Student Loan Crisis Deepens as Debts and Defaults Skyrocket

student debtThe student loan crisis may be even worse than it previously appeared: Not only are college students graduating with more debt than ever, but their risk of defaulting on their loans is higher than ever, a new study by FICO Labs reveals.

FICO Labs looked at 10 million consumer credit files for its most recent research report and it found that since 2005 the average amount of student loan debt has risen by a whopping 58 percent to more than $27,253 in 2012 compared to $17,233 in 2005. At the same time, balances owed on credit cards and auto loans decreased during that same seven-year period as consumers tried to reduce their level of indebtedness.


Higher levels of debt are joined by a growing trend in delinquencies. Loans are considered delinquent when they are 90 days or more past due.

Looking at two two-year periods, FICO found that delinquency rates on existing student loans increased from 17 percent between October 2005 and October 2007 to 25.1 percent between October 2010 and October 2012. That represents a whopping 47 percent rise in delinquencies.

Delinquency rates on new student loans fared a bit better, with roughly 12 percent of loans originating in 2005-2007 being delinquent compared to 15.1 percent for loans originated in 2010-2012, representing a 22 percent increase.

Bankers Don't Think It's Going to Get Better Soon

FICO's quarterly survey of bank risk managers, released in December 2012, showed that nearly 60 percent of survey respondents expect higher levels of student loan delinquencies over the next six months. By contrast, these respondents do expect delinquencies on all other types of debt, such as credit card debt, mortgage loans, and car loans, to decline over that period.

There are several issues that contribute to the increasing likelihood of student loan defaults:
  • Higher levels of student loan debt make repayment more difficult.
  • A weak economy has prevented many graduating students from finding employment and has meant that those who do find jobs are frequently underemployed.
  • FICO scores for recent student loan approvals are lower than in the past. FICO research shows that the median credit score for an approved student loan in October 2010 was 641, compared to 659 in October 2005. FICO says this may be due to the increasing number of federally subsidized student loans, which have less stringent credit standards than private loans. Fewer private student loans are available today than in the past.

As far as different kinds of debt, student loans are looked at just like any other installment loan, except that having a large amount of student loan debt isn't given quite as much negative weight on your credit score by FICO as having high levels of credit card debt.

Still, just as with any other debt, a solid repayment history on student loans will help your credit score, while defaulting on them will significantly lower it.

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Daniel Faith

You know, I was so looking forward (at least I wanted to so much) to hear some good news related to student loans, education price, etc. I was so silly to expect that from our government. Now with the budget cuts (that besides could have been applied so long time ago already) we are all going to suffer so much. I bet so many young and talented ones are going to leave the idea of getting a higher degree. Well they can of course use this time to rethink things like what they really would like to do in life and probably save up some. It is just not fair. Hopefully this is not a final decision.
Dan from company

March 01 2013 at 4:17 AM Report abuse rate up rate down Reply

Chloe. true that Melissa`s article is shocking, last friday I got a great Mitsubishi Evo from earning $4979 this past 4 weeks and in excess of 10/k this past-munth. it's definitly my favourite work Ive ever had. I started this 6 months ago and immediately brought home over $73.. per-hour. I went to this website,

February 02 2013 at 4:20 PM Report abuse +2 rate up rate down Reply

The student loan debt crises is being driven by for profit colleges who recruit unqualified students for career tracks with little hope of landing a job and help them fill out loan applications. This is an unmitigated disaster just like the home loan scandal we are just recovering from.

February 01 2013 at 12:48 PM Report abuse +1 rate up rate down Reply

It's going to be hard for these people to repay student loans after graduation from college when McDonalds and Walmart is only paying minimum wages.
If they look around, especially at who they voted for TWICE, the light in their poor befuddled brain may finally come on.
Hope that mom and pop's basement is nice and comfy for the next four years for ya.

February 01 2013 at 12:42 PM Report abuse +1 rate up rate down Reply

The same DEMOCRATS that voted for the current president who has failed to address jobs, but Plenty on Guns, is why some of these college loans are an issue.

February 01 2013 at 12:41 PM Report abuse +1 rate up rate down Reply

Somehow, I suspect that more than half of this huge debt/default comes as a result of the "For-Profit" colleges who churn students and assist them in getting government-backed loans with high percent interest rates. The students apply for loans, the school receives a fat check from a bank, our "government": guarantees the loan, the student drops out due to unqualified instructors "teaching", and the "For-Profit" College/University gets to keep the money while the student who has learned little or nothing decides HE got screwed, can't repay the loan, and the Big Banks demand repayment from "The Government" (READ: "TAXPAYERS" , and The Band Plays On, while the college/"university executives are paid $20, $30, even $50 MILLION dollars a year, courtesy YOU, ME, and everyone who actually PAYS taxes, unlike the 51% who pushed the president into office for another fours to decimate the country. How sweet it is! Feeling "Stimulated" yet?

Scuuuuuze me while I go around the corner and "Hurl."

February 01 2013 at 12:15 PM Report abuse rate up rate down Reply

I know of one person who recently said to my wife and I: "Yeah, I took out a student loan but I needed a car more, so I used it for that". The middle-aged slacker bought herself a new Ford Focus *with a loan intended for the furtherance of her education*. Damn!

Wanna lay odds on whether she'll be one of those wanting her 'bad loans' erased?

February 01 2013 at 12:13 PM Report abuse rate up rate down Reply

We need to stop giving loans to students who will never be able to repay them. To give a $100,000 loan to an Art History major is a waste of money. We only should give loans to people who are going into professions where there are job openings which pay enough to allow the student to repay those loans.

February 01 2013 at 11:53 AM Report abuse +2 rate up rate down Reply

Why isn\'t there a study of which majors have the highest default and delinquency rate so students planning those degrees are declined or given smaller loans.
Only give loans to students getting degrees that are likely to get a job and repay the loan
What a common sense concept

February 01 2013 at 10:40 AM Report abuse +6 rate up rate down Reply
1 reply to djaurand's comment

There are plenty of studies done. Jesus, Washington is the land of studies. Heck, there's probably a grant being issued now, on why you even mentioned a study. Study a study. The information is there, just nobody wants to do anything about it, because every object group in town would bring some suit against logical conclusions. Yelling biased, or not biased enough.
Want to see a major tantrum? Try taking grant money away.
So they wait for a crisis, which is what this is, to get agendas passed or cramed down, to authorize another study.

February 01 2013 at 11:02 AM Report abuse +1 rate up rate down Reply
1 reply to theycallmeroy3's comment

I guess you'd like an example. Here's one. There were numerous studies done, with simaliar conclusions, that students, ( especially boys) do better in math and science when they're separated in middle school by gender. Girls just florish even more. Sounds easy. Data is there. But every whine group in town, just threw a fit.

February 01 2013 at 11:15 AM Report abuse +1 rate up rate down

The education syystem will not change in america until we get a leash on the teachers unions College has become a country a nice check for many who either can't get the job done or could care less Now the president f the national teachers union made this statement We are not here for your commmunity ,your school, or your children .WE ARE HERE FOR THE POWER and true the union is about their power The teachers command the largest part of any city or towns budgit The next thing is americas educational system which is funded many times more than per student than any other country Paying for schools these days is like buying a car thats a lemon Its all politics and no education so don't expectyour child to get a job America now rates 17th in the world in education which means 3 third world are doing better we rank 27th in math and science

February 01 2013 at 10:11 AM Report abuse +1 rate up rate down Reply