Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

Full Bio →

Written by

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

Full Bio →

Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 5, 2012

Advertiser Disclosure

Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.

The student loan default rate may be much higher than studies have shown, said the Federal Reserve Bank of New York on Monday.

The Fed originally reported the student loan default rate right around 14.4 percent. That number was derived from the 5.4 million defaulters from the 37 million current students and graduates who are currently carrying college loans.

But researchers are saying that percentage is misleading.

Traditionally the default rate has been determined by considering the status of all student loan carriers. But that method lumps those who are not required to make any payments in with those who are “current” on their payments.

Current students and those who within a six-month grace period upon graduating have their federal student loans deferred, and are exempt from making any payments. The New York Fed found that when those not currently required to make payments on their student loans are omitted from the “non-delinquent” bracket and removed from the calculations all together, the default rate jumps to 27 percent.

That means more than one out of every four students cannot afford their student loan payments.

If federally-guaranteed student loans are taken out of the equation all together, the default rate hovers around a relatively modest 5.1 percent, but that’s double what it was just five years ago.

Moody’s Investors Service believes that rate will remain high so long as there is high unemployment.

According to Equifax, the average student borrower owes $23,300. But the NY Fed revealed that 167,000 people carry a student loan debt of more than $200,000.

“Given that student loans are an indispensible tool for educational advancement, this form of debt will remain a critical policy focus for generations to come,” said the NY Fed in their report.

Indeed, as this form of borrowing swells at an unprecedented rate, we very well may see the upcoming presidential elections filled with talk about this growing bubble.