The ‘untold story’ on federal loans: Delinquency

For years, how college students have fared in repaying their federal loans has been measured by the loan-default rate. U.S. Secretary of Education Arne Duncan made headlines last September with the announcement that the default rate had risen to 7.0 percent for the 2008 national cohort, compared to 6.7 for the previous year — a sign that students are struggling to pay for higher education in tough economic times.

But a new study reveals a more complex picture. For every student who defaults on his or her loan, another two students are delinquent, the Institute for Higher Education Policy has found.

It doesn’t take much to become delinquent on a loan — you just have to miss one or more scheduled payments. If you don’t pay for two months, your delinquency is reported. Defaulting happens once you’ve been delinquent for 270 days.

But, as “Delinquency: The Untold Story of Student Loan Borrowing” highlights, those borrowers have to deal with many of the same consequences as those who default, including poor credit ratings and trouble borrowing in the future.

In all, only 37 percent of borrowers managed to repay their loans on time and without incident. An additional 23 percent used repayment options — deferment or forbearance — to postpone payments.

About 15 percent of students who had taken out federal loans defaulted on them, while another 26 percent became delinquent at some point.