A rising proportion of student loan borrowers are a year or more behind on making payments, but other data suggest more Americans are making payments on other kinds of debt, Josh Mitchell reports for the Wall Street Journal.
According to the Federal Reserve Bank of New York, the value of student debt has tripled to $1.19 trillion over the past decade. And data from the Education Department released this week shows 6.9 million people, or about 17% of borrowers, are at least a year late in making payments.
The latest figure is about 6% higher than last year, representing 400,000 more borrowers who are severely delinquent.
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But the increase in severe defaults is somewhat of an outlier, Mitchell writes. In the past year unemployment has continued to fall and default rates on credit and other types of debt have declined.
A silver lining
Officials also note that short-term defaults on student debt have decreased as well. Among individuals who borrowed directly from the government, 21% have not made a payment in at least 31 days, which is a decrease from 23% last year.
Education Secretary Arne Duncan pointed to the rising number of people enrolled in income-based repayment plans as a reason for the decline in short-term default rates. "The fact that more and more borrowers are taking advantage of the opportunity to cap their monthly payments is a good sign." Duncan said. Under such programs, payments are capped at 10% or 15% of a borrowers' discretionary income.
Enrollment in such programs has surged 56% among government borrowers as the education department has launched a systematic effort to spread information about the programs.
What is driving the increasing long-term default rate is also not clear. According to the Education Department, the median level owed by borrowers in default is a relatively modest $8,900. But those in default are also more likely to have attended for-profit schools, not graduated, and be minorities.
Why do some borrowers fail to repay student debt?
Christa Labanara, a counselor for the not-for-profit American Student Assistance, explains it this way: "They're not finding the jobs that they thought they were going to get paid," and "It's like, 'What comes first? Does my mortgage come first or my student loans?'"
Some borrowers are particularly reticent to pay their debts if they never graduated or haven't reaped the benefits of their education, says Jason Delisle, a higher-education expert at the New America Foundation. "There's plenty of people out there who feel like they've been ripped off, and the notion of repaying the loan for 10 or 15 years is just impossible for them," he says (Mitchell, Wall Street Journal, 8/21).
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