The crush of student loan debt isn’t easing and still tops $1 trillion, according to a closely-watched report by the Federal Reserve Bank of New York released Tuesday. The report found that student debt remains the second largest source of household debt behind mortgages.
The results are sure to add to the alarm about how the student loan burden could hurt housing recovery. A senior official at the Consumer Financial Protection Bureau recently warned that rising student loan debt “may prove to be one of the more painful aftershocks of the Great Recession.”
Overall, consumer debt, including mortgages, auto loans and credit cards, increased by $241 billion during the fourth quarter of last year – the largest quarter to quarter jump since the third quarter of 2007. Student debt increased to $1.08 trillion, up $53 billion in the last quarter of 2013 compared to the previous quarter.
One fear is that the growing student loan debt burden is hobbling the recovery of the housing market, which is a key drive of economic growth. Regulators and industry experts warn that young adults can no longer save for down payments or qualify for the mortgages they need to buy their first homes. This survey found that mortgage originations have dropped $97 billion to $452 billion from the third quarter to the fourth quarter of 2013, which may reflect the end of the refinance boom as well as a drop-off in home purchases. A separate analysis by the Mortgage Bankers' Association found that loan applications for home purchases have slipped nearly 20 percent in the past four months compared to a year ago.
Here’s a look at what the survey shows is going on with student loan debt among the under-30 crowd, broken out by credit scores. The highest growth is in student loan debt, with auto loans coming in second. Most of the growth is concentrated among those with low to medium credit scores.
Younger adults' credit scores are often challenged because they haven't had a chance to build up a solid credit history.
Also, student loan delinquencies are rising. The survey shows that for those under 30 student loans are the category of debt with the highest rate of seriously delinquent loans.