Student Loan Default Rate Could Be Even Worse Than Expected

Researchers at the St. Louis Fed say we may be underestimating how many borrowers are missing their repayments.

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The student loan problem is even worse than commonly cited government statistics show, a pair of researchers at the Federal Reserve Bank of St. Louis argued in a recently published essay.

While 17% of all student loan borrowers are more than 30 days behind on their repayments, that figure includes the 45% of student borrowers who are not obliged to make payments. Once you narrow it down to those actually required to make regular payments, the number of 30-day delinquent borrowers rises to 31%.

That's a much higher number than commonly cited for delinquent student loans, and is was ahead of other forms of debt. Only 6.8% of mortgages in a large sample examined by the Office of the Comptroller of the Currency were 30-plus days delinquent or more seriously impaired. For credit cards, the delinquency rate is just over 2%, according to the Federal Reserve. About 6% of all consumer debt is in some stage of delinquency, according to New York Fed data.

The St. Louis Fed researchers said that the new way of looking at student loan repayment shows that while the level of delinquency is higher than usually thought, it is not necessarily getting worse. "The share of student loan borrowers whose loans are not in repayment has decreased from 53 percent to 45 percent over the past 10 years," they said.

"This decrease confirms our earlier indication that the trend in delinquency is not as problematic as it seems," the researchers write. The total balance of student debt has been steadily growing, and there's $1.16 trillion in total outstanding debt currently, according to the New York Fed.

But while it is good news for borrowers that many have been able to win forbearance or deferment for their loans, a gloomier economic message lies beneath. If more and more borrowers have to resort to not paying back their student loans, it suggests their college educations may not be translating into the earnings they expected.

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