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Risky Student Debt Is Starting to Sour

The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.

In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.

Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.

"If you become subprime, it's more likely that you will not pay your debt," said TransUnion Vice President Ezra Becker, who oversaw the study.

The high debt loads could weigh on consumer spending and the economy, said Cristian de Ritis, a senior director with Moody's MCO -0.27% Analytics, a unit of Moody's Corp. If the defaults continue to increase, "the taxpayer is going to be on the hook for losses," he added.

The federal government has taken a more active role in student lending and now makes about 93% of all loans.

Another study, released by Fitch Ratings, a unit of Fimalac SA FIM.FR 0.00% and Hearst Corp., Wednesday, warned that the gap between college costs and what students can borrow under the federal student-loan program will continue to widen.

TransUnion performed its study at the request of credit unions, which make private student loans.

In the five years through last March, the portion of all student loans that were 90 days or more delinquent rose to 11.4% from 8.8%, while the average student- loan balance per borrower increased 30% to $23,829, TransUnion found.

For some borrowers, the burden is even greater. Kristin Jones, 24 years old, ran out of money to complete her education at Northeastern University in Boston and, with more than $60,000 in student-loan debt, is looking to finish her senior year at a cheaper school.

Ms. Jones, who works for a company that manages corporate-benefits plans, said she fell behind on her student loans after she found she couldn't afford to go back to Northeastern and her loan payments started kicking in.

"I'll be pretty much trapped for life by these loans and the credit default," said Ms. Jones, who is on a repayment plan but still owes Northeastern one semester's tuition.

The TransUnion study didn't measure whether borrowers had poor credit scores at the time they took out their loans or if their credit scores dropped because of their repayment problems. Missed student-loan payments are more likely to have a big impact on the scores of borrowers with short credit histories such as recent college graduates, TransUnion said.

Another study, released Tuesday by credit-score provider Fair Isaac Corp., FICO +1.33% found that roughly 26 million consumers had two or more open student loans on their credit report in October 2012, up from about 12 million in 2005. A majority of bank risk managers expect student-loan delinquencies to continue to rise, according to Fair Isaac.

To be sure, the rise in student-loan debt is being at least partially offset by reductions in other types of debt, such as credit cards and mortgages, said Richard Fry, a senior economist with the Pew Research Center in Washington. That should make repaying student-loan debt more manageable for some families, he said.

But Dahjanay Williams, a 21-year-old junior at Wheaton College in Massachusetts, still worries that if she doesn't get a job before her loans come due, she won't be able to make regular payments and her credit will take a hit. "That might mess up my credit history," said the New York City native.

Repaying debt has become more difficult in part because loan balances have grown and the interest rates on federal loans have increased as a result of a shift from variable-rate to fixed-rate loans. Most federal loans now carry interest rates of 6.8% or 7.9%, versus a rate of 2.875% on federal Stafford loans in May 2005, said Mark Kantrowitz, publisher of the financial-aid website FinAid.org.

Jennifer France became delinquent on her loan payments once, in 2009. Now, there is a good chance she will become delinquent again, she said.

The 36-year-old public defender from Sault Ste. Marie, Mich., borrowed about $100,000 in federal loans and $30,000 in private loans to cover law school more than a decade ago. She has taken advantage of the income-based repayment option, which allows borrowers to peg their federal loan payments to a certain portion of income and lowers a borrower's monthly payment. But her income recently went up, and her monthly payment on all loans jumped from around $500 to more than $800, which might be too much for her to keep up with.

"Maybe they shouldn't be so willing to give money to kids," she said, "We all thought we'd be making $100,000 out the door."

Stafford loans, which account for more than three-fourths of federal student loans, impose no credit standards and are capped at a total of $57,500 for undergraduates. Ruben Medrano, a 52-year-old undergraduate studying business management at Texas A&M University-San Antonio, said taking out about $26,000 in federal student loans was much easier than taking out an auto loan or a mortgage. "The last vehicle we purchased, we spent four to five hours in the dealership," Mr. Medrano said. "The student-loan process took me 30 to 45 minutes and I never had to leave my home."
Nyadriel's avatar

Dangerous Fairy

You know what else is going on too? Students when they graduate can't find the jobs they went to collage for. And NOW they also cannot find jobs even for ones they otherwise could have gotten because they are apparently "over qualified"... WTF?
There is this bizarre belief that they'll go for the program they want to do, regardless of projected job opportunities in that field in four or so years, because dammit, they want to be a game designer or some other field they love.
Then there's also the issue of 'name' schools. They saddle themselves with excessively expensive schools, just because they are the 'brand name' product.
Do these kids not know what deferment due to lack of income is?
Mei tsuki7
Do these kids not know what deferment due to lack of income is?


They're waiting on big brother to come in and rescue them, Mei. We don't have many citizens who actually DO for themselves, it seems. They want big brother/sister to wipe their nose and a** and make those mean old bills go away instantly. How dare someone say they have to pay back s**t they borrowed!!
Sermanther's avatar

Dapper Gawker

It's why I went to a cheap school, but I felt unchallenged. Would have liked to go to a better college, but then my student loans would be tripled.
Sermanther's avatar

Dapper Gawker

Mei tsuki7
Do these kids not know what deferment due to lack of income is?



For my loans, if I defer, my interest rate will go up percentage-wise and monetary wise since I'm not paying down on the principal. If you don't have a job, you'd have to defer, but it just stinks how they punish you by having you pay more (in interest).
Sermanther
Mei tsuki7
Do these kids not know what deferment due to lack of income is?



For my loans, if I defer, my interest rate will go up percentage-wise and monetary wise since I'm not paying down on the principal. If you don't have a job, you'd have to defer, but it just stinks how they punish you by having you pay more (in interest).


Well there's also forbearance which stops interest accruing. It's just harder to get.

I personally had to get a deferment for 6 months. I'm now paying it back fine and my credit is very good for my age. It is better to get a deferment and have to pay a little more in interest then to default and have your credit suffer.
Old Blue Collar Joe
Mei tsuki7
Do these kids not know what deferment due to lack of income is?


They're waiting on big brother to come in and rescue them, Mei. We don't have many citizens who actually DO for themselves, it seems. They want big brother/sister to wipe their nose and a** and make those mean old bills go away instantly. How dare someone say they have to pay back s**t they borrowed!!


I actually think it's more that they have no idea what they're doing. We need to start teaching money management in highschool along with "How to get and keep a job" classes. And a part of that needs to talk about the job market and what there is a need for.
Jin Love's avatar

Romantic Mage

Nyadriel
You know what else is going on too? Students when they graduate can't find the jobs they went to collage for. And NOW they also cannot find jobs even for ones they otherwise could have gotten because they are apparently "over qualified"... WTF?
X

User Image

            You either don't have enough to qualify, or you're over qualified anymore it seems. neutral

User Image
Mei tsuki7
Old Blue Collar Joe
Mei tsuki7
Do these kids not know what deferment due to lack of income is?


They're waiting on big brother to come in and rescue them, Mei. We don't have many citizens who actually DO for themselves, it seems. They want big brother/sister to wipe their nose and a** and make those mean old bills go away instantly. How dare someone say they have to pay back s**t they borrowed!!


I actually think it's more that they have no idea what they're doing. We need to start teaching money management in highschool along with "How to get and keep a job" classes. And a part of that needs to talk about the job market and what there is a need for.


Teach it in high school? Wow. I remember a math course that was required when I went that was a full quarter on nothing but budgeting your money and how to survive economically.
We did bank accounts, credit cards, house notes, car payments, the whole nine yards.
Eternal Marionetta's avatar

Witty Phantom

Mei tsuki7
Old Blue Collar Joe
Mei tsuki7
Do these kids not know what deferment due to lack of income is?


They're waiting on big brother to come in and rescue them, Mei. We don't have many citizens who actually DO for themselves, it seems. They want big brother/sister to wipe their nose and a** and make those mean old bills go away instantly. How dare someone say they have to pay back s**t they borrowed!!


I actually think it's more that they have no idea what they're doing. We need to start teaching money management in highschool along with "How to get and keep a job" classes. And a part of that needs to talk about the job market and what there is a need for.

They do that in my college. The problem is is that most kids don't really have a lot of money to start with, so they HAVE to borrow money to pay for their education.I personally hate it, because I hate being broke.
And another problem is jobs sometimes clash with classes, so people end up skipping class for their jobs and they end up falling behind.
It's pretty scary being on your own.
Nyadriel's avatar

Dangerous Fairy

Dr Jin Love
Nyadriel
You know what else is going on too? Students when they graduate can't find the jobs they went to collage for. And NOW they also cannot find jobs even for ones they otherwise could have gotten because they are apparently "over qualified"... WTF?
X

User Image

            You either don't have enough to qualify, or you're over qualified anymore it seems. neutral

User Image


It's a long time of a long line of excuses businesses and Corporations are using in not training anybody for any job. Which gives them an excuse to keep shoving our jobs to China, India and Mexico. Cheap labor for slave labor pay.
Old Blue Collar Joe
Mei tsuki7
Old Blue Collar Joe
Mei tsuki7
Do these kids not know what deferment due to lack of income is?


They're waiting on big brother to come in and rescue them, Mei. We don't have many citizens who actually DO for themselves, it seems. They want big brother/sister to wipe their nose and a** and make those mean old bills go away instantly. How dare someone say they have to pay back s**t they borrowed!!


I actually think it's more that they have no idea what they're doing. We need to start teaching money management in highschool along with "How to get and keep a job" classes. And a part of that needs to talk about the job market and what there is a need for.


Teach it in high school? Wow. I remember a math course that was required when I went that was a full quarter on nothing but budgeting your money and how to survive economically.
We did bank accounts, credit cards, house notes, car payments, the whole nine yards.


Yeah. I didn't have any classes like that. Everything I know is thanks to my mother.
Mei tsuki7
Old Blue Collar Joe
Mei tsuki7
Old Blue Collar Joe
Mei tsuki7
Do these kids not know what deferment due to lack of income is?


They're waiting on big brother to come in and rescue them, Mei. We don't have many citizens who actually DO for themselves, it seems. They want big brother/sister to wipe their nose and a** and make those mean old bills go away instantly. How dare someone say they have to pay back s**t they borrowed!!


I actually think it's more that they have no idea what they're doing. We need to start teaching money management in highschool along with "How to get and keep a job" classes. And a part of that needs to talk about the job market and what there is a need for.


Teach it in high school? Wow. I remember a math course that was required when I went that was a full quarter on nothing but budgeting your money and how to survive economically.
We did bank accounts, credit cards, house notes, car payments, the whole nine yards.


Yeah. I didn't have any classes like that. Everything I know is thanks to my mother.


I'm really thinking they teach damn near nothing that is of practical usage in school anymore. It's amazing how many workers go into the world and just don't know how to handle the aspect that they are NOT special, just another cog in the machine.

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