Student Loan Debt Rising, and Often Not Being Paid Back

Americans have been getting better at paying off their debt in the last year, with a glaring exception: student loans.

Total consumer debt fell again in the third quarter, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit. This figure has been falling for four years. As consumer debt has been falling, so have consumers' delinquency rates. As of Sept. 30, 8.9 percent of outstanding household debt was in some stage of delinquency, with 6.6 percent at least 90 days late.

Bucking this trend is student loans. Student loan debt has been growing every quarter since at least 2003, the earliest data included in the report. And delinquency rates look worse than previously believed.

Outstanding student loan balances totaled $956 billion as of the end of September, rising $42 billion from the previous quarter. About half of that increase is actually newly issued debt, and the other half comes from defaulted student loans that have been newly updated on credit reports this quarter.

The New York Fed calculates that 11 percent of student loans are now at least 90 days delinquent, with this rate now officially passing the “serious delinquency” rate for credit card debt for the first time.

That milestone may be misleading, though. The report says in a footnote that “these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment or in grace periods and therefore temporarily not in the repayment cycle,” adding, “This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.”

It' s worth mentioning, by the way, that student loan debt cannot be discharged in bankruptcy, while most other forms of debt can. One reason consumers have managed to shed so much debt is that lenders ended up writing off quite a bit after the financial crisis.