Americans are doing a good job of paying off credit card balances, mortgages and car loans on time. Student loans? Not so much.
A new report from the Federal Reserve Bank of New York shows the percentage of student loans in severe delinquency, as in more than 90 days past due, remains stubbornly high compared with other forms of consumer credit. In fact, more people are behind on student loans than any another kind of debt.
About 11.5 percent of the $1.23 trillion in outstanding student loans was classified as severely delinquent at the end of 2015. By comparison, 7.7 percent of the $733 billion in total credit card debt is severely past due.
There are a couple of things going on here. Student loans, unlike any other form of consumer credit, generally cannot be discharged in bankruptcy. That means delinquent and even defaulted loans can appear for considerably longer periods of time, keeping delinquency rates up. As loans are paid off and cycle out of the system, troubled ones linger on. Credit cards, on the other hand, are written off by banks in a relatively short amount of time, bringing down the delinquency rate.
Still, Americans have more options for repaying their federal student loans than at any other time in history, many of which are designed to prevent delinquencies and defaults. The Obama administration has expanded programs that cap monthly payments to a percentage of earnings, known as income-driven repayment plans. Yet people are still falling behind.
Enrollment in income-driven plans nearly doubled to 4.2 million people in the 12 months ending September 2015, according to the Department of Education. But the Government Accountability Office has said the gulf between participation in income-based plans and eligibility suggest that borrowers are not receiving sufficient information about the plans from student loan servicers, the middlemen who collect and apply payments.
To be sure, the percentage of student loans in late stages of delinquency did come down a tenth of a percent last quarter. But the rate has hovered around 11 percent for years. What’s more, economists at the New York Fed say their numbers are probably understated because about half of the student loans are presently in deferment, in grace periods or in forbearance.
Overall delinquency rates got a little better in the last three months of 2015, sliding one percentage point to 5.4 percent of outstanding debt thanks to fewer people falling behind on their mortgage payments. Mortgage balances, the largest portion of household debt, were fairly flat in the fourth quarter. Student loans balances, however, climbed by $29 million.
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