The New York Fed this week presented an unsettling picture of how student loans stack up to other household debt.

Defaulted student loans have surpassed all other types of household debt classified as “severely derogatory,” including mortgage and credit card debt, according to a report from New York Fed researchers.

Fed researchers defined severely derogatory debt as any kind of delinquent loan combined with a repossession, foreclosure, or charge off. The proportion of debt falling into that category in U.S. households has stayed fairly consistent for the past four years. But defaulted student loans now make up 35 percent of that debt.

Auto loans are the only type of severely delinquent debt to see the same growth in recent years, but they trail student loans in the severely delinquent category.

That trend though is not entirely shocking, said Colleen Campbell, director for postsecondary education at the Center for American Progress.

“Student debt is fundamentally different from other types of debt,” she said.

Because other types of household debt are underwritten — meaning they assess the creditworthiness of borrowers before making a loan — those markets have tightened since the Great Recession. But the federal government has continued to lend to student borrowers at roughly similar rates because student loans work like an entitlement benefit.

Other key differences separate student debt from other kinds of household debt. Homes and cars can be repossessed by lenders and the debt charged off. When a student loan borrower becomes delinquent, interest on their loan continues to accrue and their balances grow.

The surge in college enrollment during the Recession, when many people out of work sought new skills to boost their chances of employment, has also likely contributed to the growth in delinquent and defaulted loans in recent years, Campbell said.

“We’re getting to a point now, several years out from the recession, where we’re going to see peak defaulting by borrowers from that period,” she said.

Other consumer advocates say student debt delinquencies have been exacerbated by the failures of actors like student loan servicers.

“My main reaction to this data is that it confirms what advocates in the student borrower advocacy community have been saying for a long time: that student debt has hit crisis levels in the U.S.,” said Alexis Goldstein, senior policy analyst at Americans for Financial Reform.

Unlike mortgage lending, she said, there is no industry-wide framework at the federal level to regulate student loans. Goldstein said the findings of the New York Fed report underscored the need for state lawmakers to pass student borrower bill of rights legislation.

A growing number of states this year have passed legislation adding new oversight of student loan companies, although Education Secretary Betsy DeVos has said only the federal government has the authority to regulate the student loan program and the industry says such measures don’t address the fundamental challenges with student debt.

Sandy Baum, a nonresident senior fellow at the Urban Institute, said it’s likely that many student borrowers hold other types of loans and that they would prioritize that debt.

“Until you really analyze who are those people who hold other debts, what they owe, what did they spend their money on, I don’t think it makes a ton of sense to say ‘oh my god, it’s student debt that’s the problem,'” she said.


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