US student loans, having boomed in the past 8 years, surged to their all-time highest at an aggregated $1.3 trln, representing roughly 11 percent of total outstanding household debt in the US, with over 7 mln borrowers unable to serve their obligations.
The situation is significantly holding back the improvements in consumer sentiment, offsetting recent improvements in the labour market, and limiting the prospects of US economic growth.
With some 72 percent of the US GDP driven by consumer purchases, the mounting concerns over student loans, especially non-performing loans (NPLs), are becoming an increasingly prominent factor is assessing the prospects of any further economic acceleration. Particularly so, as the Federal Reserve is normalising the US monetary conditions with borrowing costs going up, the issuance of the debt and refinancing of existing loans is now more expensive, and the downside risks of the monetary policy are increasingly prominent in the projected dynamics of the broader GDP expansion.
According to the Federal Reserve Bank of New York, during the past 15 years, the burden of student loans in the US economy has increased from just 3.3 percent of overall household indebtedness in 2003 at $240.7 bln to the current $1.3 trln, or 10.6 percent of total household debt. About 44 mln Americans currently have a student loan to service, and about every sixth borrower has defaulted on their obligations.