School Loan Delinquency Rate Surpasses Credit Card Delinquency Rate

Written by: Scott Sery

We all know that the cost of a college education is expensive.  Some programs are cheaper, but well known schools that have world famous professors, will cost much more.  Regardless of the cost, millions of people still choose to attend college because the degree is supposed to give them a leg up in the working world.  When the job market lags that means many people fresh out of college are not able to find work.  What ends up happening is that they have to take jobs that do not pay nearly as much as they expected, and when it comes down to paying their student loan payment or eating, the loan payment gets skipped.  According to a new report from FICO Labs, more and more payments are being skipped.

The cost of college education grows at between 5% and 7% per year.  This is more than double the rate of inflation.  Along with the cost of education is growing at 5-7% per year, the average student loan debt is growing much faster.  In fact, in 2005 the average loan debt was a little over $17,000.  By 2012 that number had jumped to more than $27,000.  In seven years, the average loan had grown by 58%.  Why are people taking out more in loans?

The biggest reason is for several of those years the economy was in shambles.  There were not many jobs to be had, and students were having just as hard of a time finding summer employment. Instead of being able to work off some of their tuition, they were forced to rely on loans.  Those who had college savings accounts saw the values drop dramatically during the great recession.  They may have planned to cover more of their education costs, but simply were not able to do so.  As the loans get bigger, so does the chance of not being able to pay off those loans.  As students are graduating, and still finding themselves out of work, they are missing more and more payments.  The student loan delinquency rate (loans that are 90 days or more behind on payments) has risen from 12.4% in 2005-2007 to 15.1% in 2010-2012; surpassing the delinquency rate on credit cards.

One might think that as the student loan delinquency rate goes up, so would the credit card delinquency rate.  However, the rate is going down.  In fact, overall credit card debt is going down.  Does this mean that Americans are choosing to invest more in their education?  Or are they valuing their credit cards over their education?

School debt is sometimes called “good” debt.  It is debt that will help a person get ahead in the job market.  However, it is still debt and it still needs to be honored.  In fact, missing a payment will not make things better, and declaring bankruptcy won’t make the debt go away.  Even if you are up to your ears in debt, the student loan debt will remain.  Despite not finding the job of their choice, many graduates still have it better than the majority of the world.  It is time that college graduates tighten their belts and realize they need to make good on their obligations, even if that means taking drastic measures to make sure they can pay their debts.


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School Loan Delinquency Rate Surpasses Credit...

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