Student loan debt in "serious delinquency" — that is, more than 90 days past due — climbed to new heights in the final quarter of 2018, New York Federal Reserve reported last week.
Debt in this category stood at $166.4 billion as of December, out of a total of $1.46 trillion in U.S. student loan debt, with a Bloomberg News report noting the figure was a new record and part of a “surge” in delinquencies last year.
And in fact, the numbers could be worse than they seem. In a press release accompanying the quarterly report, the Fed economists noted that, at any given time, “about half” of all student loans are in deferment, forbearance or a grace period — often because the borrower is still in school or has just graduated.
“This implies that, among loans in the repayment cycle, delinquency rates are roughly twice as high, “ the Fed statement said.
The 90-day mark is when the student loan servicer will usually report a delinquency to credit agencies. After 270 days, the loan is generally considered to be in default.
But while the possibility of a growing wave of student loan defaults might resemble the subprime mortgage crisis that led to the 2018-19 global financial collapse, there are differences.
The Bloomberg report cited interest-rate strategist Ira Jersey as saying that since the vast majority of student debt is backed by the federal government, it’s unlikely to affect the economy the way the mortgage crisis did.
“But incrementally, it does mean higher federal deficits if the loans are not repaid,” Jersey said.
He said that the rise in student loan delinquency shows that college graduates’ incomes “are not necessarily high enough for debt payments overall.”
Student loan borrowers struggling to make their payments have several options at their disposal, including a variety of repayment plans that will cap their monthly bill at a small percentage of their disposable income.
In many cases, borrowers can also get forbearance or deferment, in which their loan payments are paused, often during a period of financial hardship.
But for those in default, the two most common options for federal student loans are loan rehabilitation and consolidation. Given the recent trend in delinquencies, both of these could become more common in the near term.