Is Student Debt really a Concern for Future Economic Growth?
While welcome weeks on college campuses continue throughout the month of August, it is likely most students are carrying some sort of debt to attend university. This debt is mostly subsidized in the same way home loans are subsidized by government agencies. After they leave college with a degree or not, the graduate will have to pay off this loan one way or another. We hope college is a transformative place to challenge students and allows them to become economic producers for society, but the amount of credit outstanding leaves statistical concerns for owners of this debt.
As of Q2 2017, the total student debt outstanding was $1.34 trillion borrowed by 44.2 million people (New York Fed Reserve). This accounts for roughly 11% of total debt outstanding. This is an increase of 7% as a percentage of debt over the past decade (New York Fed Reserve).
While student loans only account for a small proportion of overall debt, delinquency on student loans has increased in the past decade. The current 90+ day delinquency rate on this debt is 11.22 percent (New York Fed Reserve). This is over $150 billion worth of debt that is currently not being collected. This is well above the average rate of 8.8 percent (New York Fed Reserve).
Transitioning away from delinquency, student debt holders continue to delay the purchase of homeownership. At the age of 30, people who have a college degree with no student debt have a homeownership rate of 40 percent (New York Fed Reserve). Homeownership at the age of 30 with student debt is 7 percentage points lower (New York Fed Reserve). Homeownership for 30 years old with greater than 25k in debt is even lower at a rate of 29 percent (New York Fed Reserve). This data is a little skewed due to the fact that student debt holders with more than 25k are likely bucketed in a post-graduate degree or doctorate program (New York Fed Reserve).
The student loan debt burden by individuals will continue, but with stabilized low interest rates and healthy job market, a downturn can be fairly mute. The issue of missing payments on mortgages is likely to be a greater issue than student loans delinquency due to a larger portion of debt floating. For now, it is a dilemma of who should qualify for student loans, but macroeconomic data continues to point in a positive direction.
Compiled by the Camelot Portfolios Investment Committee
Darren Munn, CFA, Chief Investment Officer
Eric Kartman, Research
Drew Steinman, CPA, Trader/Research
Zach Hartenburg, Analyst
Frank Echelmeyer, MBA, CKA®, Advisor Consultant
-for Broker/Dealer and RIA use only-
New York Fed Reserve. Quarterly Report on Household Debt. August 2017. 2017.
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