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In a continuing effort to disprove what it calls “the so-called student-loan crisis in the U.S.,” the Brookings Institution recently published a paper in which the authors conclude that the heightened level of student-loan defaults is largely attributable to the actions of non-traditional borrowers: students attending for-profit schools, and the nation’s community colleges.

That for-profit-school borrowers who default on their debt obligations after graduation represent a disproportionately high percentage of all defaulting student-loan borrowers isn’t news. According to a September 2014 report by the Institute for College Access and Success, 44% of the debtors whose loans entered repayment in 2011, only to default in 2013, attended such schools. The ICAS goes on to note that overall for-profit-college-related defaults represent 19.1% of all loans, compared to 12.9% at public colleges and 7.2% at private nonprofit schools.

There is nothing surprising about that, either.

Students at for-profit schools undertake more debt, on average, than their public and nonprofit private-college counterparts ($39,950 vs. $25,550 and $32,300, respectively, according to another ICAS report). This is partly because of the higher average cost of attending for-profit schools ($15,230 in tuition and fees vs. $9,139 for in-state public schools, per the College Board) and, as the Brookings’ researchers note, because typical students of for-profit schools tend to come “from lower-income families and live in poorer neighborhoods” and choose “programs they are less likely to complete.”

The thing that bothers me the most about this analysis, however, isn’t the conclusion the researchers drew from what I believe to be a good faith extrapolation of the data they amassed from a random 4% sample of federal student loan borrowers, or, even, the condescending characterization of the scope of the problem by those who appear to have a narrative to preserve.

Rather, it’s that there is so much more to this story that deserves to be told.

Digging Under the Surface

Let’s start by clarifying what constitutes default in the world of student loans. These are debt agreements that have gone unpaid for anywhere between nine and 12 months. I know of no other mainstream consumer-loan product that is not called into default after three months of nonpayment. Nor can I understand why the loans were allowed to remain unpaid for so long.

The significantly elevated level of student loan defaults, which the researchers use as a “primary indicator of student-loan distress,” also merits a more critical examination. Here too, no other mainstream consumer loan product has so high a failure rate—not for mortgage, auto or, even, credit card debts.

And then there is the matter of pre-default payment performance. The researchers are concerned that “rising rates of delinquency reflect excessive borrowing and overextended finances,” on the part of nontraditional debtors. They also note that the incidence of negative amortization (where unpaid interest that results from reduced or suspended installment payments is added to the loan’s principal balance)—which they view as a potential precursor to default—has increased for traditional and nontraditional borrowers alike.

Negative amortization can certainly aggravate an already difficult repayment problem when the installment payment amount increases or the term is extended to reflect the higher loan balance. That’s why experienced workout specialists are loath to reduce a payment amount to less than the value of the accruing interest. And that raises yet another unanswered question that transcends the issue of defaulting nontraditional borrowers: Why are troubled loans structured in this manner in the first place?

Determining How Bad It Really Is

All of this notwithstanding, accurately determining the true level of delinquency that exists within the aggregate student loan portfolio is essential to an analysis of this type, particularly in light of the absurd length of time it takes to call a nonperforming loan into default. Unfortunately, the discombobulated nature of the data makes it difficult, if not impossible, for that to be determined with precision.

Take for example the most recent Federal Reserve Bank of New York report, in which student loans whose payments are 90 days or more past due represent roughly 11% of all outstanding education-related debts, including those that are not yet in repayment (because the students are still in school). Adjusting for that, a more accurate level of 90-days-plus delinquency would be twice that (22%). But that’s not all.

The FRBNY also doesn’t report on loans that are 30 and 60 days past due nor does it take into effect the loans that are in forbearance or have been temporarily accommodated in some other fashion (so as not to appear to be past-due), or have been permanently restructured because the borrowers could not meet their obligations any other way.

All told, if I were to ballpark what I believe is the true percentage of problematic loans currently in repayment, that number would approach 40% to 50%, which suggests that the problem involves much more than just the distressed debts of nontraditional borrowers. And that doesn’t even account for those who are barely managing to stay current with their payments by forgoing other expenses including buying a home or starting a family.

Sure, loans that are associated with for-profit schools are more troubled than most, for all the reasons the Brookings’ researchers and others cite. But when a loan portfolio displays such a high level of stress, it is intellectually dishonest not to acknowledge that, among other sins, the loan contracts were improperly structured at the outset; a point that no one seems willing to concede.

It’s time we quit parsing and rationalizing the problem and permanently modify the terms of these taxpayer-guaranteed agreements so that they stand a better chance of being repaid in full.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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