August 17, 2014

Half Of Federal Student Loan Borrowers Not Paying On Time

Less than half of borrowers with the most common type of federal student loan are repaying their debt on time, new data released by the U.S. Department of Education show.

About 51 percent of Americans with student loans made directly by the Education Department, known as Direct Loans, have either fallen behind or are not making expected payments, according to data on the $686 billion portfolio. Borrowers who aren't making expected payments for reasons that include temporary financial hardship or a return to school are included in the tally. Not included are borrowers not expected to pay back their loans because they've either never left school, or are less than six months out of school. The figures are based on dollar amounts, rather than the number of borrowers.

Of the roughly $300 billion in Direct Loans in repayment, one in six, or about 17.2 percent, are at least 31 days delinquent, data show. By comparison, just 3.3 percent of all loans and leases held by U.S. banks are at least 30 days late, according to the Federal Reserve.

The data, released without announcement Friday in a series of spreadsheets on an obscure Education Department web page, is among a trove of information that hadn't previously been made public. It includes delinquency figures and data on the department’s loan servicers.

The disclosure comes as Washington policymakers and Wall Street analysts debate whether the nation's $1.3 trillion in unpaid student debt poses a risk to U.S. economic growth and to the federal government's budget. Congress is gearing up to reauthorize the nearly 50-year-old Higher Education Act, the federal law governing how tens of billions of taxpayer dollars are annually allocated towards student borrowers and higher education.

The lack of data on student debt, particularly debt owned or guaranteed by the Education Department, has been the subject of conferences and has been among the criticisms levied at Education Secretary Arne Duncan.

Officials at the Treasury Department and Federal Reserve, responsible for ensuring that risks posed by student debt don't eventually harm the federal budget, U.S. economy or the nation's financial system, had been among the government policymakers without access to the data.

The secrecy had forced the Federal Reserve Bank of New York to use information from consumers’ credit reports. The Federal Trade Commission estimated in 2013 that about one in five consumers had an error on one of their credit reports. The New York Fed’s estimate of total student debt differs from the Consumer Financial Protection Bureau’s and the Fed’s Board of Governors in Washington.

Without reliable figures to analyze the nation's growing pile of unpaid student debt bills, researchers and policymakers have relied on surveys or other questionable sources to form tentative conclusions about whether student debt may eventually wreck household finances and the nation's economy.

Before Friday, the Education Department only released data on the amount of outstanding student debt, the portion of it in various repayment plans, and general figures showing how much of it was in repayment. Most of that had only been publicly disclosed over the past year. Now, policymakers outside the Education Department, legislators and analysts are able to determine whether more borrowers are falling behind on their federal student loans, for example, or whether specific loan servicers are enrolling enough borrowers in repayment plans promoted by the White House.

The Education Department’s four major servicers -- Nelnet Inc., Navient Corp. (formerly Sallie Mae), Great Lakes Higher Education Corp. & Affiliates, and Pennsylvania Higher Education Assistance Agency -- collectively reap hundreds of millions of dollars annually from the department to deal with borrowers who have federal student loans. The Education Department has told Congress it expects to change the way it pays its servicers in order to encourage them to prevent delinquencies and defaults -- a plan President Barack Obama echoed in June.

The fact that less than half of borrowers with debt from the Direct Loan program are repaying on time and as expected is likely to fuel further debate over the role played by the Education Department's loan servicers, who interact with borrowers, counsel them on ways they should repay their debts and collect their monthly payments.

The new Education Department figures exclude $403 billion of Federal Family Education Loans, a bank-based program that stopped making new loans in 2010.

The Education Department has not released delinquency figures for the FFEL program. Available data show that less than 62 percent of borrowers expected to be making full payments are actually doing so. The rest are either in deferment, forbearance, default, or bankruptcy. The share of borrowers in repayment has decreased over the past year, according to June 30 figures.

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