A Record One-in-Five Households Now Owe Student Loan Debt
Burden Greatest on Young, Poor
Aggregate consumer debt peaked in the third quarter of 2008 at about $12.7 trillion and declined to $11.4 trillion as of June 30, 2012 (Federal Reserve Bank of New York, 2012).9 Outstanding household debt in the Survey of Consumer Finances also demonstrates that households are reducing their outstanding liabilities. Average household debt fell from $105,000 in 2007 to $101,000 in 2010 (Pew Research Center, 2012). Household debt levels have declined because of a reduction in debt for residential real estate. In addition, debt tied to credit cards has also declined. Outstanding student loan debt has risen since 2007, and hence student debt as measured by the SCF has risen from 3% of total household debt in 2007 to 5% in 2010.
Student debt is a rising proportion of total debt for most demographic and economic categories of households. Among households headed by those younger than 35 years of age, student debt rose from 9% of total debt in 2007 to 15% in 2010. The only households in which student debt has not been a growing proportion of total debt were households headed by seniors, households headed by those without a high school education, and households in the wealthiest quarter of households by net worth.
Historically a majority of installment debt has been for vehicle purchases. In 2010 student loan debt became the largest component of outstanding installment debt, accounting for 45% of installment debt.10 In 2007 student debt was only 33% of installment debt, and in 1989 it was only 11% of installment debt. The rise since 2007 in the share of student debt in installment debt reflects rising outstanding student loan balances as well as declines in loan balances for vehicles and other consumer durables in the wake of the Great Recession (as shown on the next page).
Student loan debt has been a rising proportion of installment debt for most households. For households in the lowest fifth of the income distribution, student loan debt as a share of installment debt fell from 47% in 2007 to 41% in 2010. For the wealthiest 10% of households, student loan debt declined from 16% of installment debt in 2007 to 12% of installment debt in 2010. This is largely a reflection of the fact that the wealthiest 10% of households have less student debt outstanding than in 2007. Fewer of the wealthiest 10% of households have outstanding student loans in 2010 (5%) than in 2007 (6%), and the mean student loan balance fell as well ($26,145 in 2010, compared with $37,616 in 2007).
Among the lowest fifth of households by income, student debt is a declining proportion of outstanding installment debt. This is not because these households’ student loan obligations have decreased. Rather, it is because these households’ other installment balances increased from 2007 to 2010. Among the lowest fifth of households by income, the average vehicle loan outstanding among those owing auto debt increased from $8,081 in 2007 to $18,335 in 2010. Households above the lowest income fifth managed to reduce their outstanding vehicle loan debts. Similarly, outstanding installment debt excluding student and vehicle loans also increased for households in the lowest fifth of incomes—from $12,453 for those households with such debts to $18,473. These sorts of obligations were diminished for households higher up the income scale, with the exception of households in the fourth fifth of the income distribution.
Higher income households markedly reduced their installment loan balances other than student debt since 2007. The lowest fifth of households by income have not deleveraged these other installment obligations, and as a result student debt has been a declining proportion of the total installment debt.
- These figures on the total outstanding debt are from the Federal Reserve Bank of New York quarterly debt and credit report and are in nominal dollars. ↩
- Installment borrowing refers to closed-end consumer loans, such as vehicle loans, student loans, loans for durable goods (furniture and appliances), and hospital bills. ↩