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Digging Through Data for the Real Story on Student Loans

On Friday, the U.S. Department of Education released new data on student-loan repayment that included figures on loan delinquencies—potentially good news for those interested in how well students are faring when it comes to paying back their loans.

The release precipitated an article the following Monday in The Huffington Post by Shahien Nasiripour titled, “Half Of Federal Student Loan Borrowers Not Paying On Time.” In his article, Mr. Nasiripour broke down the data and stated, as the headline promised, that “less than half of borrowers with the most common type of federal student loan are repaying their debt on time.” Included in that analysis, as Mr. Nasiripour himself pointed out later, were borrowers who had deferments because they were attending graduate school or serving in the military, or for other reasons not necessarily related to economic hardship.

That stirred debate on Twitter and among policy wonks about how to best interpret the data and what Mr. Nasiripour had written—prompting him to join the Twitter conversation and explain his methodology for his article.

Part of the problem stems from the complicated nature of the data themselves. For example:

Loans vs. Borrowers

Because some borrowers have multiple loans, they  appear in multiple categories, so you can’t say that a certain percentage of borrowers are delinquent, but rather that a certain percentage of dollars are delinquent.

One borrower could have multiple delinquent loans, or she could have one loan in repayment and another in deferment. As a result, you would have to look at the number of dollars outstanding, which really shows the financial impact on the government, rather than percentage of borrowers in each loan status.

Direct Loans, Not Bank-Based Loans

The data provided a look at delinquency only for direct loans, not older loans issued through the defunct bank-based loan program, the Federal Family Education Loan program, or FFEL. The Department of Education said in an email that it did not have detailed delinquency data for FFEL loans because that portfolio “is largely serviced by private lenders.”

While direct loans have existed since 1993, bank-based loans were in play until July 1, 2010, when all new loans became direct loans.

Mark Kantrowitz, senior vice president and publisher of Edvisors.com and an expert on student loans, wrote in an email that comparisons of bank-based and direct loans “would not be apples-to-apples anyway, since the FFEL portfolio is an older portfolio” and “has probably aged past most defaults.” Most student-loan defaults occur within four to five years of entering repayment, he said.

Nevertheless, excluding all bank-based loans from the data does change the overall picture. If Mr. Kantrowitz is right, the released data are not counting many people who are in fact paying back their loans on time.

Default Definitions

The Department of Education defines default as a loan that is more than 270 days delinquent.

However, new data contain a different way of calculating defaulted loans. One report, the loan-status report, only considers loans as in default when they are more than 360 days delinquent and already transferred to the debt-management and collections system.

Since the report’s definition doesn’t match the department’s normal definition of default, it’s not comparable.

Deferments

But perhaps the most challenging aspect of the data is that the government reports don’t separate loans that are in deferment because of financial problems from those in deferment because borrowers are still in school or in the military. In an email interview, the department’s communication analyst, Tara Marini, said such data were not readily available and may take weeks to query.

But Ms. Marini did say that typically, the majority of deferments are a result of students returning to school.

In other words, not every loan in deferment is there because of borrowers struggling.

If it’s true that a majority of deferments are because of borrowers returning to school, rather than facing economic hardship, then simply saying that half of student-loan borrowers aren’t paying on time really misses the story.

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