About 7 Million Americans Haven’t Paid Federal Student Loans in at Least a Year


WASHINGTON—Nearly seven million Americans have gone at least a year without making a payment on their federal student loans, a staggering level of default that highlights how student debt continues to burden households despite an improving labor market.

As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this week. That was up 6%, or 400,000 borrowers, from a year earlier.

The figures translate into about 17% of all borrowers with federal loans being severely delinquent—and that share would be even higher if borrowers currently in school were excluded. Additionally, millions of other borrowers who haven’t hit the 360-day threshold that the government defines as a default are months behind on their payments.

Severe delinquencies are rising despite the sharp drop in unemployment over the last year and a big push by the Obama administration to enroll borrowers in programs that lower their monthly payments. Delinquencies on other types of debt such as credit cards and mortgages have fallen.

“Each new crop of students is experiencing the same problems” with repaying, said Mark Kantrowitz, a higher-education expert and publisher of the information website Edvisors.com. “The entire situation isn’t getting better.”

The development carries big implications for borrowers, taxpayers and the economy. Economists have warned of student-debt defaults damaging borrowers’ credit standing, which would hurt their ability to borrow for things like cars and homes. That in turn would hamper the economy, which relies heavily on consumer purchases for economic activity. Delinquencies also drain government revenues, which are used to make future loans.

The Obama administration, which oversees a $1.18 trillion portfolio as the nation’s primary student lender, didn’t address the defaults in releasing the data this week. Instead, Education Department officials pointed to figures they said showed progress in getting some Americans current on their bills.

Shorter-term defaults—those in which borrowers have gone between 31 days and 359 days of making no payment—declined over the past year, the agency said. Among those who borrowed directly from the government—the majority of those with federal loans—the share who are least 31 days behind fell to 21%, from 23% a year earlier. A similar drop occurred among borrowers under a now-defunct program that provided government guarantees for privately made student loans.

Education Secretary Arne Duncan said those declines resulted from rising participation in income-based repayment plans, which lower borrowers’ monthly bills by tying payments to their incomes. Enrollment in the plans surged 56% over the past year among direct-loan borrowers.

“The fact that more and more borrowers are taking advantage of the opportunity to cap their monthly payments is a good sign,” Mr. Duncan said in a statement.

The administration has urgently promoted the plans, mainly through emails to borrowers, over the past two years in an effort to stem defaults. The plans set payments as 10% or 15% of their discretionary income, defined as adjusted gross income minus 150% the federal poverty level.

The plans carry risks, though, for both borrowers and the government. Many borrowers’ payments aren’t enough to cover the interest on their debt, allowing their balances to grow and threatening to trap them under debt for years.

At the same time, the government could be left forgiving huge amounts of debt if borrowers stay in the plans. The government forgives balances after 10, 20 or 25 years of on-time payments, depending on the plan.

The administration maintains that the overall student-loan program will generate long-term profits for taxpayers, but it has recently revised down revenue estimates by billions of dollars due to growth in the income-driven plans.

The administration is still trying to grapple with long-term defaults. It’s not clear why so many borrowers aren’t making payments, though there are several theories.

Some borrowers dropped out of school and thus lack a degree to get a decent paying job. Even many of those with degrees are struggling to find work in their given fields.

Mr. Kantrowitz, the Edvisors.com publisher, said that at least some of the troubles are coming from parents who took out federal loans during the recession to help their children go to college and whose loans are now coming due. Many parents took on the debt but may have lost their jobs and savings during the downturn—or they were counting on their children to repay the loans.


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