The latest report by the Federal Reserve Bank of New York shows how dire the financial situation has become for college students with outstanding loans.
According to numbers released by the bank this week, 1 in 4 borrowers with outstanding student loans had a past-due balance in the third quarter of 2011. Those figures are higher than most previous estimates because, in its recent calculations, the New York Fed deliberately left out borrowers who are temporarily exempt from making payments, like those still in school or within the usual six-month period after graduation when they’re not required to make payments.
By removing those borrowers from the equation, the percentage of past-due student loan balances sits at 27% of all outstanding student loans. The more conventional metric that includes those students is 14.6%.
That’s not all. The estimated student loan balance in the third quarter last year was $870 billion, which increased 2.1% from the previous quarter and is more than both Americans’ total credit card balance ($693 billion) and auto loan balance ($730 billion). About $580 billion of the total is owed by Americans who are younger than 40. The average balance sits at $23,300.
But maybe the most shocking statistic the New York Fed reported was that almost half of student loan borrowers are either deferring their student loan payments or are in forbearance. Almost 18% of borrowers had the same balance they had in the previous quarter, and 29% saw their overall balance increase thanks to either added student loans or accruing interest on the balance.
The New York Fed’s statistics seem to give a much more accurate picture of the student loan situation in the U.S. than more conventional studies. As student loan debt continues to increase, those calling the student loan situation the next financial bubble seem to be less and less outside the mainstream.
It’s an even worse situation for students who chose to finance their education with private loans, which don’t allow for deferment or income-based repayments and often have higher interest rates than federally backed loans. However, there is at least one piece of good news for frustrated student borrowers: One of the Consumer Financial Protection Bureau’s latest moves is a new hotline for taking complaints against those lenders.