Student Loan Delinquencies are Sky High [Chart]
Simple arithmetic shows one of these loans is not like the other
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
It’s a recipe for a mountain of $1.3 trillion in student loan debt – much of which is not being paid for.
Very Delinquent Students
With many students graduating with high debt loads, a growing number of students are becoming delinquent on their loans. The most recent estimate by the Federal Reserve Bank of New York estimates the percent of 90+ day delinquent loans to now be at 11.0%.
This puts student loans at a higher delinquency rate than credit cards (7.6%), auto loans (3.5%), and mortgages (2.2%). It’s also particularly interesting because historically credit cards have had the highest rates among all types of consumer credit. Despite this, student loans “passed” credit cards in delinquency frequency at the end of 2012.
Why are student loans the most troubled form of consumer debt right now? It’s the result of a clear mismatch between supply and demand for college-educated workers.
The Overeducation Bubble
Have college graduates been oversold on the prospects of a college degree? Or is the market for high-paying jobs not materializing as expected in the current low-growth economy?
Either way, many college grads are punching below their weight in the job market. In a 2014 study, economists affiliated with the Federal Reserve Bank of New York found that up to 49% of recent college graduates aged 22 to 27 were working in careers that do not requite any college education.
Based on this and other factors, renowned investor Peter Thiel has called higher education to be a bubble:
If a college degree always means higher wages, then everyone should get a college degree. But how can everyone win a zero-sum tournament? No single path can work for everyone, and the promise of such an easy path is a sign of a bubble.
He’s backed up his opinion with the Thiel Fellowship, a $100,000 grant for would-be students who want to “build something” rather than sit in a classroom.
Some Students Left Behind
A recent survey shows that many graduates are regretting their choices around student debt and education. Roughly 57% of millennials now say they regret how much they borrowed, and over one-third of respondents said they wouldn’t have gone to college if they knew the true price tag.
Massive debt loads and the increasing student loan delinquency rate translate into real consequences for the economy. Many graduates are deferring having families or owning homes. One study even says that a modest student loan debt of $30,000 could cut $325,000 from a person’s 401(k) balance by retirement time.
Visualized: U.S. Corporate Bankruptcies On the Rise
In 2023, over 400 companies have folded. This graphic shows how corporate bankruptcies are growing at the second-fastest rate since 2010.
Visualized: U.S. Corporate Bankruptcies on the Rise
In March, Silicon Valley Bank collapsed, plunging its parent company SVB Financial Group into bankruptcy a week later.
While many expected a wave of bank failures to follow, much of this has since been averted—but cracks have begun to emerge with Moody’s recent downgrading of 10 small and mid-sized banks.
Across the wider corporate landscape, bankruptcies have begun to tick higher. Overstretched balance sheets coupled with 11 interest rate hikes since last year have added to mounting challenges for companies across many sectors.
This graphic shows the surge in corporate bankruptcies in 2023 based on data from S&P Global.
U.S. Corporate Bankruptcies Grow
So far in 2023, over 400 corporations have gone under. Corporate bankruptcies are rising at the fastest pace since 2010 (barring the pandemic), and are double the level seen this time last year.
Below, we show trends in corporate casualties with data as of July 31, 2023:
|Year of Filing||Bankruptcy Filings|
as of July
Represents public or private companies with public debt where either assets or liabilities are greater than or equal to $2 million, or private companies where assets or liabilities are greater than or equal to $10 million at time of bankruptcy.
Firms in the consumer discretionary and industrial sectors have seen the most bankruptcies, based on available data. Historically, both sectors carry significant debt on their balance sheets compared to other sectors, putting them at higher risk in a rising rate environment.
Overall, U.S. corporate interest costs have increased 22% annually compared to the first quarter of 2021. These additional costs, combined with higher wages, energy, and materials, among others, mean that companies may be under greater pressure to cut costs, restructure their debt, or in the worst case, fold.
This year, 16 companies with over $1 billion in liabilities have filed for bankruptcy. Among the most notable are retail chain Bed Bath & Beyond and the parent company of Silicon Valley Bank.
|Party City||Consumer Discretionary||Jan 2023|
|Serta Simmons Bedding||Consumer Discretionary||Jan 2023|
|Avaya||Information Technology||Feb 2023|
|Diamond Sports||Communication Services||Mar 2023|
|SVB Financial||Financials||Mar 2023|
|LTL Management||N/A||Apr 2023|
|Bed Bath & Beyond||Consumer Discretionary||Apr 2023|
|Whittaker, Clark & Daniels||N/A||Apr 2023|
|Kidde-Fenwal||Consumer Discretionary||May 2023|
|Envision Healthcare||Healthcare||May 2023|
|Wesco Aircraft||Industrials||Jun 2023|
|PGX Holdings||Industrials||Jun 2023|
|Cyxtera||Information Technology||Jun 2023|
|Voyager Aviation||Industrials||Jul 2023|
Mattress giant Serta Simmons filed for bankruptcy early this year. It once made up nearly 20% of bedding sales in America. With a vast share of debt coming due this year, the company was unable to make payments due to higher borrowing costs.
What Comes Next?
In many ways, U.S. corporations have been resilient despite the sharp rise in borrowing costs and economic uncertainty.
This can be explained in part by stronger than anticipated profits seen in 2022. While some companies have cut costs, others have hiked prices in an inflationary environment, creating buffers for rising interest payments. Still, S&P 500 earnings have begun to slow this year, falling over 5% in the second quarter compared to last year.
Secondly, the structure of corporate debt is much different than before the global financial crash. Many companies locked in fixed-rate debt over longer periods after the crisis. Today, roughly 72% of rated U.S. corporate debt has fixed rates.
At the same time, banks are getting more creative with their lending structures when companies get into trouble. There has been a record “extend and amend” activity for certain types of corporate bonds. This debt restructuring is enabling companies to keep operating.
The bad news is that corporate debt swelled during the pandemic, and eventually this debt will come due likely at much higher costs and with more severe consequences.
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