Alarming Number of Student Loans Are Delinquent

Alarming Number of Student Loans Are Delinquent

For the second time this week, a study by a credit agency shows delinquency rates on student loans are climbing.

According to a TransUnion study, more than half of student loans are in deferred status where the loan payment has been temporarily delayed. Deferred loans now represent 43.5 percent of all student loan balances.

The study also showed that the balances on these deferred loans have grown from $228 billion in 2007 to $388 billion in 2012, an increase of 70 percent. The average student loan debt per borrower grew 30 percent to $23,829 during those years.

"With the economy either in recession or slowly coming out of it during the study period, we had expected that student loan balances might increase as consumers frustrated with the job market went back to school to work toward a different career path," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "However, the rate of growth we observed was truly eye opening."

One cause for the deferments may be that more than half of the college graduates under the age of 25 are unemployed or underemployed, according to the study's analysis of government data.

The study also shows the disparity between federally backed student loans--those guaranteed by the government--and private student loans. Between 2007 and 2012, federal loan balances jumped 97 percent while private loan balances only rose 4 percent. During that time, federal student loan delinquencies rose 27 percent, while private loan delinquency rates actually dropped 2 percent. The delinquency rate for federal loans was 12.31 percent as of March 2012 while it was only 5.33 percent for private loans.

"While the focus in recent years has been on the mortgage market, lenders will need to keep an eye on student loan portfolios--and on customers who have student loan debt--as the high delinquency rates among these borrowers can spell trouble across multiple products," said Becker.

Earlier this week, a FICO study revealed that student loan debt has increased dramatically and the default rates on these loans are now much higher than previous years. The study found that nearly 12 million consumers had two or more open loans on their credit report in 2005. That figure has more than doubled to 26 million in 2012. In 2005, consumers with open student loans on file had an average student loan debt of $17,233. In 2012, that debt had increased 58 percent to $27,253. The percentage of consumers with student loan debt in excess of $100,000 quadrupled between 2005 and 2012 from 0.2 percent to 0.8 percent. Approximately 1.2 million more consumers had student loan debt in excess of $100,000.

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