Student Loan Write-Offs Surge

NEW YORK (MainStreet) — Equifax, one of the nation's three major credit bureaus along with Experian and TransUnion, has found a steep rise in the write-off of student loans this year.

Between January and August of 2013, lenders wrote off $13.6 billion in student loan debt--private and federal--a 46% increase from the same period in 2012 and the peak amount at any point during the last eight years, according to Equifax data.

The totals are derived from the number of loans owed by people filing for bankruptcy or whose loans are in the collection process.

Mark Kantrowitz, vice president and publisher of Edvisor's Network, was skeptical of the Equifax data, which he questioned when it was used by the Federal Reserve Bank of New York in student loan research. "I don't trust Equifax data based on prior inaccuracies," he said. "$13.6 billion sounds a bit high." He stated that credit reporting agencies continue to treat some delinquent loans as though they were in default.

Kantrowitz pointed out that most of the default volume will be federal, since 90% of the loans come from the Department of Education.

"Private lenders like Sallie Mae have reported steady improvement in charge-off rates for the last few years," he said. "Keep in mind that most defaults on student loans occur within the first four to five years of repayment. So the FELP portfolio, which mostly ended with the introduction of ECASLA in 2008, has aged past the bulk of defaults."

ECASLA, the Ensuring Continued Access to Student Loans Act, gave the Department of Education new authority to purchase Federal Family Education Loan Program loans, in 2008. FELP was shut down in with the passage of the Health Care Education and Reconciliation Act of 2010.

"My guess is that the lenders will be reporting more improvements in their FELP loans, not deterioration," said Kantrowitz.