Reading the Tea Leaves as Student Debt Increases

Editors' pick: Originally published Nov. 3.

$1.4 trillion. That's become the widely recognized value of outstanding student loans from the federal government and private lenders. That's about 9% of the gross domestic product.

Last summer it was $1.3 trillion. Then the whisper number was $1.4 trillion. Now it's no longer a whisper. But what do these numbers mean? Do they illuminate or obscure a larger problem?

"We do not have much good data on student loans," said Mark Kantrowitz, publisher and vice president of strategy at Cappex.com. "What data we have is a patchwork of data sources, each of which has a different set of flaws."

Where student loans sit in relation to other types of consumer debt--credit cards, for example--and how they interact is typically not taken into account.

Department of Education (ED) spokesperson Alberto Betancourt referred an inquiry about loan balances to the Federal Student Aid loan portfolio summary, where, based on the National Student Loan Data System, the 3Q 2016 federal loan balance for federal Direct Loans is $911.6 billion plus $342.6 for unpaid loans on the FFEL program that was discontinued in 2010 and $8.0 in Perkins Loans. That totals $1.262 trillion. Private loans from banks and non-bank lenders such as Navient, formerly known as Sallie Mae, are not included in ED's data.

The U.S. Federal Reserve Bank has been using the $1.3 trillion figure but former FDIC Chair Shelia Bair cited $1.4 trillion in a September speech to the American Bankers Association; the Student Loan Debt Clock managed by Collegedebt.com has blown past that figure. The Consumer Financial Protection Bureau uses "roughly $1.4 trillion"--and cites the Fed's data as its source. Last week CFPB spokesperson Moira Vahey stated, "This datapoint is from the Federal Reserve's monthly Consumer Credit statistical Report G 19--August 2016 edition--which shows the student loan balance outstanding as of June 2016. The actual figure is $1.3635 trillion, which would round to $1.4, thus the roughly $1.4 trillion" figure.

At a July conference at New York offices of Common Bond, the student loan refinance vendor, Pauline Abernathy, president of the Oakland, Calif.-based TICAS, The Institute for College Access and Success, mentioned a query from a U.S. Senate staffer whom she didn't identify. This person, she said, said, "'I saw data that came out from the New York Fed that said student debt was only $1.2 trillion. Has it gone down?'"

"Actually, it's continuing to go up," Abernathy noted, "if you buy the data set that the Federal Reserve uses which has it much higher and is different yet from the data set from the Department of Education."

Beyond numbers, she said, "There's not even agreement on the size of the student loan market. We have to start collecting better data on this since we can't understand a problem that we're not measuring properly. This is such a significant issue; we need to understand it much better."

A data point that is often referenced is the typical debt students have when they finish a BA. While it is a useful benchmark, Abernathy thought numbers associated with it--$37,000 is a common one--were usually too high. That figure, she said, "is based on estimates projected from a methodology that's not disclosed, that is almost certainly way too high. We look at the actual data that colleges report from graduates in 2014 from public and non-profit colleges only. It was $29,000, not $37,000. That's a projection for 2016, but it's not going to go up by that much from 2014 to 2016."

Debt from for-profit colleges will bump loan balances up. "Obviously you include for-profit colleges, where debt levels are higher and the average will go up," she said, adding that they account for only about 10% colleges. Most students go to public colleges and $29,000 is the average debt among those who borrow. About seven out of ten U.S. college students have student loans.

Regarding the $1.3 trillion figure reported by the Federal Reserve Bank of New York, Kantrowitz stated, "They combine federal student loan data from Studentaid.ed.gov, which shows $1.262 trillion in federal education loans outstanding to 41.5 million unduplicated borrowers, with data concerning private student loans outstanding from MeasureOne," a San Francisco-based vendor of consumer credit information and analytics. "But," he said, "MeasureOne reports only on a subset of private student loan lenders and it isn't clear if they list the actual totals or are excluding charged-off balances."

To estimate outstanding private student debt, Kantrowitz uses this approach: "Take the annual disbursement data and assume a particular repayment term (and) prepayment rate to model cumulative payments to principal as an offset to cumulative disbursements. This yields a figure for outstanding private student loans that is about double that reported by MeasureOne."

Kantrowitz attributed the rising cost in student loans to the failure of federal and state government grants to keep pace with increases in college costs on a per-student basis.

"Family income has been flat since 2000," he said. "So, either families must borrow more to pay for college--a key driver of increases in student loan debt--or they must shift enrollment to lower-cost colleges, such as moving from four-year to two-year colleges--a key cause of the decline in Bachelor's degree attainment by low-income students."

A less referenced but telling set of numbers concerns the value of loans that are actually in repayment versus those that are not. According to the latest number from Studentaid.gov, there are 15.7 million borrowers who have $468.1 billion worth of loans that are being repaid. At the same time, 3.4 million borrowers had $101.7 billion in deferment and 1.7 million borrowers had $42.6 billion in a grace period where payments don't have to be made. Another 2.7 million borrowers have $102.8 billion worth of loans in forbearance--loans that aren't being paid off while interest is being piled on.  Another 3.9 million borrowers have $63.2 billion worth of loans in default.

The loans not in a repayment status are not equal to those in repayment, but they're not far apart. 15.7 million borrowers are paying off some $468.1 billion in loans. About 11.7 million borrowers have some $310.3 billion in loans that are not in repayment.

More from Debt Management

The Best 3 Strategies for Millennials to Pay Off Outrageous Student Loans

The Best 3 Strategies for Millennials to Pay Off Outrageous Student Loans

To Easily Get Out of Credit Card Fees and Charges - Just Ask the Right Question

To Easily Get Out of Credit Card Fees and Charges - Just Ask the Right Question

How to Calculate Your Net Worth and Pin Down Your Financial Health

How to Calculate Your Net Worth and Pin Down Your Financial Health

Five Signs You're Getting a Raw Deal From Your Financial Adviser

Five Signs You're Getting a Raw Deal From Your Financial Adviser

How to Protect Yourself and Your Family From Long-Term Care Insurance Scams

How to Protect Yourself and Your Family From Long-Term Care Insurance Scams