Despite the growth in household net worth and consumer spending, the student loan debt crisis has been getting worse. According to Morningstar Credit Ratings’ latest report, “State of the U.S. Consumer, Please Sir, Can You Lend Me Some More?” the level of student loan debt grew to $1.261 trillion as of the end of the first quarter, up 5% from a year ago. That’s almost twice the 2.7% increase in household debt.
Moreover, the official delinquency rate for student debt, at 11%, was more than triple the rate for auto loans and could be even higher. The delinquency rate — for loans more than 90 days past due — is closer to 17% if loans in deferment and forbearance — for which payments are postponed due to financial hardship — are included, according to the Morningstar subsidiary.
Student loans, in fact, are the only consumer-related debt sector where delinquencies are higher now than they were during the financial crisis, according to the report. They continue to top all other sectors of consumer debt, including auto loan debt ($1.071 trillion as of the end of the first quarter) and credit card debt ($712 billion).
Much of the increase in student loan delinquencies is from loans that finance attendance at for-profit colleges, which tend to target students who are poorer and older. Until recently, these loans have been easily available to students while the school’s claims of job placement after graduation have been vastly overblown.
According to a Brookings Institution study cited in the Morningstar Credit Ratings report, almost 50% of students who started to repay their student loans in 2011 but defaulted in 2013 were students attending for-profit colleges.
Some of those colleges, such as Corinthian Colleges, have ceased operation while others, including Apollo Education Group’s University of Phoenix, have shuttered many campuses. According to Inside Higher Ed, nearly 100 for-profit colleges ceased operations between 2012 and 2015.