• Federal Reserve Bank of New York and Student Loans
  • March 13, 2015 | Author: David Head
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Brooklyn Heights Office
  • If you enjoy pie charts, line graphs, bar graphs, and even histograms, like I do, then the Federal Reserve Bank of New York did us a favor last week with its 3 part student loan series in its blog, Liberty Street Economics. The continuous drumbeat from the press can be numbing. However, data presented visually can, for many, identify the realities. The blog used credit data through the end of 2014 to analyze the student loan landscape, loan defaults, and the pace that loans are being repaid. I will attempt to summarize some of the information, but I encourage all to read the blog series in its entirety.

    According to the data, both balances and borrowers have increased dramatically over the last ten years, with the average balance up 74% and the number of borrowers up 92%. Of those borrowers, one-third are in their 20s, another one-third are in their 30s, and the final one-third are over 40 years of age. The New York Fed cites various reasons: more people attending college, students staying in school longer, more parents taking out loans, and the increased cost of education.

    When looking at default, the New York Fed indicated that 11 percent of borrowers were in default (270 days or more past due) at the end of 2014, 7 percent had been in default at least once, another 6 percent were on their way to defaulting (delinquent), and, according to credit reporting, 37 percent have missed at least one payment during their repayment. Of particular note, those that borrowed least (less than $5,000) had the highest default rate and those that borrowed most (more than $100,000) had the lowest default rate. The blog concludes that this is likely due to borrowers with the lowest balances not finishing school or earning credentials and not degrees.

    Finally, the analysis looked to whether former students who are in repayment or deemed current are actually paying down their student loans. The view from this data is that the slow rate of repayment by recent student loan graduates, encouraged by federal programs that help to prevent default, like income-based repayment, often results in student loan balances either staying the same or even increasing. This accounts for 46% of former students in a “current” repayment status. When the 17% of loans in default and delinquency are factored in, this means that only 37% of loans in repayment are reducing the student loan balance.

    From the outset, Liberty Street Economics points out that their series is by no means meant to dissuade anyone from attending college. By in large, college graduates earn more than those without a degree. Understanding the student loan is critical to ensure that the deck is stacked even more in favor of the college graduate.