Student loan debt is worse than it seems

Flickr user 401(K) 2012 / iStockphoto

(MoneyWatch) The student loan crisis continues to worsen, according to the latest quarterly figures from the Federal Reserve Bank of New York.

The NY Fed's Quarterly Report on Household Debt and Credit revealed that the delinquency rate for student loans, which is currently at 8.9 percent, increased during the second quarter. During the same period, student loan debt rose $10 billion to $914 billion.

While student debt continued to grow, overall household debt declined by $53 billion to $11.38 trillion as Americans continue to pay down their debt and take advantage of extremely low interest rates. Credit card balances ($672 billion) are at their lowest level since the second quarter of 2002. Credit card debt is down 22.4 percent since the peak during the fourth quarter of 2008.

During the most recent quarter, the delinquency rates for mortgages (6.3 percent), credit cards (10.9 percent) and auto loans (4.2 percent) all decreased.

According to the federal reserve report, the delinquency rate for student loans is actually worse than what it reported. Here is the bank's explanation:

These delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.

It's not surprising that student loan debt remains a problem child. College prices continue to defy inflation rates and the biggest percentage price hikes are coming from public universities, which is where most middle and low-income students have traditionally depended upon for bachelor degrees.

It's more important than ever that families evaluate their options and use net price calculators to determine what the actual price -- rather than sticker price -- will be for them at any college or university. And parents and teenagers must have honest conversations about what a safe level of college debt is.

[Craigie7]

The Federal Reserve Bank of New York data are a mess. Lynn should know better. FRBNY can't distinguish federal and federally-guaranteed education loans from private (alternative) education loans. FRBNY uses a 1% sample from only one credit bureau. FFELP lenders and guaranty agencies are only required by regulation to report to one of the three major national credit bureaus -- which explains why FRBNY's grand totals are way low.

FRBNY uses a traditional personal loan product paradigm and thus does not distinguish between delinquent and defaulted loan statuses. In federal education lending, "charge off" is a foreign concept. Default is a beginning, not an ending. Delinquent is a transient state, not a destiny, and most delinquent borrowers do not default.

FRBNY doesn't seem to understand grace period, nor the difference between in-school status and in-school deferments. Loans in deferment and forbearance HAVE entered repayment and are in "danger" of entering delinquency and default. Loans during in-school and grace period statuses are not in repayment and are not in "danger" of entering delinquency and default.

[Moravecglobal]

The public's UC Berkeley harvests money, taxes, family savings from Californians. Cal. is nationally ranked #1 public university total academic cost (resident) with the Provost and Chancellor goal to 'charge Californians higher tuition'. UC Berkeley tuition is rising faster than costs at other universities. Cal ranked # 2 in faculty earning potential. Believe it: Harvard College less costly.

University of California negates the promise of equality of opportunity: university access, affordability is farther and farther out of reach. Self-absorbed Chancellor Birgeneau, Provost Breslauer are outspoken for Cal. 'charging Californians much higher' tuition.

Birgeneau ($450,000) Breslauer ($306,000) like to blame the politicians, since they stopped giving them their demanded funding. The 'charge Californians higher tuition' skyrocketed fees by an average 14% per year from 2006 to 2011-12 academic years. If Chancellor Provost had allowed fees to rise at the same rate of inflation over the past 10 years they would still be in reach of most middle income students. Breslauer Bergeneau increase disparities in higher education and defeat the promise of equality of opportunity..

Additional state tax funding must sunset. The sluggish economy and 10% unemployment devistate family savings. Simply asking for more taxes to fund self-absorbed Cal.senior leadership, old inefficient higher education practices, excessive faculty staff compensation and burdensome bonuses, is not the answer.

UC Berkeley is to maximize access to the widest number of Californians at a reasonable cost. Birgeneau's Breslauer's 'charge Californians higher' tuition' denies middle income families the transformative value of Cal.

The California dream: keep it alive and well. Fire (honorably retire) Provost George W Breslauer. Birgeneau resigned.

Opinions? UC Board of Regents [e-mail] Calif. State Senators, Assembly members.

[MikeHeXt]

From my experience, colleges are the ones encouraging how much students should be borrowing. They were literally telling us what to fill in on the promissory notes. In my case, I was even told that private loans were FEDERAL because it was when SallieMae was a middleman.

[MikeHeXt]

For-profit colleges & lenders like Salliemae have been driving it to get the federal money. And if you're counting info provided by the actual lenders/self reporting, there is a huge amount of doctoring going on.

Since Bush deregulated the for-profit college sector it has been working hard to push that 90/10 to maximize how much federal money they can scam out of poor students.

[eduLaunchpad]

"And parents and teenagers must have honest conversations about what a safe level of college debt is."

Lynn, what do you think is driving the lack of this conversation? Why is it that so many students and families just don't seem to care about taking on so much debt?