Official statistics may underestimate the student debt problem

A recent NYT piece suggests that official student loan figures underestimate default and delinquency rates.

As CBS News reports, student debt continues to grow to record levels and currently stands at about $1.5 trillion. Over the past six years, student debt has climbed by 500 million even while loan applications themselves have dropped by 20 percent. However, official figures from the U.S. Department of Education (DOE) concerning the default rate on student loans may actually underestimate the scope of the problem. That's according to a recent opinion piece in the New York Times by Ben Miller, the senior director for postsecondary education at the Center for American Progress.

Nearly a third of borrowers struggle

DOE statistics show that three years after graduation about 10 percent of student loan borrowers had defaulted on their student loans. While that rate is high compared to other types of debt (for example, only about one percent of credit card borrowers are in default within three years) it still seems relatively modest.

However, when Mr. Miller submitted a Freedom of Information request from the DOE for data pertaining to the default rate beyond the first three years the numbers became much grimmer. Five years after graduation, the default rate on student loans climbs to nearly 16 percent. When those who have stopped repaying their loans or are severely delinquent are included in those statistics, then a shocking 30 percent of student loan borrowers are having serious problems repaying their student loans five years after graduation.

Colleges benefit, but students don't

Congress only requires the DOE to publicly disclose the default rate for student loans for the first three years after graduation. However, only disclosing the three-year default rate seriously misrepresents the scope of the student debt crisis. Furthermore, it benefits colleges at the expense of students.

That's because the law requires that colleges keep their default rate below 30 percent within three years in order to continue receiving federal assistance. That 30 percent threshold at three years was partly the result of heavy lobbying on the part of colleges. That means that colleges have an incentive to keep students from defaulting within those first three years, but afterwards students are largely left on their own. In fact, currently, only 2.1 percent of colleges have a default rate above 30 percent after three years. However, if the oversight period were extended to five years then the share of colleges with high default rates would soar to 13.1 percent.

Help with student loan debt

For those who are struggling with student debt, options are available with the help of a bankruptcy attorney. While student debt is difficult to discharge through bankruptcy, it is not impossible. Furthermore, a bankruptcy attorney can help clients tackle other forms of debt, thus making their student loan repayment more manageable. By talking to a bankruptcy attorney today, those struggling with debt will be taking the first step towards getting their financial lives back on track.