One-Third of Risky Student Loans Are Delinquent

Photo (cc) by DonkeyHotey

The Wall Street Journal had a report last week about delinquent – more than three months’ behind – student debt, based on several studies.

The first, by credit-reporting agency TransUnion, found 33 percent of “subprime” borrowers (those with poor credit, which is probably most college students with short credit histories) repaying their loans were more than 90 days past due. In 2007, it was less than a quarter. The study also found risky borrowers hold a larger percentage of the loans than they did five years ago.

A separate study done by Fair Isaac, which is responsible for the popular FICO credit score, found the number of people with multiple student loans has more than doubled since 2005. We’ve gone from about 12 million to near 26 million.

Since the U.S. government manages more than 9 in 10 student loans, an increasing number of defaults would ultimately shift the burden from the student to the taxpayer. As we’ve written before, this is a ticking debt bomb.

And while students may not appreciate it at the time, taking out student loans is often much easier than getting other kinds. An older undergraduate quoted in the story says, “The last vehicle we purchased, we spent four to five hours in the dealership. The student-loan process took me 30 to 45 minutes and I never had to leave my home.”

When I applied for student loans, it was much the same – a very short “entrance counseling” tutorial I had to read with a quick multiple-choice quiz, a couple forms and references, and I was in. When the time came to begin repaying the loans, there was an equally short “exit counseling” session which reminded me of what I’d signed up for.

The only difference from when I took out my student loans seems to be that interest rates have gone up, along with tuition rates.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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