FICO Labs: U.S. Student Loan Delinquencies Climbing Fast, Showing No Signs of
Size of average student loan has risen 58 percent since 2005
SAN JOSE, Calif., Jan. 29, 2013
SAN JOSE, Calif., Jan. 29, 2013 /PRNewswire/ --Research by FICO Labs into the
growing student lending crisis in the U.S. has found that, as a group,
individuals taking out student loans today pose a significantly greater risk
of default than those who took out student loans just a few years ago. The
situation is compounded by significant growth in the amount of debt that new
graduates are carrying.
The delinquency rate today on student loans that were originated from
2005-2007 is 12.4 percent. The comparable figure for student loans that were
originated from 2010-2012 is 15.1 percent, representing an increase in the
delinquency rate by nearly 22 percent.
While the delinquency rate is climbing, the average amount of student loan
debt is increasing even faster. In 2005, the average U.S. student loan debt
was $17,233. By 2012, it had ballooned to more than $27,253 – an increase of
58 percent in seven years. By contrast, the average credit card balance and
the average balance on car loans owed by U.S. consumers actually decreased
during the same period.
In a related finding, FICO's quarterly survey of bank risk managers conducted
in December 2012 found that nearly 60 percent of respondents expected
delinquencies on student loans to increase over the next six months. The same
respondents expected delinquencies on all other types of consumer loans to
decrease, putting the pessimism around student loans in sharp relief.
"This situation is simply unsustainable and we're already suffering the
consequences," said Dr. Andrew Jennings, FICO's chief analytics officer and
head of FICO Labs. "When wage growth is slow and jobs are not as plentiful as
they once were, it is impossible for individuals to continue taking out
ever-larger student loans without greatly increasing the risk of default.
There is no way around that harsh reality."
Jennings continued, "As more people default on their student loans, their
credit ratings will drop, making it harder for them to access new credit and
help grow the economy. Even people who stay current on their student loans are
dealing with very large debts, which reduces the money they have available to
spend elsewhere. The stakeholders in the student lending industry have to take
a hard look at the terms and repayment rules for student loans, and the
industry may have to develop a new lending model to prevent a bad situation
from getting completely out of hand."
A report of the research by FICO Labs is available at www.fico.com/insights
(registration is required). The research was based on an examination of 10
million consumer credit files in 2012.
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