Student Loan Defaults Started to Rise Before the Great Recession, Says New York Fed

The New York Fed has come to some new conclusions about student loan distress, mainly that default rates for student loans were already on the upswing up before this economic calamity, Mainstreet.com reported yesterday. The New York Fed based its conclusions on a cohort of defaulters assembled using the Consumer Credit Panel, which is based on Equifax credit data. The New York Fed said that its results are analogous to default rates in the Department of Education’s studies, but go beyond the Education Department’s three-year time frame. “We find that default rates continue to grow after three years and performance of that cohort worsened in the years leading up to the Great Recession,” the New York Fed’s report stated. The Fed looked at outcomes over the life of a student loan rather than at a smaller slice. The Fed began following the 2009 cohort in 2004, the 2007 cohort in 2000 and the 2005 cohort in 1996. Other studies were limited to three years. The report noted that earlier snapshots of delinquency and default rates miss the fact that many borrowers who are current today have had serious stress in the past. Only about 63 percent of borrowers appear to have completely avoided delinquency and default. The highest default rates are among borrowers who owe less than $5,000.

NEW YORK (MainStreet) — The conventional wisdom about the Great Recession is that people who left college during that era were going to be pulled under water by a debt tsunami. The class of 2008 and several that followed graduated into an economy where companies weren’t hiring and student loan payments were starting to become due. Now the New York Fed has come to some new conclusions, mainly that default rates for student loans were already on the upswing up before this economic calamity. The New York Fed based its conclusions on a cohort of defaulters assembled using the Consumer Credit Panel, which is based on Equifax credit data. The New York Fed said its results are analogous to default rates in the Department of Education’s (ED) studies but go beyond ED’s three year time frame. “We find that default rates continue to grow after three years and performance of that cohort worsened in the years leading up to the Great Recession,” the New York Fed’s report stated. The Fed looked at outcomes over the life of a student loan rather than at a smaller slice. The Fed began following the 2009 cohort in 2004, the 2007 cohort in 2000 and the 2005 cohort in 1996. Other studies were limited to three years. “Defaults appear to be concentrated among the lowest-balance borrowers, who may not have completed their schooling, or may have earned credentials with lower (salaries) than a four-year college degree,” said the report, written by New York Fed staffers Meta Brown, Andrew Haughwout and Joelle Scally and Wilbert van der Klaauw.Read more here Student Loan Defaults Started to Rise Before the Great Recession, Says New York Fed – MainStreet.

Source: Student Loan Defaults Started to Rise Before the Great Recession, Says New York Fed – MainStreet – Gudeman & Associates, P.C.