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NY Fed Gives Snapshot of Student Loan Borrowing, Delinquency, Repayment

By Allie Bidwell, Communications Staff

As student loan debt has spiked over the last 10 years, researchers – and society at large – are desperate for more information about which types of borrowers are more at risk, which borrowers are making progress repaying their loans, and how that debt can impact other areas of borrowers’ lives, such as homeownership.

Data released by the Federal Reserve Bank of New York on Monday gives an overview of student borrowing, delinquency, and repayment, as well as student debt as a portion of overall household debt, and its relationship to homeownership. Overall student debt has increased by about 170 percent in the last decade, and has grown as a percentage of overall household debt.

Borrowers with lower balances and those from lower income backgrounds are still the most likely to default on their student loans, according to the data. The five-year default rate for borrowers who left school between 2006 and 2011 was 35 percent for those from areas with an average income of $40,000 or less, compared with 13 percent for those from areas with an average income of above $80,000. While some higher education stakeholders have understandably focused on borrowers with lower balances, the default rate for borrowers with higher amounts of debt ($100,000 or more) has grown significantly over time. The five-year default rate for borrowers who left school in 2010-11 was 21 percent, compared with 6 percent just five years earlier.

That’s important to note, because student loan delinquency and default can also be associated with lower credit scores and lower rates of homeownership, according to the data. Thirty-six percent of borrowers who were never late on their payments owned a home by age 30, compared with 3 percent among those who had ever defaulted.

And as student debt has grown, payment progress has also slowed, according to the data. While the NY Fed noted that the slowed payment progress can be partly attributed to higher debt amounts and higher default rates, participation in income-driven repayment plans might also account for some of the slowed progress.

Still, the data showed that overall, college attendance – regardless of whether students take on debt – is associated with higher rates of homeownership. Those rates do vary based on the degree level (bachelor’s vs. associate’s) and whether the borrowers graduated. Borrowers who took on debt in an associate program and did not graduate, for example, have similar rates of homeownership to those who did not attend college. Higher student debt balances were also associated with lower rates of homeownership. However, the data also showed that college attendance “appears to mitigate the importance of family background” when it comes to homeownership.

 

Publication Date: 4/4/2017


Katherine A | 4/4/2017 4:14:46 PM

Also, this data covers the "Great Recession," when many people were unemployed or underemployed. Is there any more recent information? I agree that "desperate" is probably not the right word to use here.

Anthony M | 4/4/2017 1:15:35 PM

I'm a little surprised by the inflammatory tone of this article --who exactly is DESPERATE for this information? I would expect this tone from MarketWatch. As a profession, aren't we trying to squelch hysteria around the "student loan crisis?" Also, is there any new information here? The poor have higher default rates, and those who default on their loans are also less likely to be able to obtain a mortgage. What's the take away?

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