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Student loan delinquencies hit new high

The numbers don't even include student loans that are in deferment or forbearance because the borrower can't afford to pay.

By MSN Money Partner Nov 28, 2012 8:22PM

This post comes from AnnaMaria Andriotis at partner site MarketWatch.


MarketWatch logoLate last year, total student debt outstanding surpassed $1 trillion for the first time. Now, the problem of student loan delinquency is generating its own eye-popping numbers.


Image: Graduation cap (© Stockdisc/SuperStock)New data show that 11% of student loans were 90 days or more past due in the third quarter, up from 8.9% in the previous quarter and 8.8% a year prior, according to the Federal Reserve Bank of New York. It's also the highest since at least 2003, when the bank first started tracking student loan delinquencies.


"It's a red flag and a warning sign that more Americans are struggling to repay their student loans -- things are bad, really bad, and getting worse," says Rich Williams, a higher education advocate for the U.S. Public Interest Research Group, a nonprofit based in Washington, D.C.


The latest statistics come at a time when delinquencies on many other consumer debts, including credit cards and mortgages, are dropping. Overall, delinquency rates on outstanding consumer debt fell to 8.9% in the third quarter, from 10% a year prior, according to the Federal Reserve.


And the rise in student loan delinquencies could be far from over. The Federal Reserve's calculation counts borrowers who are in deferment or forbearance -- periods during which they can put off payments without penalty -- as being current on their loans. But there's no telling whether these borrowers will be able to keep up with payments once these temporary relief periods are over.


More than 1.5 million federal student loan borrowers were in economic-hardship deferment (which is granted for hardships like unemployment) and in forbearance (which borrowers can apply for if they can't afford to repay the debt based on their current income) at the end of September 2009, up 26% from a year prior, according to the latest data from, which tracks student loan debt. That number could be higher now, given the high unemployment rates that have persisted since.


To be sure, some experts say student loan debt is still nowhere near becoming a real economic crisis. That would require the two-year default rate on federal student loans, which was 9.1% at the end of September 2011, to triple, says Mark Kantrowitz, the publisher of

Still, for students, the burden continues to grow. As college costs keep climbing and free financial aid is slashed, students have been signing up for more loans in order to cover their tuition bills. The average student who graduated with a bachelor's degree this spring left school with roughly $28,700 in student debt, up 31% from five years ago, according to


And in many cases, borrowers who have fallen behind on loans have also dropped out of college. Those borrowers are four times more likely to default on student loans than those who graduate, says Kantrowitz.


The good news, say financial advisers: Borrowers who have fallen behind can still get back on track. With federal student loans, if they can't afford to make regular payments or if their student loan debt exceeds their annual income, they can qualify for income-based repayment in which they'll pay no more than 10% to 15% of their so-called discretionary income. Some private lenders offer flexible repayment options as well.


More from MarketWatch and MSN Money:

Nov 29, 2012 9:44AM
Why don't we ever address the elephant in the room. Colleges are out of control. The system has practiced virtual collusion for years that has driven costs high enough to cripple the people that graduate financially. Our state has a web site that allows looking at wages of the faculty. The wages are way beyond any level that the real world has. I'm tired of hearing about poor underpaid professors, 80$ - 90$ K starting pay? 20 to 30 hr work weeks, encouraged to moonlight off the job that takes teaching time from the students they are there to teach. I have taught adjunct (I.E. fill in low pay teaching position) and see how the rich and famous live in academia. Come on the whole system is out of control. The one thing they are good at is aggressive defense of their position. Mention this subject and you will get an ear full of how they walk on water and deserve to be paid many times what the average person gets. We need to start looking at overseas education and online education and give the system a little competition.
Nov 28, 2012 10:27PM
Pretty simple... pull all the hired-in executives out of the cushy jobs they have and recover all of the normal people they terminated. Let the normal people restore balance and then hire the graduates. We're going nowhere with False Elitists in roles they don't belong in.
Nov 29, 2012 9:38AM
Obama will pay the bill.  You'd be crazy to pay a student loan.  big surprise that the failure to pay rate is rising, while other debt falls.  This will remain a great mystery to the president.
Nov 29, 2012 10:09AM
This is just silly. Why would you go in debt to pay for college? Just have Mumsy and Dadsy dig into your trust fund a tad and pay for Haavard that way.
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