Quarterly studies are run by the United States Department of Education in order to collect data pertaining to student loans. There are multiple finds each quarter that update important trends. The most recent quarterly study revealed that borrowers are beginning to make larger payments each month, but defaults are also on the rise. Overall, there are both good finds and negative finds making this study a fairly neutral report.
The first and most promising aspect of this report involves the rising rate of repayment among graduates. To be specific, the repayment rate has increased by a percent from the previous year; now 53% of loans are currently being repaid. From 2014, the increase is even more pronounced; for instance, repayment rates are up 5% from 48%.
Despite a positive repayment trend, there is another positive trend with a negative impact on the student loan debt situation. Default rates have also risen up to 8.3% compared to 7.4%. This may seem contradictory given the rise in repayment rates, but it is entirely possible when considering the different loan statuses. What’s scarier? These rates don’t even consider debt lent by private lenders.
Aside from repayment and default status, there are two more statuses for a loan: delinquency and deferment. Deferment refers to a period where loans are allowed to be put off; basically, deferment periods usually occur while the borrower is still in school or during the grace period following graduation. Delinquency status means a payment has been missed during the repayment period, so there is money that is past due on the loan account. At any rate, these statuses mean one thing: payments are not being made.
The rise in both default and repayment rates can be attributed to the decrease in delinquency and deferment rates. While it seems that the positive trends counterbalance each other, one must consider the gravity of a defaulted loan. Default refers to a full year of delinquent payments; in other words, a loan reaches default status after twelve consecutive missed payments. One serious possibility is that delinquency rates are holding steady which means they are beginning to contribute to the default rate.
This is the worst case scenario for borrowers and lenders, and it represents a deep hole for the borrower to dig their way out of. In many cases, this task may never be accomplished which escalates the already serious problem with student loan default.