New data from the Federal Reserve demonstrates that credit card users with balances are more likely to pay than student loan borrowers. This is the first time ever that student loan delinquencies are higher than credit card delinquencies.
Of all the nearly $1 trillion in student loan debt outstanding and due in September 2012, 11% of it was delinquent, meaning that one-ninth of all student loan debt is being repaid by someone having trouble paying the bills. This rate was significantly higher than the 10.5% of credit card debt in delinquency.
Historically, consumers have been most likely to be delinquent on credit cards because the lines are unsecured. Student loan debt, however, is secured by a person's future earnings potential, meaning that the debt has to be repaid. Credit card debt is more easily discharged in bankruptcy. The amount of delinquent student loan debt has now doubled from 2003 when the New York Fed first began recording the level of student loan delinquencies.
Credit card delinquencies are actually down since peaking in 2010. Economists believe that consumers are more likely to change their credit card habits than student loan habits – credit card spending is not always entirely productive, while student loan debt is easily justified by the promise of higher wages upon graduation. So far, slow job growth is making it difficult for borrowers with large student loan balances to repay what they owe. Student loan debt is now more than 40% larger than credit card debt, a shift that happened mid-decade in the 2000s and persists to this day.