U.S. millennials, the biggest living generation in the country, are saddled with record student loan debt. According to the Federal Reserve Bank of New York, student loan debt continues to rise to record levels. In the second quarter, U.S. student loan debt was a record $1.34 trillion, an $85.0-billion increase over the first quarter.
Some have pointed to the fact that student loan debt was, for the most part, largely unchanged in the second quarter. But there is more here than meets the eye. Student loan debt isn’t seasonally adjusted and, thanks to the academic calendar, few students take out loans in the April to June quarter. This will not be the case in the third quarter.
Still, 11.2% of educational debt was 90-plus days delinquent or in default in the second quarter.
What does that look like?
On average, more than 3,000 borrowers default on their federal student loans each and every day. And that number is steadily rising. From 2015 to 2016, the number of borrowers that defaulted on their student loans increased 17%.
Part of the reason for defaulting must be pure exhaustion and frustration. It takes the average student debt borrower 20 years to pay off their loans. Right now, over 44-million Americans have $1.4 trillion in student loan debt.
What happens if they don’t pay? For starters, a federal student loan is borrowed money that needs to be repaid with interest. Failure to repay a loan can result in default. Further, you can’t declare personal bankruptcy on student loan debt.
If you miss a payment on your federal student loans, you have 270 days to make a payment before that debt goes into default. Once federal student debt is in default, the U.S. government will do whatever it can to get that money. It can garnish wages, Social Security checks, federal tax refunds, and even disability benefits.
The department of education works with third-party, private collection agencies that charge penalties and fees for not making a payment; some can charge as much as 18%.
At the start of the second quarter, private collection agencies had $87.12 in inventory. During the second quarter, they added $8.21 billion to that number. During the quarter, private collection agencies recovered $2.27 trillion; $182.3 million came from garnished wages.
Despite unemployment being low and stocks at record levels, student loan borrowers are struggling. According to the most recent data, the percentage of younger Americans living at home is at its highest level in 75 years.
Before the Great Recession in 2005, the number of millennials living with their parents or a family member was at approximately 33%. Today, it’s at 40%, the largest percentage since 1940, the year after the Great Depression ended, when the number stood at a record 40.9%.
When Ronald Reagan, George H. W. Bush, and Bill Clinton were in the Oval Office, the rate was between 31% and 33%.
This spells bad news for the U.S. economy. Housing contributes between 15% and 18% to total U.S. gross domestic product (GDP) growth.
No matter what anyone says, taking 20 years to pay off a student loan debt cannot help but hinder U.S. economic growth. It’s harder to save up for a down payment and it cuts into the amount of disposable income for mortgage payments and making major purchases.
“Quarterly Report on Household Debt and Credit,” Federal Reserve Bank of New York, August 14, 2017.
“Default Recoveries by Private Collection Agency,” U.S. Department of Education, last accessed August 15, 2017.
“Percentage of Young Americans Living With Parents Rises to 75-Year High,” The Wall Street Journal, December 21, 2016.
“Housing’s Contribution to Gross Domestic Product,” National Association of Homebuilders, last accessed August 15, 2017.