Student Loan Delinquencies are Sky High

What do you get when you combine skyrocketing tuition costs, a lack of growth in high-paying jobs, moral hazard, and America’s largest-ever generation of students?

It’s a recipe for a mountain of $1.3 trillion in student loan debt – much of which is not being paid for.

Very Delinquent Students

With many students graduating with high debt loads, a growing number of students are becoming delinquent on their loans. The most recent estimate by the Federal Reserve Bank of New York estimates the percent of 90+ day delinquent loans to now be at 11.0%.

This puts student loans at a higher delinquency rate than credit cards (7.6%), auto loans (3.5%), and mortgages (2.2%). It’s also particularly interesting because historically credit cards have had the highest rates among all types of consumer credit. Despite this, student loans “passed” credit cards in delinquency frequency at the end of 2012.

Why are student loans the most troubled form of consumer debt right now? It’s the result of a clear mismatch between supply and demand for college-educated workers.

The Overeducation Bubble

Have college graduates been oversold on the prospects of a college degree? Or is the market for high-paying jobs not materializing as expected in the current low-growth economy?

Either way, many college grads are punching below their weight in the job market. In a 2014 study, economists affiliated with the Federal Reserve Bank of New York found that up to 49% of recent college graduates aged 22 to 27 were working in careers that do not requite any college education.

Based on this and other factors, renowned investor Peter Thiel has called higher education to be a bubble:

If a college degree always means higher wages, then everyone should get a college degree. But how can everyone win a zero-sum tournament? No single path can work for everyone, and the promise of such an easy path is a sign of a bubble.

He’s backed up his opinion with the Thiel Fellowship, a $100,000 grant for would-be students who want to “build something” rather than sit in a classroom.

Some Students Left Behind

A recent survey shows that many graduates are regretting their choices around student debt and education. Roughly 57% of millennials now say they regret how much they borrowed, and over one-third of respondents said they wouldn’t have gone to college if they knew the true price tag.

Massive debt loads and the increasing student loan delinquency rate translate into real consequences for the economy. Many graduates are deferring having families or owning homes. One study even says that a modest student loan debt of $30,000 could cut $325,000 from a person’s 401(k) balance by retirement time.