Student Debt Indicative of US Dollar Deflation

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As of Early 2018, the US government holds over $1.4 Trillion in a particularly risky asset: Student Debt.

This is tricky for 3 reasons:

  1. Delinquency rate
  2. Delayed wealth accumulation
  3. Tuition costs outpacing inflation and income increases

Over 10% Of Borrowers Are Delinquent

$100’s of billion dollars worth of assets are in some form of delinquency, up to 90 days late and the default rate is hovering around 10% of borrowers. Even if rate stays stable, the number of students entering postsecondary education is increasing. The value of the student debt increased 10% in 2017, up to some $113,000 from $99,000. If the Federal Education programs start to cut back lending to trim their balance sheet, students will be forced to borrow more from private banks.

View Portfolios by Delinquency Status: 

Graduates Average $20,000 In Debt, $200-$300/month Payments

The added burden of the college loans delays the time at which millennials are transitioning to purchasing a home or starting a family. This trendwill carry over into the property rental space, where major Metro areas like Boston and San Francisco are seeing rising rents, further delaying property ownership.

The Rising Price Of Education Means More Debt Per Graduate

The Consumer Price Index and national inflation both are stagnant at roughly 2% this past decade. So, while you may hear about the higher cost of higher education, the average amount borrowed though federal programs has also increased. Of the loans, the number in default has been steady, but the overall value of those defaulted loans is increasing.

There Are Countless Benefits To A Society With More College Educated Professionals.

But if the money owed to the Federal programs does not get paid back, they will either jeopardize their balance sheet, or be forced to decrease student lending. This will impact the number of students able to afford education, and stress the private banks issuing loans to borrowers who would have otherwise used Federal programs.Tuition increases, stagnant inflation, and competitive job markets all make it hard for borrowers to pay back. As long as the default rate stays steady, the Federal programs will continue to add value to the balance sheet, as the Education Loans provide both a trained workforce, and steady income for lenders.

If the cost of living and value of the US Dollar changes too rapidly, watch out for increased default rates leading to increased inflation as the Fed balances its books. 

 

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