The results of our quarterly survey of U.S. bank risk professionals are in. The number that really jumps out to me is 67%. That’s how many of our respondents expect delinquencies on student loans to rise. In the nearly two years we’ve been conducting these surveys, expectations for delinquencies on student loans have been pretty stable. But this quarter we saw a jump of 19 percentage points.
With student loan debt now exceeding credit card debt in the U.S., this result is a big deal for banks and taxpayers. Evidence is mounting that student loans could be the next trouble spot for lenders. Just as the challenging economy has forced many people to make tough choices about their mortgages and other bills, it appears that many Americans are now taking a hard look at their student loan debt.
Our survey results also offered sobering (although not unexpected) insights about other types of consumer debt. Regarding mortgages, 47% of respondents expected mortgage delinquencies to rise, and 13% expected delinquencies to decrease. That is slightly more pessimistic than last quarter. When asked about credit cards, 45% expected delinquencies to rise while 21% expected a decline. That is also more pessimistic than last quarter and another sign of weak confidence among bankers.
In addition, 54% of respondents expected credit card balances to increase. While this could be seen by an optimist as a sign that some consumers are finally ready to loosen their purse strings, it is also highly likely that financial stress for many consumers is making it difficult for them to pay down their balances.
A detailed report of our survey—which we conduct and analyze in partnership with PRMIA and the Columbia Business School—is available at http://www.prmia.org/PRMIA-News/FICO_Survey_2011Qtr4.pdf.