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One-Third of Student Loans Are Subprime Loans

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Published : February 04th, 2013
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FOLLOW : Subprime
Category : Opinions and Analysis

Simply deleting this item from the Drafts folder about a Wall Street Journal story last week that, along with a lot of other anecdotal and statistical data in recent months, suggests a looming disaster for student loans in this great nation … well, that just didn’t seem like a wise thing to do.

The number of student loans held by subprime borrowers is growing, and more of those loans are souring, the latest signs that a weak job market and rising debt loads are squeezing recent graduates.

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In all, 33% of all subprime student loans in repayment were 90 days or more past due in March 2012, up from 24% in 2007, according to a Wednesday report by TransUnion LLC.

Meanwhile, the Chicago-based credit bureau found that 33% of the almost $900 billion in outstanding student loans was held by subprime, or the riskiest, borrowers as of March 2012, up from 31% in 2007.

“If you become subprime, it’s more likely that you will not pay your debt,” said TransUnion Vice President Ezra Becker, who oversaw the study.

Indeed, Mr. Becker. As you may have guessed, some of these borrowers weren’t subprime borrowers until they took out student loans, quit college, and then (for obvious reasons) started missing loan payments.

While the study didn’t provide any details, my guess is that the percentage who became subprime borrowers due to their student loans is very high simply because, at that age, you can rack up a lot of student loan debt, but, as I recall, credit card companies normally don’t give you a big enough rope to hang yourself with.


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Tim Iacono is the founder of Iacono Research, a subscription service providing market commentary and investment advisory services specializing in commodity based investing.
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