It’s been a hell of a few years for American automakers; profits have been good, very good. Ford, General Motors, and Stellantis have made $250 billion since 2013, with another $32 billion on the way by the end of the year according to Economic Policy Institute. But there are dark clouds gathering for the Big 3 just beyond the smooth seas of profit; the student loan debt crisis.
I know the auto industry has an awful lot on their plates as it is, what with the expansion of the United Auto Workers strike and the uncertain futures of both EVs and self-driving vehicles, but still, the restart of student loans payments should have automakers freaking out.
And before you cry “I paid my loans! Why should anyone get a pass!” I say, you’re right. I’m pretty sure you deserve, at minimum, every penny you paid in interest back. Probably more. Our schools, which are little more than football palaces with libraries attached, should be funded more by tax dollars again, not through mortgaging the futures of teenagers. But this is how it would work in an ideal world, not the one we are in now. Whether right or wrong, you have to admit these huge loan payments are a drain on the economic powerhouse of an entire generation.
America’s already cash-strapped post-Boomer generations are in the hole, often to their own government, to the tune of $1.569 trillion. Auto loans recently squeaked past student loans as the largest debt load American’s face besides mortgages with $1.582 trillion, Wall Street Journal reports:
They had owed more in student loans than auto loans since early 2010 when a surge of college students, some of whom lost jobs in the financial crisis and sought education and new training, led to big student loan borrowing.
But the U.S. government froze payments and interest on federal student loans for the pandemic, an emergency measure that is now ending. Meanwhile, consumers bought vehicles at inflation-juiced prices. In June 2021, new- and used-vehicle inflation hit 20.4% and stayed elevated until late 2022.
Some cracks are now appearing in the auto loan market. Auto loan delinquencies climbed to 3.59% in August on a seasonally adjusted basis, their highest level since April 2010 shortly after the financial crisis, according to Moody’s Analytics.
This looming issue is not going to get better for auto makers now that those long-delayed student loan bills have come due. Between record price gouging/inflation, predatory rent hikes, two financial crisis and now the student loan crisis, there’s very little wiggle room for American’s Millennials and Gen Zers and they are already defaulting on their car loans in worrying numbers. In fact, folks from those generations are hitting delinquency rates not seen since the Great Recession, Automotive News reported over the summer.
Car payments are now, on average, a staggering $730, with 17 percent of auto loan monthly payments reaching the four-digit mark, but your average Millennial borrower pays about $547 a month, with the Z cohort spending $429, according to Experian data. That’s also not counting car insurance, which is also on the rise thanks to natural disasters, the technological complexity of new cars, and good-old inflation. The average monthly student loan payment is around the same amount, about $503 a month, according to the Education Data Initiative. During the three-and-a-half year delay on repayment, many people have seen the buying power of their dollar shrink, erasing all room in their budget for what is essentially a whole new car payment.
So right now, some folks are going to be faced with a choice: car payment, or student loan payment? Since 76 percent of Americans use their personal cars to commute to work, according to the World Economic Forum, a car is a must. Often these folks don’t have many options in terms of commuting, considering most of America’s underfunded and limited public transit options.
So what will happen? Defaults on student loans will lead to wage garnishing, which just leaves borrowers in the exact same place as before. Cars are lasting longer than ever, so many Millennials and Gen Z will make due longer and will turn more often to the used market, though prices there are still high as well. But the notion of “if I didn’t have a student loan payment, I could buy a car,” is going to become more prominent the longer high loan loads are allowed to continue. These are the people automakers need to replace aging Boomers as that generation reduces its driving frequency due to age or simply retiring from work.
Pushing for student loan reform is entirely in the interests of the auto industry, and industry that spent $80 million on lobbying efforts just last year, according to the Detroit News. Putting just a little bit of that political will behind student loan reform could keep a whole segment of the population in a car buying mood. This is about automaker’s protecting their once and future profits by pushing for a small break for the generation surviving on a smaller sliver of wealth than their forbearers, who will need to continue working for decades of car-based commuting to come.