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Students may be struggling with debt more than we knew, according to a team of five researchers at the Federal Reserve Bank of New York. They explain that borrowers were late on $85 billion in student loans in the third quarter of 2011, which at face value is about 10 percent of the $870 billion in total outstanding student debt. While that rate is more or less in line with other forms of consumer debt like credit cards and mortgages, it is also “understated,” the team says, because not all student loans can be delinquent.
Specifically, unlike those other forms of consumer debt, students don’t have to pay back school loans immediately. They get a break while they’re in school and in the six months after graduating. Almost half of student debt is in those approved grace periods, dragging down the overall delinquency rate because they add to the total balance but not the amounts past due. Once researchers exclude those loans to more accurately reflect the pool of borrowers who can actually be late, the delinquency rate more than doubled. In the end, 27 percent of the remaining borrowers were late on their payments, totaling about 21 percent of the aggregate loan balance.
That’s a bleaker picture, with borrowers about twice as likely to be behind on student debt as for credit cards, car loans, and mortgages. The report doesn’t compare the delinquency rate to previous periods, though it does say the total amount of student debt increased 2.1 percent between the second and third quarters of 2011—a time when other forms of consumer debt decreased. The average balance for student-loan holders is $23,300, the New York Fed says.
The researchers say student borrowers particularly struggle to repay their debt because many of them are recent college graduates, who are more likely to be unemployed or earn less than older borrowers. Pay for college grads is sharply down over the past decade, according to an upcoming study by the the Economic Policy Institute. The Wall Street Journal reports that the study found male college graduates aged 23 to 29 earned an average of $21.68 an hour last year, down 11 percent over the past decade after accounting for inflation. Pay for female college graduates fell less, though it was still down 7.6 percent; on average those women earned just $18.80 an hour.
If the paychecks of new grads continue to shrink, it could be even harder for borrowers to repay. And with delinquencies come debt collectors, something the government wants to monitor closely. The Consumer Financial Protection Bureau says it is taking a close look at the private student loan industry and on March 5 began encouraging borrowers to send complaints its way.