To some analysts, the mounting student debt crisis looks unnervingly familiar.
Borrowers are missing their student loan payments with such high frequency that a Citi Global Perspectives & Solutions report recently raised the specter of the subprime mortgage crisis to describe parallels between the two groups of loan holders.
“Default and 90-day delinquency rates are about 11%,” according to the Citi report. “To some this might appear eerily reminiscent of the mortgage crisis where delinquency rates had peaked at 11.5% in 2010.”
Outstanding student debt has almost doubled since 2009, and the average undergraduate student borrower graduates with more than $US30,000 in debt.
Collectively, Americans held $US1.34 trillion of student loan debt as of March 31, 2017, an increase of $US34 billion from the previous quarter, according to the Federal Reserve Bank of New York. This figure stands second only to mortgage debt, which was $US8.63 trillion.
As of March, 1.7% of mortgage balances were delinquent by 90 days or more, compared to student loan balances which were 11.0% delinquent. Although the student loan default rate is down from a high of 14.7% in 2013, the current rate of about 11% is still elevated, according to the report.
Unlike mortgage loans, discharging college debt is nearly impossible, even in cases of bankruptcy. So borrowers are left in the lurch when they are unable to make payments.
Missing one loan payment can wreak havoc on an individual’s credit score, and missing several can have a longstanding impact on their financial security. But taken together as a rate showing nationwide delinquencies, the figure shows how overwhelmed US student debt holders are.
Still, there are some differences between the mortgage and student loan markets that give pause to predictions about a similar student debt market crash.
During the mortgage crisis, home loans were bundled together in a process called securitization and sold off to investors around the world, extending the reach of the crisis. Student loans are less frequently securitized, and those that are typically consist of higher quality underlying loans — those of borrowers with high credit scores who are less likely to default.