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News Now

CU System
Equifax: Student Loans 'Severe Derogatory' Balances Up 36%
ATLANTA (3/28/13)-- An Equifax report that found student loan "severe derogatory" balances increased 36% over last year hits home that consumers need the type of affordable private student loans that credit unions offer.

That's because credit unions require a small payment each month while the student is in college, which invests the student in paying back the loan from the beginning. As a result, private student loan delinquency in credit unions is  just 1.45%, according to statistics from the Credit Union National Association reported in January in News Now (Jan. 15).

Credit unions can consider student lending a niche to help them increase their loan portfolios, says Paul Gentile, CUNA executive vice president of strategic communications and outreach. And since credit unions show the credit union difference in their approach to student lending,  they can continue to keep student-loan write-offs low despite the trend with other lenders--another demonstration of the value of credit unions.

Equifax's latest National Consumer Credit Trends Report indicates that severe derogatory or charged-off balances--the bulk of student loan write-offs--for January and February hit $3 billion, or 36% more than the $1.9 billion in  same period a year earlier.

"Driven heavily by economic factors, including unemployed or under-employed consumers going back to school along with the rising cost of tuition, student lending has demonstrated consistent, year-over-year growth," said Equifax Chief Economist Amy Crews Cutts.

"Continued weakness in labor markets is limiting work options once people graduate or quit their programs, leading to a steady rise in delinquencies and loan write-offs," she said. "Many policy options are being discussed regarding how to reduce some of the burden, including graduated payments that reflect the lower starting salaries of new graduates, and improve the performance of these loans."

Other changes in student loan characteristics from February 2012 to February 2013:

  • Balances outstanding rose more than 14% on student loans, to $852.7 billion from $746.3 billion; and
  • The number of student loans outstanding increased nearly 13%, to more than $123 million from $108 million.
"Student loans are unique today in that they are the only major form of credit that is not rigorously underwritten on either a past credit-performance basis (such as using credit scores) or ability to pay based in income," Crews Cutts said.
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