Student loan debt increases $31 billion to $1.1 trillion
May 13 2014
By: Melissa Quinn
A new analysis from the Federal Reserve Bank of New York found that student loan debt hit yet another high, surpassing last summer’s $1 trillion milestone to reach a total of $1.1 trillion.
The report found that student loan debt increased $31 billion from January to March, and over the past year, it increased a whopping $125 billion, surpassing auto loan and credit card debt.
So far this year, only mortgage debt surpasses the amount borrowed by students, with total mortgage debt hitting $8.17 trillion.
“The share of twenty-five-year-olds with student debt continued to increase in 2013, as the group’s average student loan balance reached $20,926. For those twenty-five-year-olds with student loans, student debt now comprises 69 percent of the debt side of their balance sheets,” the report states. “Given the increased popularity of student loans, some have questioned how taking on extensive debt early in life has affected young workers’ post-schooling economic activity.”
Students in the United States graduated with an average of $30,227 in student debt in 2013 — a small uptick from 2012 where graduates left the confines of college with $29,872 in debt.
As student loan debt continues to be a growing financial burden for graduates, Congress has attempted to ease some of the hardship. Last summer, lawmakers voted to stop interest rates from doubling keeping them at 3.4 percent.
Additionally, Sen. Elizabeth Warren (D-Mass.) is championing legislation that would allow young borrowers to refinance their loans at the low interest rates Congress passed last year.
Others on Capitol Hill, like Sens. Mike Lee (R-Utah) and Marco Rubio (R-Fla.) are exploring higher education alternatives to quell students from having to take out costly loans to pay for college and ease the financial burdens loans impose.
Such substantial student loan debt appears to be deterring Millennials from homeownership, the Federal Reserve Bank of New York found. In analyzing housing trends, those with student loan debt are less likely to purchase homes despite an increase in housing and auto sales.
The amount of young people purchasing cars, though, appears to be increasing, analysts found. Following a substantial dip in the percentage of 25-year-olds taking on auto debt in 2012, the auto industry appears to be bouncing back, with those ages 22 to 25 with and without student loan debt appearing equally likely to purchase cars.
“While the broad return of twenty-five-year-olds to debt-funded auto purchases is certainly positive news for auto markets, it is surprising that (comparatively skilled) student loan holders have still not shown signs of accelerating auto consumption,” researchers wrote.
Still, analysts remain puzzled as to what is keeping student loan borrowers from entering the housing market, as historically those with student loans are more likely to take out mortgages.
“Many factors could be contributing to this phenomenon,” the report states, “including growing student debt balances, limited access to credit, lowered expectations for future earnings, and perhaps even a cultural shift by which young people — whether they went to college or not — are deferring home purchases.”