REAL ESTATE TOPICS...The Student-Loan Problem Is Even Worse Than Official Figures Indicate

More Americans are behind on student-debt payments than official measures suggest.

 

JIM WATSON/AFP/Getty Images

Student loans are proving to be a much bigger burden on households than previously thought.

Nearly one in three Americans who are now having to pay down their student debt–or a staggering 31.5%–are at least a month behind on their payments, new research from the Federal Reserve Bank of St. Louis suggests. That figure is far higher than official delinquency measures reported by the Education Department and the New York Fed. And it’s also likely the most accurate.

Here’s why: The official measures reflect delinquencies as a share of all Americans with student debt, but millions of borrowers aren’t even required to make payments yet. Many are currently in college or grad school and thus don’t have to make payments until six months after they leave. Others are out of school and past that grace period but have received permission by their lender—the federal government in most cases—to suspend payments for a range of reasons, such as being unemployed.

BECOME A CALIFORNIA REAL ESTATE AGENT...CLICK LOGO TO VIEW OUR LIVE LECTURE SCHOOL

Including these borrowers in the broader pool of student-loan debt makes official delinquency rates artificially low. For example, figures from the New York Fed’s quarterly report on household credit shows roughly 17% of all student-loan borrowers were at least 30 days behind on a payment at the start of this year. That’s still a very high number, but misleading nonetheless.

A more precise way of measuring delinquencies is to just look at borrowers who are required to make payments. In their new paper, St. Louis Fed researchers Juan M. Sánchez and Lijun Zhu determined that, as of Jan. 1, more than half of student-loan debt–55%– was held by borrowers who were in repayment. The remaining 45% weren’t in repayment.

Stripping out the borrowers not in repayment, they concluded that 31.5% of Americans with student debt were at least 30 days behind on a payment at that time. This matches up with previous research from the New York Fed suggesting the actual delinquency rate is likely double the official delinquency measure, when excluding borrowers not in repayment.

Delinquencies on student debt are far higher than those for other forms of consumer credit, including credit cards, mortgages and auto loans. For example, 8.5% of all auto loans were at least 30 days delinquent in the year through last September, according to the Kansas City Fed.

The researchers point to a kernel of good news: Delinquencies are no longer rising. But they’re not going down, either. Delinquencies spiked after the recession and then again in 2012 before falling and leveling off in the past few years.