Higher education is a key driver of economic security and mobility in the United States. However, as tuition costs increase and wages stagnate for many workers, we are witnessing unprecedented increases in student loan borrowing as well as rising rates of delinquency and default, especially in low-income communities and communities of color. Having delinquency and default reported to credit bureaus will lower a borrower’s credit score, making it harder to obtain future loans, rent an apartment, or even find a job, and it is nearly impossible to discharge student loans through bankruptcy.
We recently partnered with the San Francisco Treasurer’s Office of Financial Empowerment to take a look at student loan debt for the nine-county San Francisco Bay Area region using Federal Reserve Bank of New York Consumer Credit Panel/Equifax Data. Here’s what we found.
Approximately 735,000 Bay Area student loan borrowers (12.2 percent of the adult population) owed a collective $26.6 billion in student debt as of March 2018. While the prevalence of student loan debt is lower in the Bay Area than California (13.9 percent) or the U.S. (17.9 percent), the high costs of living in the Bay Area and wages that have not kept pace have contributed to dramatic disparities among communities throughout the region.
Here are six things to know about this research:
- Student debt has increased considerably in the past 15 years. The percentage of adults with student loan debt nearly doubled over the past 15 years from 6.2 percent to 12.2 percent. Total outstanding debt in the Bay Area increased by 243 percent and the median balance increased by 28 percent from $13,685 to $17,489 in 2018 dollars.
- Borrower distress has also increased over the past 15 years. Borrower delinquency (defined as 90 days or more late) increased by 60 percent over the past 15 years, from 7.4 percent to 11.8 percent, and default (defined as 270 or more days late) increased by 135 percent, from 3.8 percent to 9.1 percent.
- Borrowers in low-income neighborhoods experience higher levels of delinquency and default. Nearly one in five borrowers (19.5 percent) in the lowest income neighborhoods are 90 days or more delinquent on their loans, with three quarters of those in delinquency (15.1 percent) in default.
- One in six student loan borrowers have experienced default in the past 15 years. The percentage of student loan borrowers who have defaulted at some point in the past 15 years is 17.2 percent, nearly double the current rate of default in the Bay Area (9.1 percent). At the zip code level, the percentage of borrowers who have defaulted at some point since 2003 reaches as high as 46.2 percent
- Borrowers with low loan balances experience higher levels of delinquency and default. Nearly half (49.7 percent) of all Bay Area student loan borrowers in default owe less than $15,000, and almost one in five defaulted borrowers (18.4 percent) owe less than $5,000.
- Borrowers living in neighborhoods with high percentages of Black and Hispanic residents experience repayment distress. In the Bay Area neighborhoods with the highest percentages of Black and Hispanic residents, 20 percent of borrowers are delinquent, more than 15 percent are in default, and almost 27 percent have defaulted since 2003.
For more, read At What Cost? Student Loan Debt in the Bay Area.
The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.