Thursday, May 26, 2016

For Most College Loan Borrowers, The Increase In Earnings Easily Offsets Monthly Student Loan Payments

From Federal Reserve Bank Of Cleveland, "Is There a Student Loan Crisis? Not in Payments" by Joel Elvery:
In the second quarter of 2015, the average student loan payment for those in the 20- to 30-year-old range was $351, according to the Federal Reserve Bank of New York’s Consumer Credit Panel data. This amount is just more than 50 percent higher than it was in 2005 ($227 when adjusted for inflation).
***
Fifty percent of the borrowers had payments of $203 or lower, and another 25 percent had payments between $203 and $400. This means that 75 percent of student loan borrowers in this age range would be, in the simplest sense, better off with a student loan if going to college increased their monthly take home earnings by $401 or more. In 2014, labor force participants aged 20 to 30 who had at least some college on average earned $2,353 per month, $750 more than people the same age with just a high school degree. This is more than double the average monthly student loan payment, suggesting that the increase in earnings from going to college more than offsets the cost of student loan payments for most borrowers.

Household Debt Reaching Pre-Recession Peak, But Lower Debt Payments From Low Interest Rates

From The Wall Street Journal, "Trillions in Debt—but for Now, No Reason to Worry: U.S. household borrowing nears precrisis peaks; global debt has already topped 2008 levels" by Ken Brown:
Global debt has already topped 2008 levels and keeps rising. That’s pretty astonishing so soon after debt-driven crises in the U.S. and Europe and endless worries about too much borrowing in Japan, China and emerging markets.

But for all the hand-wringing, a near-term debt crisis is unlikely. Lower interest rates mean debt payments are far lower than they were before the crisis. In the U.S., household debt compared with the overall economy is way down. And overseas, loans can easily be rolled over.
***
U.S. households owed $12.25 trillion at the end of the first quarter, up 1.1% from the end of 2015, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, released Tuesday. If the first quarter repeats itself through the end of the year, U.S. household debt will approach its peak of $12.68 trillion, which it hit in the third quarter of 2008.
***
Source: The Wall Street Journal