Today, the only credit type that expanded during the U.S recession and current nascent recovery are Student Loans. Credit contraction continues for all other loan types, including slowing auto loan contraction with 2010 auto sales increases.
Change in Loans Outstanding from July 2009 to July 2010
Student Loans: +8.3 percent
First Mortgage: -3.6 percent
Home Equity Loans: -3.6 percent
Auto Loans: -5.5 percent
Credit Cards: -10 percent
Since July 2007, Student Loan Outstandings have increased by almost $200 billion to more than $542 billion today, a 56 percent increase over 3 years. The estimated compound annual growth rate, or CAGR, is 16 percent per year in student loan outstanding growth. With these numbers, student loan expansion grew as if the recession did not happen.
Why is this? Simply, education (and, thereby, Student Loans) is perceived as an investment in the future. Education is not consumption, but a capital investment. Further education is preparation for a future job opportunity, whether in the same career path with sharpened skills or a new career path altogether.
This applies to all levels of higher education. Parents are encouraging their children to prepare for an increasingly competitive global job market. Adult students are enriching their present skill sets. Some adult students are strategically using their unemployed time to increase their employment marketability.
Continued Student Loan growth during the recent down cycle is an represents the value placed on higher level education, as well as stretched household finances and higher education costs.
Tempering the growth in Student Loan Outstandings is growing Student Loan Delinquencies. This is a direct reflection of the tepid employment market and slower recovery to-date. Delinquent loans, defined as two or more missed payments, have double-digit increases compared to other loan types, where delinquencies have already peaked and are now declining. Comparatively, Student Loan Delinquencies increased over 13 percent in the last year, but credit card delinquencies decreased almost 29 percent.
Keep in mind that we may be starting to see a population shift in student loans and credit cards. The CARD Act of 2009, restricted credit card access to consumers under the age of 21.
Loan Delinquency from July 2009 to July 2010
Student Loans: +13.3 percent
First Mortgage: +3.7 percent
Home Equity Lines: -14.2 percent
Auto Loans: 7.7 percent
Credit Cards: -28.9 percent
Are you student today or thinking about going back to school? Will you be taking out a loan? What is your experience in managing college costs?
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