Student-Loan Delinquencies Now Surpass Credit Cards

Even as the economy shows signs of improvement, a record share of Americans are falling behind on their student-loan payments.

The proportion of U.S. student loan balances that are in delinquency — that is, unpaid for 90 days or more — surpassed that of credit-card balances in the third quarter for the first time, according to the Federal Reserve Bank of New York.

Of the $956 billion in student-loan debt outstanding as of September, 11 percent was delinquent — up from less than 9 percent in the second quarter, and higher than the 10.5 percent of credit-card debt, which was delinquent in the third quarter. By comparison, delinquency rates on mortgages, home-equity lines of credit and auto loans stood at 5.9 percent, 4.9 percent, and 4.3 percent respectively as of September.

With the release of these figures, student-loan debt officially takes the crown from credit-card debt as that most prone to delinquency in the U.S. Since the NY Fed’s data began in 2003, the share of student debt which is delinquent has nearly doubled, from a starting level of 6.13 percent, while credit-card delinquency has steadily drifted lower since peaking at 13.74 percent in mid-2010 in the wake of the financial crisis.

The trouble is, while losses and write-downs of credit-card debt typically fall on banks and private-sector lenders, in the case of student debt, it is largely taxpayer dollars at risk. And the student-debt pile only keeps growing. After first surpassing credit-card debt in mid-2010, the amount of student-loan debt outstanding has quickly surged to become 42 percent larger than the $674 billion of credit-card debt outstanding as of September.

Moreover, the actual rate of student loan delinquency is far higher than the official tally suggests. According to the New York Fed, “these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle.”

In other words, the real delinquency rate for loans in the current repayment cycle is “roughly twice as high,” per the Fed — which would put it north of 20 percent. An extraordinarily sobering figure, and one that begs for an overhaul of this increasingly important market which has put significant taxpayer dollars at risk.


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