Tuesday, August 7, 2012

How Many People Are Behind on Their Student Loans? At Least 6 Milion

College loans have been a problem for students for more than 20 years.  Yet the national dialogue on the student loan crisis is just getting started. Why did we wait so long to examine the student loan morass?

I think we are aware of the student loan crisis now because objective parties outside of higher education have begun issuing reports about it.  The Federal Reserve Bank of San Francisco, the Federal Reserve Bank of New York, Moody's, the Consumer Financial Protection Bureau and other independent entities are giving us objective assessments of this problem.

If we look closely at these reports, we can see just how big the student loan crisis is.  In fact, it is now apparent that millions of people have stopped making payments on their student loans.  How many millions?  Let's take a look.

According to a recent report by the Consumer Financial Protection Bureau, 850,000 private loans are delinquent.  That is an astonishing number when we consider that private loans are only a small part of the overall student loan industry--less than 10 percent.  Also, private loans undoubtedly have a lower default rate than federally guaranteed student loans.  This is because the vast majority of private loans include a co-signing guarantor.  In other words, Mom or Pop usually sign on private student loans; and Mom or Pop must pay off the loan if their child defaults. 

How many people have stopped paying on their federal student loans? According to a report issued this year by the Federal Reserve Bank of New York, 27 percent of 20 million student-loan borrowers in the repayment stage are behind on their payments or in default--that's 5.4 million people.

When we add the number of people who are behind on their private loans with the number of people who are behind on their federal student loans, we get a big number.  More than 6 million people are not current on their student loans and many of these people are in default.

We know from newspaper stories and the bankruptcy cases that people who default on their student loans are in financial purgatory.  They are subject to having their wages garnished, their credit ratings are ruined, they are unable in most cases to file bankruptcy.  Six million people--that is a lot of human misery.


Consumer Financial Protection Bureau. Private Student Loans. Washington, DC: author, 2012.

Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas, & Wilbert van de Klaaw. Grading Student Loans. New York: Federal Reserve Bank of New York, 2012.