Overview: - Higher education is crucial to improving the skill level of American workers, especially in the face of a rising income and employment gap across workers with varying education levels. - Due to increasing enrollment and the rising cost of higher education, student loans play an increasingly important role in financing higher education. - However, the rapidly increasing burden of student debt, approaching $1 trillion now, including both federal and private student loans with very different characteristics. - We present new analysis on the historical and current situation of student debt and discuss its implication on the borrowers and the economy.

1. Household Debt and Credit:
Student Debt
February 28, 2013
Donghoon Lee
The views presented here are those of the author and do not necessarily reflect those of the
Federal Reserve Bank of New York, or the Federal Reserve System

2. Higher Education and Student Debt
 Higher education is crucial to improving the skill level of
American workers, especially in the face of a rising income and
employment gap across workers with varying education levels.
 Due to increasing enrollment and the rising cost of higher
education, student loans play an increasingly important role in
financing higher education.
 However, the rapidly increasing burden of student debt,
approaching $1 trillion now, including both federal and private
student loans with very different characteristics.
 We present new analysis on the historical and current situation
of student debt and discuss its implication on the borrowers and
the economy.
2

3. Part 1: Growth of Student Loans
for internal use only
3

4. Total student loan balances by age group
increasing across all age groups
Billions of Dollars
1,000
5%
900
12%
800
700
17%
600
500
33%
400
300
200
33%
100
0
2004
2005
2006
2007
2008
under 30 30-39 40-49
Source: FRBNY Consumer Credit Panel / Equifax
2009
50-59
2010
60+
2011
2012
4

5. Non-mortgage balances
Billions of Dollars
1000
HELOC
900
Billions of Dollars
1000
Auto Loan
Student Loan
Credit Card
900
800
800
700
700
600
600
500
500
400
400
300
300
200
200
100
100
0
0
Source: FRBNY Consumer Credit Panel / Equifax
Student debt is the only kind of household debt that continued
to rise through the Great Recession and has now the second
largest balance after mortgage debt.
5

6. Distribution of student loan balance, 2012:Q4
2.2%
0.9% 0.6%
Balance
9.0%
39.9%
17.7%
$1-10,000
$10,000-25,000
$25,000-50,000
$50,000-100,000
$100,000-150,000
$150,000-200,000
$200,000+
29.8%
40% of borrowers have balances less than $10,000
3.7% of borrowers have balances greater than $100,000
Source: FRBNY Consumer Credit Panel / Equifax
6

7. Number of borrowers and average balances per person
40
30
20
Average balance per borrower
Thousands of Dollars
Millions
Number of borrowers
25
20
15
10
10
5
0
0
Each increased by 70% between 2004 and 2012 (7% per year)
Source: FRBNY Consumer Credit Panel / Equifax
7

8. Student borrowing increasingly prevalent
Share of 25 year olds with student debt
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2004:Q4 2005:Q4 2006:Q4 2007:Q4 2008:Q4 2009:Q4 2010:Q4 2011:Q4 2012:Q4
Source: FRBNY Consumer Credit Panel / Equifax
8

9. Summary 1: Growth of Student Debt
 Student Debt almost tripled between 2004 and 2012 and
stands at $966B as of 2012:Q4
 70% Increase in the number of borrowers
 70% increase average balance per person
 Reasons for the growth in borrowers and per-person debt:
 More people attend college and graduate school
 Parents take out student loans for their children
 Students stay longer in college and more often attend
graduate school
 Lower repayment rates as borrowers delay payments
through deferments and forbearances
 Discharging student debt is very difficult and the balance
stays with the borrower
9

10. Part 2: Student Debt Delinquency
10
for internal use only

11. Share of borrowers 90+ days delinquent
40%
35%
30%
25%
20%
15%
10%
5%
0%
age<30
age 30-49
2004 2008
Source: FRBNY Consumer Credit Panel / Equifax
age 50+
all
2012
6.7 million borrowers, or 17%, are 90+ days delinquent.
30-49 year olds have higher delinquency rates.
11

12. Borrower repayment status, 2012:Q4
About 44% of borrowers are
not yet in repayment due to
deferments and
forbearances.
not in
repayment:
balance up
30%
not in
repayment:
balance the
same
14%
Source: FRBNY Consumer Credit Panel / Equifax
in
repayment:
balance
delinquent
17%
in
repayment:
balance not
delinquent
39%
12

13. Delinquency rates higher among borrowers in repayment
Share of borrowers 90+ days
delinquent
Share of borrowers in repayment
90+ days delinquent
40%
40%
35%
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
age<30 age 30-49 age 50+
2004
2008
all ages
2012
Source: FRBNY Consumer Credit Panel / Equifax
age<30 age 30-49 age 50+
2004
2008
all ages
2012
13

14. Quarterly transition rate of borrowers in repayment
from current to delinquent
9%
9%
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
2005
2006
2007
2008
Source: FRBNY Consumer Credit Panel / Equifax
2009
2010
2011
2012
14

15. Summary 2: Student Debt Delinquency
 About 17% of borrowers are past due on their student debt
more than 90 days in 2012, a large increase from under 10% in
2004
 44% of borrowers are not yet in repayment, and excluding
those, the effective 90+ delinquency rate rises to more than
30%.
 The transition rate of borrowers in repayment from current to
delinquent has been rising since 2008 from around 6% to
nearly 9%.
.
15

16. Part 3: Student debt and other debts
16
for internal use only

17. Non-student debt declined for all borrowers age 25-30
Decline particularly pronounced for borrowers with larger student debt
Average non-student loan balances, age 25-30
$60,000
$60,000
auto
credit card
mortgage
heloc
other
$50,000
$50,000
$40,000
$40,000
$30,000
$30,000
$20,000
$20,000
$10,000
$10,000
$0
2005 Student Debt Balance
2005 Student Debt Balance
Source: FRBNY Consumer Credit Panel / Equifax
$100K+
$75K-100K
$50K-75K
$25K-50K
$10K-25K
$1-10K
$0
$100K+
$75K-100K
$50K-75K
$25K-50K
$10K-25K
$1-10K
$0
$0
2012 Student Debt Balance
2012 Student Debt Balance
17

18. Share borrowers age 25-30 years old with
new mortgage originations
no student debt
with current student debt
with current 100K+ student debt
with 90+ delinquent student debt
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2005:Q4
2006:Q4
2007:Q4
2008:Q4
2009:Q4
2010:Q4
2011:Q4
2012:Q4
With delinquent student debt, mortgage origination is very difficult.
The mortgage origination gap across the size of student debt has
declined between 2005 and 2012.
Note: delinquency is as of Q4 of previous year
18

19. Non-student debt 90+ days delinquent, age 25-30, 12:Q4
40%
35%
30%
25%
20%
15%
10%
5%
0%
no student debt
current student debt
auto loans
credit card
90+ delinquent student debt
mortgage
Delinquent student loan borrowers are very likely to be delinquent on other
debt as well.
Source: FRBNY Consumer Credit Panel / Equifax
19

20. Summary 3: Student Debt and Other Debt
 Young borrowers reduced their debt from 2005 to 2012, but the
reductions were more pronounced among borrowers with high
student loan balances, likely reflecting declines in demand and
access to credit.
 High levels of student debt delinquency reduces young
borrowers’ ability to secure other types of credit.
 Student loan delinquency is also associated with higher
delinquency rates on other types of debt.
20

21. Conclusion
 Higher education is an important investment among young
workers for better jobs and higher income, but it is
accompanied with a growing student debt burden.
 Total student loan balances almost tripled between 2004 and
2012 due to increasing numbers of borrowers and higher
balances per person.
 Nearly one third of the borrowers in repayment are delinquent
on student debt.
 The higher burden of student loans and higher delinquencies
may affect borrowers’ access to other types of credit and the
performance of other debt.
21

22. Reference Charts
22

23. Why borrow for education?
College graduates have lower unemployment rates, fare
better during recessions, and enjoy wages roughly double
those of high school graduates.
Unemployment Rate
Jun-2009
1200
9
Jan-2013
8
Percent
7
6
5
Jun-2009
Dec-2007
Jan-2013
4
3
Dec-2007
2
1
0
Median Dollars per Week
10
Median Weekly Earnings,
2012:Q4
1000
800
600
400
200
0
High School
Graduate
Bachelor's degree
high school
graduates
bachelor's degree
or higher
23
Source: FRBNY Consumer Credit Panel / Equifax

24. Distribution of Student Debt
balance, 4Q:2005
Distribution of Student Debt
balance, 4Q:2012
1.1%
1.3%
3.2%
2.2%
0.4%
0.2%
0.9%
2.5%
0.6%
6.5%
1-10K
1-10K
10K-25K
11.5%
10K-25K
39.9%
25K-50K
50K-75K
17.7%
25K-50K
50K-75K
75K-100K
100K-150K
100K-150K
150K-200K
200K+
26.8%
75K-100K
150K-200K
55.5%
200K+
29.8%
24
Source: FRBNY Consumer Credit Panel / Equifax