Totally unrelated new data on household income and student loans

Sentier Research recently published a report on Household Income Trends: January 2012. This is regular series that looks at trends in real (inflation corrected) median annual household income in the US. I had discussed an earlier report in my post A bad 4 years for family income, a good 4 years for college prices.

There is a lot of interesting data in this recent report, but one paragraph jumped out at me:

The median annual household income in January 2012 can be  put into broader perspective by a comparison with previous levels of household income dating back to the start of the last decade. The January 2012 median annual household income of $50,020 was 5.4 percent lower than the median of $52,852 in June 2009, the end of the recent recession and beginning of the “economic recovery.” The January 2012 median was 7.8 percent lower than the median of $54,242 in December 2007, the beginning month of the recession that occurred just over four years ago.  And the January 2012 median was 8.7 percent lower than the median of $54,790 in January 2000, the beginning of this statistical series. These comparisons demonstrate how significantly real median annual household income has fallen over the past decade, and how much ground needs to be recovered to return to income levels that existed in earlier years. 

An 8.7 % drop in median family income since 2000 is huge and suggests a pretty significant change in life-style.

By comparison, the College Board's data from Trends in College Pricing 2011 shows that for the period 1999-2000 to 2011-2012 average published tuition and fees in constant dollars increased by 35.5% in private non-profit colleges, and 80.9% in public colleges.  Of course, as emphasized often by the College Board, most students don't pay the published price but get a "discount" because of student aid, and that these discounts shield students, on average, from these huge increases.  Not so much emphasized is that roughly 1/2 of student aid is in the form of loans, and that the loan percentage has been growing over time. If one thinks of the loan as part of the real cost to the student (an unpopular view in much of the higher ed community), then the net real cost including loans is growing at a rate only slightly below the published rate. Kind of makes it hard for the median family to afford higher ed!

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In an unrelated news story, we find that the Federal Reserve has student loans on its mind. As described in the LA Times, at a congressional hearing last week, in response to a question

Federal Reserve Chairman Ben Bernanke replied, "Well, student loans are becoming a very large category of loans."

Indeed, the New York Fed put the latest outstanding student loan balance at $870 billion. That's more than the total credit card debt, $693 billion, and car loan debt, $730 billion.

The New York Fed expressed concern about the level of past due balances on these student loans:

The New York Fed said the past-due balances on student loans amounted to $85 billion, or about 10% of the total owed. The same 10% rate applies on average to other types of consumer delinquent debt, such as mortgages and credit cards.

But Fed researchers said delinquency figures for student loans understate the magnitude of the problem. That's because the calculations don't take into account that federally guaranteed loans, which make up the bulk of student debt, typically don't require repayment while borrowers are still in school and for six months after graduation.

If those who are temporarily exempt from making payments are excluded, the report said, the number of borrowers with past-due balances would jump to 27% of the total. And the outstanding balances that are late would rise to 21%. Both figures are about double the unadjusted rates.

Sounds like there may be problems on the horizon with all of the debt being taken out to pay for higher education.

 

 

Comments

[walter]

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