Yesterday, credit bureau Equifax announced that the economy was recovering, citing the 6 percent increase in credit card debt from last year. Our total credit card balance now stands at $642 billion.
Naturally, this generated lots of media interest. Newspapers in Atlanta and New Jersey covered how much their metro areas spent on their credit cards over the holidays. (We mapped out the increase in the 25 metro areas Equifax provided.) National publications like The Wall Street Journal had headlines like, “Americans Borrowing More, but Fissures Appear.”
But total student loan debt, which is nearly double credit card debt, was largely ignored. Near the bottom of the WSJ story, there’s just a brief mention with this alarming statistic: “Nearly $30 billion in student loans were newly delinquent last quarter, up from $27 billion in the second quarter.”
This stat in the third-to-last sentence references a report also published yesterday — based on the same Equifax data — by the New York Federal Reserve. It says that $31 billion was added to the total student loan debt balance in the last three months of 2014.
$30 billion in new student loans is a lot — the Fed’s previous quarterly report shows only an additional $8 billion in debt added between July and September 2014. But the scary part is something few news outlets even mentioned — 11 percent of all student loans are currently 90 days late or more, which qualifies them as delinquent. And that’s a gross underestimate. Tucked away in a footnote of the Fed’s press release…
Delinquency rates for student loans are likely to understate actual delinquency rates because about half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.
In other words, the Fed estimates almost a quarter of all student loans are currently delinquent, even as more debt is piled on. We recently mapped student loan default rates by state, but the national default rate is 13.7 percent.
What this means for college students
New York Fed research officer Donghoon Lee had this to say in the press release about the report…
Although we’ve seen an overall improvement in delinquency rates since the Great Recession, the increasing trend in student loan balances and delinquencies is concerning. Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households.
“Concerning” is putting it mildly, but the Fed did follow up with a lengthy blog post and promises an even closer look at how student loans are keeping millennials (who hold more than a third of all student loan debt) from buying homes in their 30s.
If you’re approaching delinquency, here’s what you need to know:
- As soon as you miss a payment for 30 days, that loan becomes delinquent. After 3 months of delinquency, you’re reported to the credit bureaus.
- If you miss payment for 9 consecutive months, that loan goes into default, blocking you from additional federal financial aid and repayment plan help.
- Once the loan defaults, the government can legally garnish your wages and withhold your income tax refund. The debt is not wiped out, either.
The best thing you can do is negotiate with your loan servicer as soon as you know you can’t make a payment. Research all of your options for paying off student loans — you may be able to consolidate them into one monthly payment, get your payments lowered, or buy yourself some time to straighten out your finances. There are federal programs out there for those who graduate college and don’t have a job, among other things.
And if you’re thinking of going to grad school, make sure you read this before you decide to take on more student loans.