The growing student loan debt has become a major conversation point in political, financial, and educational circles. Today, a graduate has an average of $25,000 of student loan debt, up $7,000 since 2005. While these numbers are well-known, this is however not the only type of debt that is rapidly growing. Auto loans have grown at about the same rate, the St. Louis Federal Reserve points out. Their review shows that since 2012, student and auto loans have made up 90 percent of the increase in consumer debt.
Today, outstanding vehicle loans add up to more than $1 trillion, with the average consumer carrying $12,000 of auto loan debt. The total student loan debt of the country stands at $1.3 trillion, not that much higher. Many see this growing balance as a sign that the industry has recovered from the auto bailout crisis. However, much of this comes from Auto Asset-Backed Securities (ABS), a type of securitized car loan bundle that offers high returns, but that are also risky.
These car loan bundles are being seen as the solution to making a profit on loans, something that has become difficult with low interest rates. However, because ABS bundles are often a mixture of stable yet less profitable prime loans and the riskier yet more lucrative sub-prime loans, they do have some risk to them. With more subprime auto loans going through, the industry may not be as far along the road to recovery as it seems.
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