7 Lessons From the New York Fed’s Recent Report on Student Loans
Concern continues to rise over the value of higher education, especially the value of the loans students take out to obtain it. It is rare for people to discharge student loans in Las Vegas bankruptcy, primarily because few debtors try, but also because it is difficult for debtors to file the adversary proceeding beforehand and passing the Bankruptcy Code’s “undue hardship” test. However, the government is not unresponsive to these concerns, and the Federal Reserve Bank of New York—one of the central bank’s branches—recently focused on student loan debt in its most recent “Household Debt and Credit Report.” Here are some important findings:
- Between Q1 2004 and Q4 2012, the total student loan balance has more than tripled in size from $260 billion to $966 billion.
- By contrast, between 2008 and 2009 other types of household debt balances began dropping, e.g. credit card debt, auto loans, and home equity lines of credit. Only student loan debt continues to grow, primarily because the Great Recession pushed many people to seek higher education, tuition continues to increase, states governments are reducing funding to their universities, and student loans are difficult to discharge in bankruptcy.
- The NYFRB also reports that the percentage of young Americans with student loan debt continues to increase, from 27 percent of 25-year-olds in 2004 to 43 percent in 2012. Student loan debts owed by those under 30 has grown by 2.2 times, but older Americans’ balances (those over 60) have grown 7.0 times.
- Fortunately, the total balances are not all very high. 39.9 percent of debtors owe less than $10,000, and 69.7 percent owe less than $25,000. Only 12.7 percent of the 39 million borrowers (5 million) owe more than $50,000.
- Both number of borrowers and the average balance increased 70 percent between 2004 and 2012, from 22 million to 39 million and from $15,000 to $25,000, respectively.
- 17 percent of all borrowers are 90 days or more delinquent on their loans, but because so many student loan debtors (44 percent) are not in repayment due to forbearances and deferments, the actual likelihood of default is significantly higher than it appears, 30 percent. Borrowers delinquent on student loans are likely to be delinquent on other loans.
- Despite these risks, the NYFRB researchers continue to believe that the skills boost provided by higher education increases the likelihood that people will be employed and have a higher income.
Student loans will continue to be a growing problem facing households, but just because they aren’t easily dischargeable doesn’t mean that talking to an experienced Las Vegas bankruptcy lawyer will be fruitless. Because so many student loan debtors have problems with other loans, a bankruptcy filing may help free income for student loan payments.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.