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
| State | Deliquency rate | Number of borrowers | Outstanding student debt in 2016 |
|---|---|---|---|
| Alabama | 13.38% | 547,600 | $2,408,400,021 |
| Alaska | 11.02% | 63,600 | $209,380,009 |
| Arizona | 12.89% | 768,200 | $3,106,490,083 |
| Arkansas | 16.09% | 338,000 | $1,609,000,015 |
| California | 10.62% | 3,583,300 | $12,329,819,867 |
| Colorado | 10.44% | 699,300 | $2,401,199,903 |
| Connecticut | 8.18% | 428,300 | $1,087,940,041 |
| Delaware | 10.39% | 105,300 | $353,260,012 |
| District of Columbia | 10.09% | 112,200 | $565,040,009 |
| Florida | 12.61% | 2,237,600 | $9,520,549,741 |
| Georgia | 12.29% | 1,409,500 | $6,353,929,980 |
| Hawaii | 9.98% | 112,200 | $359,279,984 |
| Idaho | 10.46% | 198,000 | $596,220,002 |
| Illinois | 9.16% | 1,520,000 | $4,662,439,922 |
| Indiana | 13.10% | 836,900 | $3,235,700,094 |
| Iowa | 11.69% | 417,100 | $1,332,659,952 |
| Kansas | 13.02% | 357,600 | $1,354,080,048 |
| Kentucky | 13.90% | 540,800 | $2,196,199,940 |
| Louisiana | 12.53% | 544,200 | $2,092,509,955 |
| Maine | 10.45% | 166,600 | $512,049,991 |
| Maryland | 10.67% | 745,200 | $2,955,590,021 |
| Massachusetts | 7.84% | 818,400 | $1,983,520,039 |
| Michigan | 11.91% | 1,337,600 | $5,061,749,935 |
| Minnesota | 8.12% | 741,900 | $1,818,879,974 |
| Mississippi | 15.40% | 387,700 | $1,924,999,952 |
| Missouri | 13.93% | 764,700 | $3,384,990,074 |
| Montana | 12.16% | 113,600 | $413,439,995 |
| Nebraska | 8.45% | 228,300 | $549,249,988 |
| Nevada | 13.63% | 287,000 | $1,158,550,010 |
| New Hampshire | 8.55% | 173,400 | $453,150,010 |
| New Jersey | 8.65% | 1,043,500 | $2,811,249,876 |
| New Mexico | 16.05% | 207,200 | $995,099,953 |
| New York | 9.07% | 2,247,600 | $6,875,059,769 |
| North Carolina | 10.57% | 1,092,800 | $3,836,909,889 |
| North Dakota | 8.97% | 77,700 | $188,370,006 |
| Ohio | 12.95% | 1,666,600 | $6,682,199,902 |
| Oklahoma | 14.04% | 429,800 | $1,712,879,995 |
| Oregon | 11.21% | 508,600 | $1,883,280,006 |
| Pennsylvania | 10.21% | 1,613,700 | $5,268,360,020 |
| Rhode Island | 10.69% | 126,100 | $384,839,985 |
| South Carolina | 12.11% | 609,000 | $2,506,769,929 |
| South Dakota | 10.08% | 103,800 | $302,399,998 |
| Tennessee | 13.81% | 749,700 | $3,342,020,102 |
| Texas | 12.46% | 2,989,200 | $10,952,340,034 |
| Utah | 9.09% | 272,300 | $718,110,012 |
| Vermont | 8.48% | 69,700 | $195,039,989 |
| Virginia | 9.19% | 952,400 | $3,041,889,861 |
| Washington | 8.92% | 720,200 | $1,998,080,017 |
| West Virginia | 16.40% | 208,300 | $967,599,977 |
| Wisconsin | 9.30% | 676,800 | $1,804,200,037 |
| Wyoming | 10.49% | 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:
- 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.
- 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.
- 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.
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