Is There a Millennial Student Loan Debt Crisis in the US?

Depends what you mean by crisis. If you are a Millennial attempting to pay off enormous student loans while trying live on a paycheck relatively smaller than that your parents earned at the same age, it sure looks like one. 

And if you're a nation hoping to emerge - finally - from a  lingering recession, supporting a population which can't afford cars, houses and other trappings of prosperity, it probably doesnt look too good to you either. JL

Adam Levitin reports in Credit Slips:

The systemic danger from student loans is a debt overhang problem in which consumers' consumption habits are altered by the constant drag of debt service. That's not a "crisis" yet, but it's a problem that needs to be addressed before it becomes one.

I've been a skeptic for some time about claims that we have a student loan "crisis" in the United States. For individuals mired with student loan debt, it is very much a crisis, of course.  But my reluctance to term growing levels of student loan debt a crisis reflects the fact that student loan debt is highly concentrated within the population and is generally structured in a way that does not create sharp liquidity crises:  long (and often deferrable) maturities, no sharp repayment shocks, and often offers established repayment and forgiveness programs. (This is more true of government loans than private loans.) And, while student loan debt is growing rapidly, it is still only about a 9th of the size of the mortgage market. All of this has kept the student loan kettle from boiling over.
Yet at the same time it is precisely because of the concentration of student loans in the younger population that it is concerning.  Large debt loads at the beginning of one's adult life are likely to have very different effects on than debt spread out over a life time.  Moreover, student loans are not incurred based on current income, but on assumptions of future income (if that), so student loan debt burdens are more likely to be poorly calibrated to borrower's actual earning capacity. Additionally, because student loan debt is not dischargeable in bankruptcy (except in extreme circumstances), unlike other types of debt, it likely to stick around.  And, unlike various types of secured debt, there is no "put" option. A homeowner who runs into trouble with a mortgage or a cash-strapped auto loan borrower can always sell the house or car (or let them be repossessed) to pay off part or all of the debt. That's not possible with unsecured debt.  
The real concern with student loans is not an acute liquidity crisis, like a mortgage payment resets or a massive surge in defaults, as with underwater homeowners.  Instead, the systemic danger from student loans is a debt overhang problem in which consumers' consumption habits are altered by the constant drag of debt service. That's not a "crisis" yet, but it's a problem that needs to be addressed before it becomes one. 

To the extent younger borrowers are servicing debt, they are not saving or engaging in present consumption. This is particularly a concern for the housing market as higher student loan burdens mean that the younger population will be slower to enter the home ownership market and will have less purchasing power when they do. Who bears the costs of that shift? Not the Millenials. It's the boomers and Gen X/Gen Y that do. When they look to sell their houses, there will be less demand in the market. In other words, student loan debt poses a threat to older Americans' retirement savings. If you're a homeowner currently, rising student loan debt is your problem too because it is eroding the market value of your home equity.  Although I'm still hesitant to call student loan debt a crisis, what is clear is that if current trends continue it will become one. Student loan debt has grown on an inflation-adjusted basis 126% since 2006 (when the Fed started tracking student loan levels), and at an incredibly steady linear basis. Even if student loan debt is not yet a crisis, it is good policy to be addressing it now, when there are more options and it is possible to deal with it more rationally than when it has become a full-blown crisis. 
Some other skeptics of a student loan debt problem have argued that student loan debt isn't a real problem because it isn't substantially greater than auto debt, which no one thinks is a crisis about to happen.  There's about $1.36 trillion in student loan debt outstanding, and $971 billion in auto loan debt outstanding.  While student loan debt has much longer maturities than auto loan debt and is frequently deferred, consumers often replace one auto loan with another, so that they are constantly carrying auto debt. That helps make the figures more comparable. Yet, student loans debt burdens are substantively different from auto loan debt because of its generational concentration within the population, lack of income-based underwriting, non-dischargeability in bankruptcy, and lack of a "put" option. Moreover, student loan debt, unlike auto debt is growing at an incredible pace. 
The figure below graphs student loan debt, auto loan debt, and revolving debt from Q1 2006 to Q1 2015. The data comes from the Federal Reserve's G.19 statistical release. The revolving debt is probably 90%-95% credit card debt, with most of the rest being bank overdraft. The inflation adjuster is an annual BLS CPI adjustment. What's really notable about the comparison is how fast (and linearlly) student loan debt has risen on an inflation-adjusted basis.  Auto debt burdens today are basically back to where they were in 2006. Over the past decade, auto debt has grown by 5% on an inflation-adjusted basis.  Similarly, revolving (credit card) debt burdens has grown 19% (but still haven't regained pre-CARD Act heights).  Student loans, in contrast, have grown a whopping 126% on an inflation-adjusted basis. That bespeaks a real problem in the making particularly because they are so heavily concentrated with a generational cohort. 


It's not obvious to me how to fix the student loan debt problem; there are drawbacks to all of the proposals around. But we'd do far better addressing the problem now than in a decade or two, when it starts to really weigh on the economy.