The Student Loan Debacle--What a Mess; 61% Not Paying

Andrew Gillen:  

Until recently, much talk about student loans was fact-free: There simply weren't publicly available figures worth paying attention to.

The official balance of student loans from the NY Fed were unreliable:

There was a bucket of random obligations called "Miscellaneous", which included things like utility bills, child support, and alimony. And it turns out that if you went burrowing in that miscellaneous debt, there was actually a pile of weirdly-categorized student loans in there. [AG: And these mis-categorized student loans were not included.]

Meanwhile, the official cohort default rates from the Department of Education were even more useless. Until recently, only the two-year rate was reported. Moreover, those in forbearance or deferment were counted as repaying their loans, and it took 270-360 days of not making payments to be classified as in default. When combined with the grace period, this means that to a first approximation, the "cohort default rate" was not a default rate in any meaningful sense of the term, but rather a measure of how many students never made any payment at all.

Posted by Jim Zellmer at March 20, 2012 3:12 AM
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