A new report from FICO Labs states U.S. student loan delinquency rates climbed by nearly 22% in the past five years.
The delinquency rate on student loans originated from 2005 to 2007 is 12.4%, while the delinquency rate on student loans originated from 2010 to 2012 is 15.1%, FICO said.
The research, which FICO said was based on an examination of 10 million consumer credit files in 2012, also revealed the average amount of U.S. student loan debt increased by 58% from 2005 to 2012 — $17,233 to $27,253 — while average U.S. credit card and auto loan debt amounts declined.
Additionally, in a quarterly survey conducted by FICO in December 2012, nearly 60% of responding bank risk managers said they expected student loan delinquencies to increase over the next six months and delinquencies on all other types of consumer loans to decrease over the next six months.
“This situation is simply unsustainable and we're already suffering the consequences,” said Andrew Jennings, chief analytics officer for FICO 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.”
Paralleling FICO's findings is an article in Raddon Financial Group's Raddon Report, which states that while student loan delinquency and default rates are mounting, partially because of an official unemployment rate of 7.8%, the demand for student loans is robust in comparison to other loans.
“The largest banks have recognized the importance of Gen Y (the current generation that attends college) and have made significant inroads with this group, due to both locational convenience and technology,” said author Pat Bator, a senior market and product development analyst for Raddon Financial Group. “What this suggests is that the college-age consumer should not be abandoned, but student lending should be engaged in with great caution.”
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Natasha Chilingerian
Natasha Chilingerian has been immersed in the credit union industry for over a decade. She first joined CU Times in 2011 as a freelance writer, and following a two-year hiatus from 2013-2015, during which time she served as a communications specialist for Xceed Financial Credit Union (now Kinecta Federal Credit Union), she re-joined the CU Times team full-time as managing editor. She was promoted to executive editor in 2019. In the earlier days of her career, Chilingerian focused on news and lifestyle journalism, serving as a writer and editor for numerous regional publications in Oregon, Louisiana, South Carolina and the San Francisco Bay Area. In addition, she holds experience in marketing copywriting for companies in the finance and technology space. At CU Times, she covers People and Community news, cybersecurity, fintech partnerships, marketing, workplace culture, leadership, DEI, branch strategies, digital banking and more. She currently works remotely and splits her time between Southern California and Portland, Ore.
