of debt that continues to rise with no end in sight: student loans. And because student loans are not dischargeable in bankruptcy, the number of people who have defaulted on those loans is higher than other forms of debt as well.

For example, the most recent Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit reported that consumer debt fell in the third quarter of 2012, continuing a four-year decline. Further, consumer delinquency rates also continued to fall during the third quarter, with less than 9 percent of outstanding household debt in some stage of delinquency, and an even lower 6.6 percent more than 90 days late.

Compare that with student loan debt and you have a completely different story. Outstanding student loan debt rose by $42 billion from the second quarter to the third. Now, about 11 percent of student loans are more than 90 days delinquent, which gives student debt the dubious honor of having a higher “serious delinquency” rate than credit card debt for the first time in history.

And those numbers may be even worse. The Fed reports says that an estimated half of the delinquent loans are currently in grace period or are deferred, meaning that they are not part of the Fed’s calculations. This means that the student loan delinquency rates may be twice as high as stated above.

These numbers make it painfully obvious that something needs to be done about the student debt situation in the United States. But is the bubble going to have to burst before lawmakers take action? Right now, it seems like that may be the case.

Source: New York Times, “Student Loan Debt Rising, and Often Not Being Paid Back,” Catherine Rampell, Nov. 27, 2012