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A public debate is raging over private student loans.
Recently, a private loan data company called MeasureOne issued a study that contradicted some common knowledge: Delinquencies on private loans are lower than on public loans.
The dispute matters to more than just bankers and the federal government; who eat the cost of college grads that can’t pay back their student loans.
There’s some valid debate going on about whether private loans are just as bad as everyone says, or whether the delinquency rates really are falling. Here’s what we know about the debate, and keep reading for our prognosis…
Delinquencies happen when you can’t pay back your loans. Both private and government-backed loans have a certain percentage of people who can’t pay back what they owe for college. Lenders label those borrowers who can’t make payments as delinquent. They are dilinquent if they miss payments for between 30 and 90 days.
The rates have a history of being too high for many experts’ liking, and — partially as a result of the economic crisis in 2008 — banks became more protective of their assets instead of just handing out loans like candy.
Now, MeasureOne says that serious delinquencies, or payments that are 90 days past due, have fallen below three percent. That’s a 22 percent improvement from the same time last year. “Early-stage delinquencies,” or payments that are 30-89 days past due, fell at a similar rate.
Dan Feshbach, CEO of MeasureOne, offered this explanation: “I think it’s more prudent choice by students, and more prudent underwriting by the lenders,” he said.
The New York Federal Reserve disagrees with MeasureOne’s findings. In fact, they project the delinquency rates on both federal and private loans to be at 11.1 percent this year.
That number is historically high, as the delinquency rates have ranged from 6 to 9 percent from 2003 through 2011. For three years after the borrower begins paying back the loan, the Fed tracks how well he or she is doing. It labels as delinquent people who have gone at least one year with making a payment on both private and federal loans.
The Fed also says that delinquency rates are likely worse than its data show.
Why the discrepancies in the data? According to Feshbach, it’s a result of different methodologies.
“MeasureOne looks only at private loans, while the study by the New York fed is based on credit bureau data — all student loans, all federal, all private,” he said. “Both studies are measuring close to the same thing, just in different cohorts.”
Even when different methodologies are taken into consideration, the studies still leave a lot to be desired. Here’s why:
In other words, the studies may not express the difficulty students have paying back their loans on time.
Published by Debt.com, LLC Mobile users may also access the AMP Version: Is It Safer To Take Out A Private Student Loan Than A Public One? - AMP.