4 days ago
Student loan delinquencies are up. Is the high cost of college worth it?
The New York Federal Reserve has released its quarterly report on household debt and credit. This is an updated column focusing on student loans, which was originally published April 25, 2025.
Another cohort of high school students will head off to college next month.
I wonder what they and their parents have learned from the cautionary tales of those who came before, now shackled by student debt and dreams deferred?
Are they listening to the warning cries of the millions who now have to squeeze monthly student loan payments back into their monthly budgets?
After a five-year pandemic-related payment freeze, the Education Department resumed collections on defaulted student loans in May — and indicated that millions of borrowers would be impacted.
Now, new data from the Federal Reserve Bank of New York shows this to be true.
In the second quarter, 10.2 percent of student debt was reported as 90 days or more delinquent.
'Student loans saw another uptick in the rate at which balances went from current to delinquent due to the resumption of reporting of delinquent student loans,' the report said.
Every single student and parent who has signed or will take out loans for tuition and room and board needs to understand how serious a problem this may be. The entire economy could get hit by the 'looming tsunami of student loan delinquencies and defaults,' warned a recent report from the Bipartisan Policy Center, citing the expected drop in consumer spending and savings.
'For two decades, rising levels of borrowing, high rates of noncompletion, and poor labor market outcomes for some students have led to a growing student loan challenge, as a sizable minority of loan borrowers struggle to repay their debts,' according to the center's report.
Without adequate funds from savings, scholarships or grants, parents and students see no choice but to take out loans.
Student loan balances increased in the second quarter by $7 billion to $1.64 trillion, according to the New York Fed's report. And because the government has significant debt collection power, some borrowers face a reduction in their Social Security payments and credit scores or wage garnishments.
It's not too late to reconsider the amount of debt you may be sentencing yourself and your child to. Read this blog series released by the New York Fed earlier this year.
One asks: Is College Still Worth It?
The other blog is titled: When College Might Not Be Worth It.
Let's start with the debate about a college degree.
A college graduate with a bachelor's degree earned a median annual salary of about $80,000, compared with $47,000 for a worker with only a high school diploma, according to the New York Fed.
If you looked at the return of college as an investment, it would be an annual 12.5 percent, 'a rate well above the threshold for a sound investment,' the New York Fed concluded.
Given such a wage premium, 'it is easy to see why the return to college remains so substantial,' the report said. 'Over an entire working life of more than forty years, such a premium adds up to a benefit well in excess of the costs.'
Okay, so that proves the debt is worth the struggle, you may be thinking.
However, the second report outlines how an investment in a college degree isn't always a guaranteed return. Factors such as the cost of tuition, the time to graduate, the field of study and the earning potential after graduation significantly impact whether college is worth the accumulation of debt that could take decades to pay off.
'As many as a quarter of college graduates appear to end up in relatively low-paying jobs, and for them, a college degree may not be worth it, at least in terms of the economic payoff,' the Fed researchers said.
In another report looking at the labor market for recent college graduates, the New York Fed said, 'conditions remained challenging for recent college graduates during the second quarter of 2025. The unemployment rate averaged 5.3 percent.'
The increase in student loan default rates should give students and parents pause. If you plan on using education debt, ask yourself these two key questions.
If I had a dollar for every college student who didn't know what his or her student loan payments would be after graduation, I would be uber rich.
I've long been disturbed by the number of students and families who don't focus on how much they've borrowed for school until the payments become due. It's like buying a house without knowing your monthly mortgage payment until after you've moved in.
With the coming changes to student-loan repayment options and loan caps under the Republicans' massive tax and immigration legislation, it's never been more critical for students and their families to understand the costs and risks of student loans.
Every time someone says a student loan is good debt, I roll my eyes.
I've spoken to individuals, many approaching or already in retirement, who are still burdened by student loans long after earning a degree.
At the end of 2024, 2.8 million borrowers aged 62 or older were carrying student loan debt totaling $121.5 billion, according to the Education Department.
Framing education debt as a good investment overlooks an unfortunate truth: When the debt becomes too large, it can derail other goals, such as buying a home or saving for retirement. The conventional wisdom that a college education — and the debt to obtain it — guarantees a good life doesn't always hold true.
'It is the case that student loans are a mechanism for many, many students to be able to afford higher education and, for many of those students, it turns out to be a very wise investment in themselves that pays off over the long run,' a New York Fed researcher said during a press call on the second quarter results.
'But … for a fairly substantial subset, it becomes a little bit of a bad outcome in terms of the delinquency on the debt,' he added. 'So one should be aware of what one's doing when one makes those decisions about taking out loans, even for a very worthwhile investment.'
