Collectively, subprime student loan borrowers took on $8.2 billion in debt in Q1, a 32 percent increase from the same time period one year ago.
To be considered “subprime,” a borrower must have a credit score below 580. The 32 percent year-over-year increase in student loan debt from subprime borrowers has set a couple of new milestones.
Citing data from the Consumer Financial Protection Bureau, SNL Financial released the statistic that shows a dramatic increase in total student loan debt, while the quality of borrowers declines. As part of $12.73 trillion in household debt, total student debt is now at $1.41 trillion.
SNL researchers said the following: “It was the first year-over-year increase in more than two years and the largest jump since 2009 when high unemployment rates from the Great Recession sent many consumers back to school.”
The pattern falls in line with recent debt statistics. The New York Federal Reserve’s data shows total household debt at $12.73 trillion, $50 billion above where it stood in Q3 of 2008 during the Great Recession.
Of that $12.73 trillion, a record high $1.41 trillion is education-related; 11.8 percent of that education debt is considered to be delinquent, or at least 90 days past due.
The $1.41 trillion in student loan debt is still far off from the $10.6 trillion of mortgage debt that was outstanding during the peak of the financial crisis. Interestingly, the $1.3 trillion in subprime debt during the Great Recession is only a little less than what the current student loan debt total is now. Furthermore, most of the student debt is backed by the government and not the private sector.
However, while a collapse similar to the one that occurred nearly a decade ago is unlikely, the rising student debt total is making some worried.
“The rise in student debt is potentially a bigger concern, because it has been going on for more than a decade with no end in sight. The sharper increase in average debt among older borrowers suggest that there is a rising share of the population struggling to repay legacy student debt,” said Michael Pearce, a U.S. economist at Capital Economics.
Author: Mike Brown
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