Twenty-one Percent of Student Loans Delinquent Fed Paper Reports

A new paper entitled Grading Student Loans published by the Federal Reserve Bank of NY shows that student loan debt is a problem for all age groups. Student loan debt grew to $870 billion in the second quarter of 2011, and is now larger than both credit card and auto loan debt. As the chart below shows, student loan is not just concentrated on younger graduates from colleges and universities. It is estimated that 15.4% or 37 million individuals currently hold debt from their college years.

The chart below shows how this debt is distributed. It's not suprising that recent grads have so much. But what does surprise me is how the percentages are still rather high for those in their 30s, 40s, 50s, and even 60s. Clearly, some of the older borrowers co-signed for a child or grandchild's loans. Still in other cases, older unemployed individuals may have gone back to school for retraining. But some of it is also debt carried for years by individuals who have not been able to fully pay it back. In today's bad job market, many individuals may now find it tougher than ever to repay their loans.

According to the paper, "We find that 27 percent of the borrowers have past due balances, while the adjusted proportion of outstanding student loan balances that is delinquent is 21 percent." That is much higher than credit card and mortgage delinquencies.

Unlike almost all other forms of debt, student loans cannot be cleared in bankruptcy. That means the only way to discharge student debts is to die. Before taking on significant debt to attend school, students, parents, grandparents, and other involved parties (especially those that pay or co-sign) should think hard about the cost and the return. The right college and university education can make a world of difference in earning more money, but the wrong choices can literally put someone in debt for life.