Household Debt Reaching New Heights

Total household debt in the US breached the $12.68 trillion-mark set in 2008, to a new high of $12.73 trillion, at the end of the first quarter in 2017. The higher balances represent a growing trend of increased debt, with levels rising between December 31 and March 31, by 149 billion. While debt levels skyrocket, consumer debt patterns varies from 2008, with the primary differences in the type of debt consumers accumulate.

The current trend indicates that mortgage debt remains the highest form of borrowing, with regard to total balances. However, auto and student loans saw the largest percentage increases in the last decade, according to the Federal Reserve Bank. For example, in the past three years, student loan balances increased from 34 billion to 1.34 trillion, reaching a new benchmark. Along with the dramatic rise in balances, the delinquency rate continues an upward trend, now hovering around 11%, drawing attention and concern among both economists and consumers. Student loan debt also transcends age, with seniors occupying the fastest growing category of borrowers, based on percentage growth.   

Rising balances on debt to pay for college has outpaced all other forms of borrowing in the last 14 years, increasing more than 457%, compared to a 74% increase in mortgage debt, and an 82% increase in auto loans. The numbers are not surprising given the rapid rise in tuition costs, outpacing inflation. The job market increasingly requires a college degree, leading more students to rely on additional schooling and loans to pay the price.   

In terms of economic growth, an increase in debt levels can indicate positive trends. Banks have loosened lending requirements, and consumers show more confidence by taking on additional debt. However, rising debt, combined with higher interest rates, leads to higher minimum payments and potentially more consumer defaults.