2013: The Year of Student Loan Delinquency

…Is really all I’ve got to say about the New York Fed’s latest Household Debt and Credit Report, which gave us fourth quarter 2013 data on America’s household debt balances and delinquency rates.

Percent Balance 90+ Days Delinquent

2012 saw the delinquency rate for student loan balances spike above 10 percent, and it stayed there all last year. I’m a little surprised and kinda thought it would’ve dropped more in Q4. Looks like that didn’t happen.

According to the report, student loans accounted for $113 billion in household credit growth last year, 63 percent of the total (I gather the NY Fed’s sample underestimates the data).

According to ED’s portfolio data, 4.4 million guaranteed-loan debtors were in total default at the end of last year, and Federal Direct Loan Program defaulters grew by 300,000 to 2.4 million in the last six months of 2013. There’re certainly some duplicates there, but these loans don’t look like they’re going to be repaid.

I’m surprised we’re still not hearing about this much in the news. It’s like these people don’t exist.

[UPDATE: Even the Times slipped when reporting on the credit update:

Some kinds of debt, like car loans and mortgages, may be a positive sign that people are investing in the future. Other kinds, like student loan debt, can put a damper on the economy by suppressing discretionary spending for years.

So much for the human capital theory.]


  1. But…just think of the Mercedes dealerships’ frequented by professors, the restaurants attended by the administrata from 10 AM to 2 PM weekdays, the Great Climbing Wall of Academia stretching – infrastructurally – from coast to coast, the faux conferences held in sunny climes, the hookers at those conferences, etc.

    To paraphrase Joseph Conrad:

    “The stimulus…the stimulus”

    Surely all that is worth the pyramid of human skulls the student loan system is energetically producing.

  2. Student loan delinquency is actually lower than delinquency on most other types of consumer debt, except for prime mortgages. Why does a seemingly-innocuous metric such as Percent of Balance 90+ Days Delinquent mask this reality? The answer is the vast majority of education loan (student, parent and consolidation) debt is in the federal student loan programs: Direct, Guaranteed (FFEL), and Perkins. In consumer lending, delinquent debts are charged off, typically after less than six months of delinquency. In federal lending, delinquent debts become defaulted after a year and are NEVER charged off. Uncle Sam has so many collection tools available that there is no reason to charge off.

    How does this mess up the delinquency comparison? For typical consumer loan products (automobile loans, mortgages, credit cards, and personal loans), the definition of delinquency used by Federal Reserve Bank of New York (FRB) includes, at most, accounts 91-180 days delinquent. For federal student loans, it includes accounts 91 days to 20 YEARS delinquent. An apples-to-apples comparison would include only delinquencies 91-180 days delinquent. If that adjustment seems too generous, then 91-360 days delinquent would include the delinquencies and exclude the defaults. In federal student loans, delinquency and default are very different and also differ from how these concepts are used on other types of debts.

    As far as those loans that are actually defaulted — as Collinge and others point out, the federal government makes money on defaulted loans, overall. Thus “these loans don’t look like they’re going to be repaid” is not correct, considering all the collection tools available, at least on the direct, guaranteed and Perkins portfolios.

    Note that the complete version of the FRB’s Quarterly Report on Household Debt and Credit now discloses on the first page (“Household Debt and Credit Developments in 2013 Q4”) that student loan delinquency actually includes balances “delinquent or in default.”

    And yes, the NY Times and its buddies on Wall Street are not at all concerned about student loan borrowers. They are concerned about the small but growing possibility that there will be a shrinking pool of “customers” for mortgages, car loans and credit cards over the coming decades. They wan’t consumers to take out debt, but they want it to be their debt, not Uncle Sam’s. They are also still fuming that Uncle Sam is now taking all the profit on student loans and hope to use the tried-and-true “fear, uncertainty and doubt” (FUD) strategy to convince Congress to return them to the halcyon days of federally-guaranteed student lending.

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