Student loan debt set to overtake mortgages in 25 years

Student loan debt set to overtake mortgages in 25 years

Here’s why we should be worried.

Key findings

  • Student loan balances are on track to overtake mortgages by 2042
  • Mortgages are growing at a rate of 0.6% annually, while student loans are growing at 10.4%.
  • Student loan delinquency rates are much higher than those for mortgages.

2042: The year in which student loan balances could be larger than mortgages.

Student loans have grown at such an astounding pace in the past 10 years that if they continue ballooning at the same rate, they’ll overtake mortgage balances in just 25 years.

A finder.com analysis of Federal Reserve Bank data reveals that student loans have tripled since 2006, with totals rising from $481 billion to more than $1.45 trillion. At this stage, student loans are the second-largest form of debt for households — second only to mortgages. Americans were shocked when student loans surpassed credit card debt back in 2010. But will student loans keep rising to trump mortgages?

The 10-year annual growth rate for student loans is an astonishing 10.4%, in stark contrast to the 10-year annual growth rate for mortgages — just 0.6%. At these rates of growth, student loan balances will overtake those of mortgages by 2042.

Source: https://www.newyorkfed.org/microeconomics/hhdc.html

Note that projections are based on historical growth and not adjusted for increased financial aid and grants, government adjustments for more affordable rates or other interventions.

Why is this so alarming?

The delinquency rate for student loans is much higher than for any other type of household debt — but it’s a more troubling problem when compared with mortgages specifically.

Given the complexities of the lending industry in general, it’s not easy to make an apples-to-apples comparison of rates between mortgages and student loans. But beyond rates, student loans are simply more difficult to manage if you find yourself in a financial bind. And they offer fewer protections than a mortgage.

Delinquency rates

Student loan delinquency rates stand at 11.2% nationwide and as high as 16% in West Virginia, Arkansas and New Mexico. Keep in mind a borrower is considered delinquent after missing a payment, even if it’s just a few days late. Even so, 5 million Americans admit to being at least 90 days late on repaying their student loans.

On the other hand, delinquency rates for mortgages are plummeting because of stronger regulations put in place since the 2008 financial crisis, settling at a low 1.5% currently.

Interest rates

Most mortgages are 30-year loans with rates calculated on a secondary market that collectively determines what they’re willing to allow you to borrow at. This system results in more competition among lenders and ultimately stronger, more consistent rates for homebuyers.

Rates for student loans, however, are set by Congress but vary by private lender, accounting for your level of study, any lender fees and even the year in which you’re applying to borrow money.

Assets and security

Mortgages also come with something that a student loan doesn’t: a home. A physical asset means less risk for a lender, who can simply repossess and sell your house if you default.

Yet taking out a student loan doesn’t guarantee you a higher income — or even a job at all. If your student loan enters default status, your lender takes a loss on any balance.

And the repercussions don’t end with a black mark on your credit report: If you default on a student loan, you could be ineligible for low-rate, low-down-payment FHA mortgages when you’re ready to put down roots.

Bankruptcy and debt discharge

Another potential problem with student loans involves the potential for bankruptcy. If you find yourself in a position to declare bankruptcy, mortgage debt typically falls under “undue hardship,” meaning you can discharge the debt entirely.

Unlike mortgages and other types of debt, student loans are generally excluded from undue hardship. It’s hard to discharge your student loan — at least, not without proving “undue hardship” to a bankruptcy judge.

Which states have the most student loan delinquencies?

The states with the highest delinquency rates are West Virginia, Arkansas and New Mexico — with over 16% of borrowers late on payments. Massachusetts, Minnesota and Connecticut fall on the opposite end as the three states with the lowest delinquency rates — 7.84%, 8.12% and 8.18% respectively.

In terms of largest amounts of delinquent student debt, number of borrowers correlates closely with total delinquent debt. California, Texas, Florida and New York account for nearly $40 billion of delinquent student debt and over 11 million borrowers.

Source: https://www.newyorkfed.org/microeconomics/hhdc.html

StateDeliquency rateNumber of borrowersOutstanding student debt in 2016
Alabama13.38%547,600$2,408,400,021
Alaska11.02%63,600$209,380,009
Arizona12.89%768,200$3,106,490,083
Arkansas16.09%338,000$1,609,000,015
California10.62%3,583,300$12,329,819,867
Colorado10.44%699,300$2,401,199,903
Connecticut8.18%428,300$1,087,940,041
Delaware10.39%105,300$353,260,012
District of Columbia10.09%112,200$565,040,009
Florida12.61%2,237,600$9,520,549,741
Georgia12.29%1,409,500$6,353,929,980
Hawaii9.98%112,200$359,279,984
Idaho10.46%198,000$596,220,002
Illinois9.16%1,520,000$4,662,439,922
Indiana13.10%836,900$3,235,700,094
Iowa11.69%417,100$1,332,659,952
Kansas13.02%357,600$1,354,080,048
Kentucky13.90%540,800$2,196,199,940
Louisiana12.53%544,200$2,092,509,955
Maine10.45%166,600$512,049,991
Maryland10.67%745,200$2,955,590,021
Massachusetts7.84%818,400$1,983,520,039
Michigan11.91%1,337,600$5,061,749,935
Minnesota8.12%741,900$1,818,879,974
Mississippi15.40%387,700$1,924,999,952
Missouri13.93%764,700$3,384,990,074
Montana12.16%113,600$413,439,995
Nebraska8.45%228,300$549,249,988
Nevada13.63%287,000$1,158,550,010
New Hampshire8.55%173,400$453,150,010
New Jersey8.65%1,043,500$2,811,249,876
New Mexico16.05%207,200$995,099,953
New York9.07%2,247,600$6,875,059,769
North Carolina10.57%1,092,800$3,836,909,889
North Dakota8.97%77,700$188,370,006
Ohio12.95%1,666,600$6,682,199,902
Oklahoma14.04%429,800$1,712,879,995
Oregon11.21%508,600$1,883,280,006
Pennsylvania10.21%1,613,700$5,268,360,020
Rhode Island10.69%126,100$384,839,985
South Carolina12.11%609,000$2,506,769,929
South Dakota10.08%103,800$302,399,998
Tennessee13.81%749,700$3,342,020,102
Texas12.46%2,989,200$10,952,340,034
Utah9.09%272,300$718,110,012
Vermont8.48%69,700$195,039,989
Virginia9.19%952,400$3,041,889,861
Washington8.92%720,200$1,998,080,017
West Virginia16.40%208,300$967,599,977
Wisconsin9.30%676,800$1,804,200,037
Wyoming10.49%48,700$136,369,997

Source: https://www.newyorkfed.org/microeconomics/hhdc.html

Concerned about student loans? 3 tips to stay on top of your debt

There’s no question these stats are alarming. But lifelong student debt is not inevitable.

Keep these three points in mind when picking up a student loan:

  1. Don’t borrow more than you need. To stay out of financial trouble while avoiding unnecessary interest, budget and borrow only what you need to achieve your goals.
  2. Look at federal loans first. Funded by the government, these loans rarely rely on your credit history and typically come with a grace period for repayments, giving you some breathing room after graduation.
  3. Consider refinancing. When done right, paying off your current loan through a new lender can save you big in the long run. While it won’t change the amount of debt you’re in, you might be able to take advantage of lower rates, fewer fees or better terms.

If you’re one of the 44 million Americans with student debt, you may want to look into whether you can benefit from student loan refinancing. Even with a federal subsidized loan, it’s possible you borrowed during one of the many years in which interest rates were unusually high across the board.

For all media inquiries, please contact

Jennifer McDermott

Consumer advocate helping people improve their personal finances.

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