CCC048: Worried about Student Loan Debt? Why not Auto Debt?

Beware Auto Debt

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.



More Car Loans Than Mortgages in U.S.:

40 million Americans now have student loan debt:

Obama extends caps on student loan payments to about 5 million people

Consumers driving up record auto loans: Experian:

Average Debt for 2013 Grads Tops $30k in 6 States; Only 1 Below $20k:

Car Repos Soar 70% As Auto Subprime Bubble Pops; “It’s Contained” Promises Fed:

What Is a Prime Credit Score for anAuto Loan?:

U.S. auto loan originations at highest level in 9 years, N.Y. Fed says:

Young Families and Student Debt:

50% Of American Workers Make Less Than $28,031 A Year:

NBC A Quarter of Millennials Expect Student Debt Forgiveness:

Student Debt vs. Car Loans:

Is It Still Worth Going to College?:

College Degrees With the Highest Starting Salaries:

Real Cost of All Those New Cars: Late Loan Payments Are Up 13%:

Wave Goodbye to the Two-Car Family:

TransUnion: Auto Loan Delinquency Rate and Debt Drive Higher in Q2:

TransUnion: Auto Loan Delinquency Rate and Debt Rise Again:

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