Paul L. Caron

Monday, February 23, 2015

NY Fed: The Growing Student Loan Crisis

Federal Reserve Bank of New York, Quarterly Report on House Hold Debt and Credit (Feb. 2015):

Outstanding student loan balances reported on credit reports increased to $1.16 trillion (+$31 billion) as of December 31, 2014, representing about $77 billion increase from one year ago. Student loan delinquency rates worsened in the 4th quarter. About 11.3% of aggregate student loan debt is 90+ days delinquent or in default in 2014Q4, up from 11.1% in the third quarter. 

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Legal Education | Permalink


@ terry malloy,

It could even be WORSE than a 63% default rate without alternative repayment, because those who are making payments that cover the interest and some principal may STILL be reducing the principal less than a standard repayment calls for...

When does this stop?

When does the federal government stop pretending that loans that are non-performing today will MAGICALLY accelerate in repayment with so much additional interest tacked on over a 20-25 year period.

They should just restore bankruptcy - the "loss" to the taxpayer is a loss the taxpayer ***already sustained.*** The government lent money PREVIOUSLY collected in taxes.

If some crook comes knocking on your door asking you to pay for the loss to the taxpayer from student lending, you tell that Mitch McConnell to get the hell of your front porch because YOU ALREADY PAID FOR IT.

It's not like the federal government was going to cut the taxpayer a refund if it got streams of principal and interest back from student debtors! They were going to drop it in depleted uranium over Pashtunistan!

But the bullshit and the propaganda of a "student bailout" will never cease.

Posted by: counseling session | Feb 24, 2015 1:50:43 PM

Shhh, @counseling session, education is MAGIC at any price!

I have two links to the same paper that prove it.

Posted by: terry malloy | Feb 24, 2015 7:50:47 AM

I would like to see a break-down of how much of this debt was incurred by students attending all types of for-profit schools. Based on ads here, on TV, radio, and print, the numbers of for-profit schools have proliferated exponentially. I can't understand why anyone would pay for-profit tuition for say, a nursing degree, when community colleges provide superior education and training for less money.

Posted by: Publius Novus | Feb 24, 2015 7:41:02 AM

Ah, what the heck. Don't worry - be happy.

Posted by: Dale Spradling | Feb 24, 2015 7:23:40 AM

Why does this data on delinquencies differ from what the NY Fed published on its Liberty Street blog a few days ago?

Here's what the NY Fed said for 2014:

Of the loans in repayment (my understanding is that's about 780 billion):

1. 17% delinquent 90+ days

2. 33% current on the loan, but the balance in rising (i.e. income-contingent repayment, and not even making full interest due for one month)

3. 13% current on the loan, and balance is THE SAME (i.e. income-contingent repayment, but only able to pay monthly interest, no principal reduced)

4. 37% in repayment, balance not delinquent


We all know a good chunk of that is grad school debt...and we know that the worst performing of grad school debt is law school debt. GREAT JOB, SCAMMERS!

Posted by: counseling session | Feb 23, 2015 9:40:35 PM

Student loans don't reduce future consumption--they increase it by funding an education which increases income by more than student loan payments and taxes. --Terry Malloy

That's the sales pitch, but a number of real-world factors work against it. Diminishing returns, for one. Colleges lowering their admissions standards and dumbing-down their programs, for another.

Also, read those empirical studies carefully. Notice that in order to calculate a lifetime increase in earnings for the college-educated, the studies must look at students who went to college a lifetime ago not the students of today. Past performance is no guarantee of future results, whether one puts ones money into stocks in the market or seat-time at a college.

In other news, there's no such thing as a perpetual-motion machine.

Posted by: Micha Elyi | Feb 23, 2015 4:42:01 PM

At terry: false and fail.

Posted by: Dino | Feb 23, 2015 3:43:09 PM


Why did you provide two links to the same paper?

Posted by: Morse Code for J | Feb 23, 2015 1:09:36 PM

waiting on UNE to come along and address Math's double link to the S&M study.

Posted by: Daniel | Feb 23, 2015 12:27:20 PM


Well, student loans certainly reduce future savings: a study out of Demos found that a couple who each had the average student loan balance of $26,500 ($53k total) would end up about $205,000 poorer over the course of their careers than their peers without student loans, all else being equal, because those student loan payments represent money that could otherwise go to retirement savings and building home equity. If we assume that this lifetime wealth loss of ~4x one's student loan *investment* scales up linearly (which is probably overly optimistic), then the average JD couple each holding $150k in student loans will end up about $1.2 million poorer ($300k x 4) than their peers w/o student loans. And of course, that isn't considering their own undergraduate student loan debt. We could also talk about the effect of student loans on small business formation, household formation, home and car ownership for Millennials, if you wish. There are lots of studies out there.

And lest we forget, in real wages salaries for college graduates haven't gone anywhere since the 1970's, even as the average price of college has increased about 650% over inflation during that time. Even S&M admit in a chart that real wages for attorneys at every income percentile have been stagnant-to-declining since the mid 1990's, even as the real cost of law school has increased dramatically over that time. To wit, the average private law school tuition in 1993, in 2014 dollars, was a mere $24k, as opposed to the $42k average it actually was in 2014. For public law schools, 1993 tuition in 2014 dollars was $7k, it was actually $24k in 2014. So, law school tuition vastly outpaces inflation while real law school wages are stagnant (actually, a $160k starting salary in 2006 is equivalent to almost $190k today). Whatever law school premium may or may not exist diminishes each year. The math is incontrovertible.

Posted by: Unemployed Northeastern | Feb 23, 2015 10:04:07 AM


Did you just cite the same paper twice and say "every study" as though there was more than one?


"they increase it by funding an education which increases income by more than student loan payments and taxes"

Tell that to the defaulting and soft defaulting (IBR) students.

No-one is buying the trash analysis you're selling.

Posted by: terry malloy | Feb 23, 2015 9:18:08 AM

While I agree with Math's rejoinder to Terry Malloy's post, I find the New York Fed's data very disturbing. In my view, at the very least, nominal law school tuition should not increase by more than the average rate of increase of lawyer compensation -- 3% per year, according to the Bureau of Labor Statistics. The market may ultimately force significantly greater law school tuition cuts, and law school administrators should plan accordingly. But at the very least, the ABA should adopt a norm that, absent compelling reasons, tuition should not increase faster than compensation.

Posted by: Theodore Seto | Feb 23, 2015 9:15:39 AM


You mean, all one of those studies (which has be subject to wide criticism)?

Posted by: Former Editor | Feb 23, 2015 8:39:35 AM

@ Terry Malloy

Student loans don't reduce future consumption--they increase it by funding an education which increases income by more than student loan payments and taxes.

Or at least that's what every peer reviewed empirical study on the topic that's ever been published shows.

Posted by: Math | Feb 23, 2015 7:35:54 AM

Student loan defaults are at 11.3% (aggregate). What would the percentage be without IBR, 20%? Is our country going to come up with a real solution to this higher education madness? I feel like IBR is just worsening the problem.

Posted by: JM | Feb 23, 2015 6:17:11 AM

I often wonder if law professors give any real thought to the source of their income (of course, when they aren't pondering Proust's interpretation of Plessey v. Ferguson).

Debt, in its simplest form, moves future consumption into the present for a price (i.e., interest).

Law Prof. salary's are, through the conduit of student debt, the future consumption of their students.

Student loans are consuming the future prosperity of our economy. full stop.

Posted by: terry malloy | Feb 23, 2015 6:05:31 AM