New Data Says Student Loan Default Higher Than Thought
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UPDATED: Mar 5, 2012
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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.