The New York Federal Reserve’s quarterly household debt survey last week showed few portents. What it did show is that more Americans are defaulting on their student loans, and that government budget officials have vastly underestimated the future taxpayer charge, according to a Wall Street Journal editorial. Defaults have fallen for most forms of consumer debt as the economic expansion continues. Mortgage delinquencies last quarter hit a historic low. But severely delinquent student loans have soared since 2012 and are now 35 percent of “severe derogatories” — more than credit cards (23 percent), auto loans (21 percent) and mortgages (11 percent). About 10 percent of the $1.5 trillion federal student-loan portfolio is 30 days or more past due. Another 20 percent is in deferment or forbearance, and about 30 percent is in income-based repayment plans that allow most borrowers to cap monthly payments at 10 percent of discretionary income and discharge the remaining balance after 20 years or 10 for folks in “public service.” Congress created these nifty plans in 2012 for new borrowers, but then the Obama Administration expanded them retroactively to reduce defaults. The government is spending more to administer student loans than originally forecast. In 2010 the government spent $800 million on “administrative costs,” which CBO projected would increase to $1.2 billion in 2019. The government’s overhead tab this year was $2.9 billion. Income-based repayment plans have also encouraged schools to raise prices and enroll students who probably won’t earn enough to pay off their loans. Read more. (Subscription required.)
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
