16/11/18: Student Debt Hits Another High in 3Q 2018

Bloomberg @business just now posted that the student loans debt in the U.S. has increased USD37 billion to USD1.44 trillion at the end of 3Q 2018:

And, Flows of student debt into serious delinquency - 90 or more days - rose to 9.1% from 8.6% in 2Q.

This is somewhat at odds with the Fred database which shows Student Loans debt at USD1.5636 trillion in 3Q 2018, up ca USD33.23 billion on 2Q 2018:

While the NY Fed report is already alarming in both delinquencies rates dynamics and overall debt dynamics, the FRED data that includes securitized debt volumes is even more worrying.

By its very nature, student loans debt impacts the segment of the population (younger workers) who are in the need to fund their housing needs just as their careers are only starting (with associated lower earnings). These younger households also need financial resources to achieve sufficient mobility to better match jobs offers and career prospects to their abilities and needs. Student loans fall heavily onto the shoulders of younger families with growing housing needs, healthcare demand and funding calls from childcare. In other words, student loans debt is potentially crippling those households that are demographically going through the period when enhanced mobility and financial resilience are necessary to secure better life-cycle employment and family outcomes.

21/1/18: FT Warns on Credit Cards Delinquencies: High or Hype?

The FT are reporting a 20% rise in credit cards delinquencies across major U.S. banks in 2016, compared to 2017 (see here: https://www.ft.com/content/bafdd504-fd2c-11e7-a492-2c9be7f3120a). Which sounds bad. Although, of course, neither new nor completely up-to-date. That is because the NY Fed give us the same figures (for all U.S. households) through 3Q 2017.

So here is the analysis of the Fed figures:

• Credit Card delinquencies rose to 6.33% of total balances in 3Q 2017, up from 5.15% a year ago and from 5.45% in 3Q 2015. So, in fact, instead of a 20% jump, y./y for 3Q figures, there was a drop in 2016 compared to 2015, but a big jump in 2017 on 2016.
• One can expect a more significant jump in 2-3Q 2018, as new credit issuance glut of 4Q 2017 works its way into defaults (see link here: http://trueeconomics.blogspot.com/2018/01/19118-tears-over-qe-us-household-debt.html).
• Besides this, as noted here http://trueeconomics.blogspot.com/2018/01/19118-tears-over-qe-us-household-debt.html, credit card debt is rising and rising fast, with overall debt levels now 4.8% ahead of 2005-2007 average.

Despite these worrying dynamics, the levels of delinquencies are still low. In 2007-2008, credit card delinquencies rates were around 9.34% and 10.84%, respectively. In 2006, these were 8.54%. In fact, current running average for 1Q-03Q 2017 is 6.14% or lower than for any year between 2003 and 2012. 

As the chart below shows, the real crisis is currently unfolding not in the credit cards debt, but in Student Loans with 10.05% average delinquency rate for 2017 so far. Credit crds delinquencies are only fourth in terms of severity. 

In terms of total volumes of debt in delinquency, 3Q 2017 data shows credit cards with USD12.3 billion, against mortgages at USD88.56 billion, student loans at USD 30.16 billion and auto loans at USD 17.05 billion. 

Even in terms of transition from shorter-term delinquency (30 days-89 days) to longer-term delinquency (90days and over), credit cards are not as prominent of a problem as student loans:

In summary, thus, the real crisis in the U.S. household debt is not (yet) in credit cards or revolving loans, and not even (yet) in mortgages. It is in student debt, followed by auto loans.

21/1/18: Student Loans Debt Crisis: It Only Gets Worse

A new research from the Brookings Institution has shed some light on the exploding student debt crisis in the U.S. The numbers are horrifying (for details see https://www.brookings.edu/wp-content/uploads/2018/01/scott-clayton-report.pdf) (emphasis mine):

"Trends for the 1996 entry cohort show that cumulative default rates continue to rise between 12 and 20 years after initial entry. Applying these trends to the 2004 entry cohort suggests that nearly 40 percent may default on their student loans by 2023." In simple terms, even 12-20 years into the loan, default rates are rising, which means that after we take out those borrowers who are more likely to default (earlier defaulters within any given cohort), the remaining borrowers pool is not improving. This applies to the cohort of borrowers who entered the labour markets at the end/after the Recession of 2001 - a cohort that started their careers before the Global Financial Crisis and the Great Recession, and that joined the labor force at the time of rapid growth and declining unemployment.

"The new data show the importance of examining outcomes for all entrants, not just borrowers, since borrowing rates differ substantially across groups and over time. For example, for-profit borrowers default at twice the rate of public two-year borrowers (52 versus 26 percent after 12 years), but because for-profit students are more likely to borrow, the rate of default among all for-profit entrants is nearly four times that of public two-year entrants (47 percent versus 13 percent)." Which means that the ongoing process of deregulation of the for-profit education providers - a process heavily influenced by the Trump Administration close links to the for-profit education sector (see https://www.theatlantic.com/education/archive/2017/08/julian-schmoke-for-profit-colleges/538578/ and https://www.politico.com/story/2017/08/31/devos-trump-forprofit-college-education-242193)  - is only likely to make matters worse for younger cohorts of Americans.

On a related: "Trends over time are most alarming among for-profit colleges; out of 100 students who ever attended a for-profit, 23 defaulted within 12 years of starting college in the 1996 cohort compared to 43 in the 2004 cohort (compared to an increase from just 8 to 11 students among entrants who never attended a for-profit)." So not only things are getting worse over time on their own, but they will be even worse given the direction of deregulation drive.

"The new data underscore that default rates depend more on student and institutional factors than on average levels of debt. For example, only 4 percent of white graduates who never attended a for-profit defaulted within 12 years of entry, compared to 67 percent of black dropouts who ever attended a for-profit. And while average debt per student has risen over time, defaults are highest among those who borrow relatively small amounts." This highlights, amongst other things, the absurd nature of the U.S. legal frameworks governing the resolution of student debt insolvency: the easier/less costly cases to resolve (lower borrowings) in insolvency are effectively exacerbated by the lack of proper bankruptcy resolution regime applying to the student loans.

Some charts:

Data above clearly highlights the dramatic uplift in default rates for the more recent cohort of borrowers. At this point in time, borrowers from the 2003-2004 cohort already exhibit higher cumulative default rates than the previous cohort exhibited over 20 years horizon. Worse, the rate of increases in default rates is still higher for the later cohort than for the earlier one. Put differently, things are not only worse, but are getting worse faster.

And here is the breakdown by the type of institution:

For-profit institutions' loans default rates are now at over 50% and rising. In simple terms, this is a form of legislatively approved and supported debt slavery, folks.

Beyond the study, here is the latest data on student loans debt. Student loans - aggregate - transition into delinquency is highest of all household credit lines:

And the total volume of Student Loans debt is now second only to mortgages:

20/11/15: U.S. Households' Deleveraging: Painful & Long

An interesting set of charts plotting trends in U.S. household credit arrears over time, courtesy of the @SoberLook

Three things stand out in the above. 

Per first chart, credit cards debt is the only form of credit that saw arrears drop below pre-crisis levels. It also happens to be the form of debt that is easiest to resolve - largely unsecured and easily written down. Mortgages debt arrears - while declining significantly from crisis peak - still remain at levels above pre-crisis averages. Ditto for all other forms of household debt. 

Also per first chart, improving labour markets conditions are doing zilch for student loans arrears. These remain on an upward trend and close to historical highs.

Thirdly, from the second chart, new volumes household credit in arrears in 3Q 2015 are broadly consistent with the situation in the same quarter in 2014, with new arrears falling to 4Q 2007 levels, but still running at levels well above 2003-2006 levels.

This, in an economy characterised by more robust labour markets than those of Europe and by personal insolvency regimes and debt resolution systems more benign than those in Europe. In simple terms: deleveraging out of bad debt is a painful, long-term process. Good luck to anyone thinking that raising rates will do anything but delay it even longer and make the pain of it even greater.