If you turn on the news on any given day, you have a good chance of hearing about the epidemic of student loan debt. You will hear about a generation losing their ability to borrow for cars, homes, or furnishings. I share the concern over student loan debt, it is a problem.
I see a larger problem. A problem which I seem to be one of only a few people to be sounding the alarm.
What might I be concerned about you ask? It’s auto debt.
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You may still be asking why. Everyone has auto debt after all.
That is mostly true, as most people learn at an early age they will always have auto debt. Turns out that’s not quite true. Currently, seven out of ten cars are purchased using debt.
Now, you may be wondering how auto debt stacks up to the student loan debt that seems to have everyone so concerned.
Let me share some numbers with you. You may be surprised as you find the numbers are closer than you might expect.
Facts About Auto Debt and Student Loan Debt
Number of Auto Loans > 90M Number of Student Loans > 40M
Total auto debt $0.93T Total student loan debt $1.13T
70% of new cars have a auto loan 69% of students have a student loan debt
8% of household debt is auto debt 10% household debt is student loan debt
Auto debt up $29B in Q3 2014 Student loan debt up $8B in Q3 2014
Auto debt up $89B since Q3 2013 Student loan debt up $99B since Q3 2013
Auto debt 90+ days delinquent 3.1% Student loan debt 90+ days delinquent 11.1%
Avg new car loan amount – $27,799 Avg student loan amount – $28,400 – 2013
Student Loan Debt Percentages by Dollar Amount
64.2% of all student loans are under $25,000
17.1% of all student loans are between $25,000 and $50,000
81.3% under $50,000
18.8% of all student loans are over $50, 000.
5.6% of all student loans are over $100,000.
Forbes Online: Student Debt vs. Car Loans by Lucie Lapovsky
“Surely $28,200 is not inconsequential, but you don’t need an MBA to recognize that the payoff from that debt is enormous: over their lifetime, college graduates will earn on average $800,000 more than those without a college degree according to the Federal Reserve Board.
Over 10 years, a typical term for a student loan, the average debt of $28,200 will require a monthly payment of $284 a month at the current federal loan rate of 3.86% According to Experian, the average new car loan today has a monthly payment of $471.”
While student loan debt is up, 24% of millennials expect to have their loans forgiven based on a study by Junior Achievement and PwC US.
As we look at the average auto loan debt per borrower being $17,352 in Q3 2014, 3.9% higher than a year ago. It is worth remembering that 57% of all households have 2 or more cars. Meaning that 57% of households have an average of two times this auto debt which works out to be $34,704.
I hope this podcast episode will help start a conversation in this country about the coming auto debt bubble and potential crisis. Here are a few closing thoughts.
Auto debt impacts more people than student loan debt and further will impact those individuals over a longer time period as well. Student loan debt will most often be paid off in 10 years. Auto debt may only be 68 months on average, but it will be repeated by borrowers an average of 9.5 times before the age of 65.
NY Fed Reserve QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT – November 2014: http://nyfed.org/15RSbng
More Car Loans Than Mortgages in U.S.: http://on.wsj.com/1ylHB3z
40 million Americans now have student loan debt: http://cnnmon.ie/1yZrwj0
Obama extends caps on student loan payments to about 5 million people http://wapo.st/12Es2qN
Consumers driving up record auto loans: Experian: http://www.cnbc.com/id/102224482
Average Debt for 2013 Grads Tops $30k in 6 States; Only 1 Below $20k: http://bit.ly/1ylnihS
Car Repos Soar 70% As Auto Subprime Bubble Pops; “It’s Contained” Promises Fed: http://bit.ly/1zY19rR
What Is a Prime Credit Score for anAuto Loan?: http://classroom.synonym.com/prime-credit-score-auto-loan-9272.html.
U.S. auto loan originations at highest level in 9 years, N.Y. Fed says: http://bit.ly/1FSfTuo
Young Families and Student Debt: https://www.insidehighered.com/news/2014/09/08/families-student-loan-debt-grows-rate-increase-slows
50% Of American Workers Make Less Than $28,031 A Year: http://www.zerohedge.com/news/2014-10-24/50-american-workers-make-less-28031-year
NBC A Quarter of Millennials Expect Student Debt Forgiveness: http://nbcnews.to/1s16cDN
Student Debt vs. Car Loans: http://www.forbes.com/sites/lucielapovsky/2014/11/23/student-debt-vs-car-loans/
Is It Still Worth Going to College?: http://bit.ly/1q0b8x4
College Degrees With the Highest Starting Salaries: http://onforb.es/1FWB68A
Real Cost of All Those New Cars: Late Loan Payments Are Up 13%: http://bit.ly/1vSuKCJ
Wave Goodbye to the Two-Car Family: http://www.nbcnews.com/business/economy/wave-goodbye-two-car-family-n251036
TransUnion: Auto Loan Delinquency Rate and Debt Drive Higher in Q2: http://bit.ly/1vmAZuV
TransUnion: Auto Loan Delinquency Rate and Debt Rise Again: http://bit.ly/1wCbL2b
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