Student Loans Remain a Sticking Point for Consumers in Debt

Outstanding consumer debt jumped to $11.52 trillion in the last quarter of 2013, the largest quarter-to-quarter increase in debt since the third quarter of 2007, according to a recent report from the Federal Reserve Bank of New York. It’s based on a nationally representative sample of credit report information from Equifax.

An increase in debt may sound like a bad thing, but delinquency rates held steady or improved for most loan products in the fourth quarter of 2013. Foreclosures have been declining since mid-2009, and more borrowers have been able to return to making current payments on a mortgage that was once delinquent. That’s a positive reflection on Americans’ finances, since people have been largely able to repay the greater debt burdens they’ve taken on. By the end of 2013, 7.1% of loan products were in some stage of delinquency, down from 7.4% in the third quarter.

The black marks among these positive delinquency trends comes from credit cards and student loans: 9.5% of credit card accounts are more than 90 days past due, an increase from the previous quarter. Even though the percentage of student loans more than 90 days past due declined a bit from quarter to quarter, they still have the highest delinquency rate among loan types — 11.5% of education loans are more than 90 days past due.

It’s a troubling statistic: Student loans are the second-largest source of outstanding consumer debt, after home loans, and they can be incredibly difficult to refinance and nearly impossible to discharge in bankruptcy. The fact that such a high percentage of these loans are past due spells future credit trouble for the borrowers struggling to repay them. In comparison, 3.9% of mortgages were more than 90 days past due in the fourth quarter, down from 4.3% in the third quarter.

Student loan debt only continues to climb. The report puts outstanding student loan debt at $1.08 trillion in the fourth quarter (the Federal Reserve puts that number at just more than $1.2 trillion), an increase of $53 billion since quarter three. Credit card balances increased by $11 billion, and auto loans increased by $18 billion. Mortgages increased by $152 billion.

The quarter capped a year of increased consumer credit use. The four quarters of 2013 are the first since late 2008 to register an increase, though total outstanding debt remains below the peak of $12.68 trillion in the third quarter of 2008.

Being late on payments for any kind of debt can have a negative effect on your credit scores. By monitoring your scores regularly, you can see how your debts influence your credit standing over time. There are free tools (such as Credit.com’s free Credit Report Card) that allow you to see your free scores, which can help you stay informed on your status, especially as you work to get back on track. Check your credit reports — which you can do for free once a year at each of the major credit bureaus — to make sure your payment activity is being reported accurately, and that there are no other errors that could be dragging down your credit scores.