March 26, 2015
While lending activity has grown more conservative since the financial crisis, there is reason to believe this sector is once again running into trouble. More specifically, both auto and student loan debt saw their delinquencies track higher in the fourth quarter, and during the same time, household debt increased.
Student loan challenges
Student loan debt has generated substantial visibility as being a potential cause for concern. The total volume of these obligations rose to $1.16 trillion during the fourth quarter of 2014, $31 billion more than the prior three-month period, according to Federal Reserve data. This compares to $363 billion in total student loan debt during the first quarter of 2005.
Delinquency for these loans reached 11.3 percent in the final quarter of 2014, surpassing the figure of 11.1 percent that existed during the prior three months.
While the latest quarterly figure is less than the 11.8 percent rate experienced in 2013, it has left student loan debt the highest delinquency, according to Bloomberg. Previously, credit card debt held this position, but lost this distinction in 2012.
Auto lending also showed signs of weakness during the final quarter of 2014, as 3.5 percent of these loans were delinquent during the period compared to 3.1 percent in the prior three months. This type of debt also tracked higher, rising $21 billion to $955 billion.
Many Americans with weaker credit profiles have been taking on auto loans, and there are concerns that a growing number of them could fall behind on their payments, according to The Wall Street Journal.
Auto lenders have been handing out credit with vigor, and the issuance of new credit hit a nine-year high during the third quarter before dipping slightly to $102 billion in the following quarter, the media outlet reported.
Amid these latest increases in obligations, household debt increased $117 billion during the final quarter of 2014 to hit $11.8 trillion, according to Fed figures. While the increases in auto and student loan debt may seem alarming to some, the development could simply point to the market returning to a more balanced state as the strict credit conditions experienced over the last few years become less severe.