Student loan default rate continues to rise

When the recession hit and many Americans decided to attend or return to school instead of fight the job market, it seemed like a good idea at the time – increase your skill set so an even better job awaits after. But what may have seemed like a strong investment then may not have quite the return rate that was expected. The Federal Reserve Bank of New York reported this week that not only is student debt at an all-time high, but delinquencies are too.

The Journal cited the Federal Reserve of New York's findings that the number of borrowers under the age of 30 at least 90 days late on a student loan payment has been on the rise since 2004, when 21 percent of borrowers were delinquent. In 2012, that number was 35 percent. This was similar to the number of all student loan borrowers late on their payments, though delinquencies were higher for younger borrowers. 

The reasons behind this aren't hard to find, a poor job market for those with high levels of loans cause many to be unable to make payments. And while this trend is expected to change as the job market improves, the effects may be seen for a while. Those with bad credit from student loans may be unable to qualify for mortgages or auto loans in the future. The Journal also said that those late on student loan payments are more likely to be late on other payments too.

For banks, tools can be used to keep this trend from continuing. Credit and risk management software can help lenders determine if borrowers are qualified, improving the profits of a financial institution. As the job market improves, the student loan will likely become what it was indented to be – an investment, not a burden. 

Request a Demo

From loan originations and decisioning, to customer management and beyond, GDS Link helps thousands of clients manage risk while driving growth.