The first quarter of 2017 recorded $8.2 billion worth of debts owed by deep subprime borrowers. It’s a 32 percent year-over-year increase and the largest jump since 2009. Meanwhile, household debt is now past pre-recession peak, a staggering $12.73 trillion in total. From this, around $1.34 trillion is education-related in which 11 percent is seriously delinquent.
Not a problem?
Despite the trillion-dollar threat, experts are not alarmed by the smoke signals, believing that it will not spiral into a recession-like disaster.
But economist Michael Pearce has another opinion. Pointing to the similar trends then and now: the household net worth growth, and the debt to household worth and its nature, he believes that the student debt volume today should be a concern since it has been a running problem for over a decade and show no signs of declining.
Although the current volume of student debts pales in comparison to the volume of mortgage debts during the peak of the crisis, the whole subprime volume then almost pars with the volume of student debt now. Not a very good picture.
Could be a problem
Pearce adds that even though we are less likely to see a student loan debt collapse in the near future, it still negatively reflects the current state of credit in the country. This becomes especially bothersome when you think about the talked about auto loan bubble that is upsetting a lot of shareholders and investors in the auto loan market. The economist believes that Americans are getting stretched on credit.
“The sharper increase in average debt among older borrowers suggest that there is a rising share of the population struggling to repay legacy student debt,” Pearce adds.