Only 37 percent of student borrowers are in repayment and up-to-date on their loan payments, according to a new analysis of student loan data by the Federal Reserve Bank of New York that suggests the potential problems with student debt go beyond just defaults.
Using their own data set constructed from credit report data from Equifax, researchers at the New York Fed found that the 17 percent delinquency rate for student borrowers, while already high, was only one indication of how slow borrowers are to repay loans taken out for college.
Nearly half of borrowers are also in school, in deferral, or in another program that lets them delay repaying without being technically delinquent.
The five economists at the regional Fed bank responsible for the analysis write that “widespread failure to repay is a problem for the lender, in this case, federal taxpayers.” The majority of student loans are issued or subsidized by the federal government.
Looking at past student borrowers, the researchers find that the group who left school in 2010 originally had a combined debt of $78 billion. At the end of 2014, that group still owed $71 billion, or 91 percent of the original balance.
Students who left school in 2005 have only paid down 38 percent of the aggregate debt they owed nearly 10 years ago. Under a standard repayment schedule, they would have only about 10 percent of principal outstanding.
In other words, delinquency or default rates understate how slow student borrowers are to repay debt. In separate research, New York Fed researchers have found evidence that elevated levels of student debt are holding back young families from big-ticket purchases like homes or cars. Aggregate U.S. student debt has more than tripled over the past 10 years to over $1.1 trillion.
The borrowers who are slowest to repay their student loans, according to the New York Fed’s research, are those with relatively small and very large balances.
Of the group that left school in 2009 with only $1,000 to $5,000 in debt, nearly 60 percent either have been delinquent, have defaulted (meaning that they fell 270 days behind on a payment), or have balances larger today than they were in 2009, because of deferrals or other delayed-repayment programs. Many of those troubled borrowers are non-graduates who took out some debt but then did not finish college and accordingly missed out on higher-paying jobs that could have helped them handle their loan payments.
Many people with starting balances over $50,000 or $100,000 also had higher balances today than in 2009. Those were more likely to be students who got professional degrees and then used income-based repayment programs, which cap payments as a share of income and then eventually forgive the debt after 20 or 25 years. That could ultimately prove financially advantageous for those borrowers, but in the meantime, the New York Fed notes, those borrowers’ credit scores will suffer as their loan balances aren’t getting paid down.
