More than half of student loan accounts are in deferred status, where the repayment of the principal and interest of the loan is temporarily delayed, according to a TransUnion study. 

Deferred loans now represent 43.5% of all student loan balances.

The study found that reported student loan balances increased by 75% between 2007 and 2012, with the average student loan debt per borrower jumping 30% to $23,829.

“With the economy either in recession or slowly coming out of it during the study period, we had expected that student loan balances might increase as consumers frustrated with the job market went back to school to work toward a different career path,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “However, the rate of growth we observed was truly eye opening.”

Delinquency rates on student loans made in the past two years stand at 15%, adds Fair Isaac, as new graduates struggle to land jobs. The rate for 2010 through 2012 compares with 12.4% for loans made from 2005 to 2007, Fair Isaac’s FICO Labs said in a statement, citing data from October.

Average student loan debt last year rose to $27,253 from $17,233 in 2005, and almost 60% of bank managers surveyed in December expect delinquencies to worsen in six months, FICO said.

“This situation is simply unsustainable and we’re already suffering the consequences,” said Andrew Jennings, chief analytics officer of Fair Issac. “When wage growth is slow and jobs are not as plentiful as they once were, it is impossible for individuals to continue taking out ever-larger student loans without greatly increasing the risk of default.”


Student loans are the largest source of unsecured consumer debt in the U.S., according to the Consumer Financial Protection Bureau, and the rise in unpaid loans has spurred speculation about a possible bubble. With college costs climbing faster than the rate of inflation over the past four decades, education debt has swelled to $1 trillion, more than what Americans owe on their credit cards.

The TransUnion study also noted that more than half of college graduates under the age of 25 are either unemployed or underemployed – the highest rate in 11 years, according to an analysis of government data. This construct is exacerbated by the increases in both student loan balances and deferred balances.
 
Between 2007 and 2012, balances of reported deferred loans jumped from $228 billion to $388 billion. In that same period, average student loan balances per borrower across all risk spectrums increased from $18,379 to $23,829.
 
“It is especially noteworthy that more than half the student loans in our study were in deferment, and with unemployment rates remaining high, particularly among recent graduates, the repayment of these loans remains a concern,” said Becker. “Students can defer their loans for only a certain period, often up to three years. After that, these students can find themselves in a difficult position financially.”
 
The TransUnion study highlighted the disparity between federally backed student loans, i.e. those guaranteed by the government, and private student loans – those issued by private lenders, most often to cover the gap between funds made available by government loans and actual tuition rates.

Federal loans made up 92% of all student loan accounts and 86% of overall balances. Between 2007 and 2012, federal loan balances jumped 97% while private loan balances only rose 4%.
 
As billions of dollars were added to student loan balances between 2007 and 2012, delinquency rates also increased. Yet the distinction in performance between federally backed student loans and private student loans was material.

From 2007 to 2012, federal student loan delinquencies rose 27%, while private loan delinquency rates actually dropped 2% in that same timeframe. The 90+ day delinquency rate for federal loans was 12.31% as of March 2012, compared to 5.33% for private loans.
 
“It’s important to highlight that both federal and private student loan delinquency rates are higher than most other credit products such as mortgages, home equity lines of credit, credit cards and auto loans,” said Becker. “While the focus in recent years has been on the mortgage market, lenders will need to keep an eye on student loan portfolios – and on customers who have student loan debt – as the high delinquency rates among these borrowers can spell trouble across multiple products.”
 
TransUnion’s study pulled data from the TransUnion consumer credit database for all consumers with at least one active student loan between March 2007-2012.

Student loans reviewed included open accounts with a balance or closed accounts with a balance that had not been charged off. All active accounts were further segmented as being either in repayment or in deferred status.

 

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