This is probably not going to come as a big surprise, but earlier this month the New York Federal Reserve Bank released data showing that auto loan defaults and credit card defaults rose, particularly among young borrowers. Also, not surprisingly, auto loan defaults and credit card balances rose among low income borrowers. Final non surprise – there’s a lot of overlap between youth and low-income status.
So, the information goes something like this. The Fed released quarterly data on household debt for the fourth quarter of 2023. Household debt grew by about $212B in the fourth quarter of last year. About $112B of that increase is attributable to mortgage debt. Home equity lines of credit rose for the seventh straight quarter to $11B. Credit card debt increased by $50B. Auto loan debt increased by $12B.
People are relying more heavily on credit spending to make ends meet. According to Fed data, the delinquency rates on auto loans has increased among borrowers of all ages over the last two years, but delinquencies among Baby Boomers (1946-1964) and Millennials (1980-1994) exceeded the pre-pandemic delinquency rates for these generations. Delinquency rates for borrowers from Generation X (1965-1980) and Generation Z (1995-2012) have increased but are still below the pre-pandemic levels for borrowers in this age range. Collectively, auto loan delinquencies among borrowers of all ages currently exceed the pre-pandemic delinquency rate.
This stands to reason because the current average monthly auto payment falls between $545 and $625. To no one’s surprise, low-income borrowers can least afford monthly car payments in this range. Auto loan defaults are pretty much guaranteed.
Auto loan defaults symptomatic of income disparities
I bring this up because this illustrates exactly why community college enrollment is down drastically. Graduating from a community college – in most cases – does not put one in a position to afford a $550 monthly car payment. If the average car payment is $550, what is the average rent or mortgage payment? And if a community college degree doesn’t allow one to afford a $550 monthly car payment, it’s also not likely to allow one to afford the average rent in Ypsilanti ($1.450) or Ann Arbor ($2,056).
To afford these two expenses alone, one would have to make between $34,000 and $45,000 per year. All the other expenses normally associated with keeping body and soul together would easily push this figure to $50,000-$60,000 per year.
Community college degrees will not become viable in this area until they can allow a person to make enough money to live in this area after graduation. Not many community college degrees will allow a person to make $50K-$60K, even 10 years after graduation.
Auto loan defaults are particularly important to employers in this area. This is a “bread-and-butter” issue. Until the WCC administration gets extremely realistic about ensuring that its students’ post-graduation income enables them to live in Washtenaw County and avoid defaulting on their loans, enrollment will continue to founder. It’s simple addition and subtraction. The books – no matter whose books they are – have to balance.
Photo Credit: kuhnmi , via Flickr
