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At least 9.6 million Americans are still struggling with student loans

More than 40 percent of people who should be paying back loans in the largest national student loan program are not making payments, the Wall Street Journal's Josh Mitchell reported today. They're either falling behind on their scheduled payment plan or they've entered a plan where they stop paying altogether and just let the interest accumulate.

Both of these are bad financial choices. The high number of people who are opting for one or the other shows that far more Americans are struggling with student loans than usually show up in official statistics.

Slightly more than 22 million people who borrowed money directly from the Education Department — the largest federal student loan program, which has made nearly all loans since 2010 — have been out of college or graduate school long enough that they should be paying back their loans. (That excludes people with loans who are still in school, people who went back to school, or those who graduated or dropped out recently enough that they don't need to make a payment yet.)

But only 12.5 million people are actually making payments on time.

If you can't or won't repay your student loan, there are a variety of ways not to do it — and the remaining 9.6 million are split up among these different ways to fall behind. Some situations are worse than others, but none of them are good:

  • Nearly 4 million are in default, meaning they've missed at least nine months of payments. Defaulting on a student loan has financial fallout that can last decades: The federal government can take your wages, tax refund, and even Social Security to get its money back. Defaults are also the main method for measuring how many people are really struggling with their loans.
  • 2.5 million people haven't made a payment for at least a month but have fallen no more than nine months behind. This isn't good for your credit — the more payments you miss, the worse your credit score can get — but it doesn't trigger the more serious consequences of a loan default.
  • Another 2.7 million people are in forbearance, a program that allows you to stop making payments on your loans without suffering the credit consequences of missing payments. The problem with forbearance is that interest continues to accumulate, and it capitalizes. So when you start making payments again, your payments will be even higher than they were before.
  • And 390,000 people have deferred their loans because they're unemployed or suffering financially, essentially freezing them until they can start making payments again. If you're not going to pay back a student loan, a deferment is the best way to do it. But not being able to pay back your loans for those reasons is still a bad situation.

The good news is that a higher percentage are current on payments than in the past. At this time last year, 46 percent of people weren't making payments. And the percentage of people who are supposedly repaying their loans but are at least 30 days behind has fallen steadily, from 25 percent in late 2013 to 17 percent now.

But the number of Americans who either can't or won't make student loan payments on time is much higher than people might think. And it suggests that if the economic recovery is improving the situation, it's doing so at a glacially slow pace.