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Student Loan Delinquencies Are Worse Than You Think

Student Loan Delinquencies Are Worse Than You Think
Photograph by Butch Dill/AP

Students may be struggling with debt more than we knew, according to a team of five researchers at the Federal Reserve Bank of New York. They explain that borrowers were late on $85 billion in student loans in the third quarter of 2011, which at face value is about 10 percent of the $870 billion in total outstanding student debt. While that rate is more or less in line with other forms of consumer debt like credit cards and mortgages, it is also “understated,” the team says, because not all student loans can be delinquent.

Specifically, unlike those other forms of consumer debt, students don’t have to pay back school loans immediately. They get a break while they’re in school and in the six months after graduating. Almost half of student debt is in those approved grace periods, dragging down the overall delinquency rate because they add to the total balance but not the amounts past due. Once researchers exclude those loans to more accurately reflect the pool of borrowers who can actually be late, the delinquency rate more than doubled. In the end, 27 percent of the remaining borrowers were late on their payments, totaling about 21 percent of the aggregate loan balance.