A new report issued by the Institute for Higher Education Policy examines the issue of delinquency -- late payments -- as a factor in student loan defaults.

Researchers at IHEP analyzed a broad range of data from borrowers whose federal student loans entered repayment between Oct. 1, 2004, and Sept. 30, 2009, looking specifically at delinquencies and defaults over this five-year period. The researchers conclude that a significant number of borrowers are having difficulty repaying their school loans without actually defaulting.

For the report, "Delinquency: The Untold Story of Student Loan Borrowing", IHEP examined the student loan repayment data of more than 8.7 million borrowers holding nearly 27.5 million student loans. The data analysis shows that 41 percent of these borrowers encountered identifiable difficulty in keeping up with their student loan payments after their loans entered repayment.

Delinquencies Highest at For-Profits and Community Colleges

Consistent with the recent firestorms over what consumer and student advocates say is the high cost of for-profit colleges and the unmanageable debt loads that their students are encouraged to take on, students at two-year for-profit institutions were the most likely to become delinquent or default on their school loans. Nearly two thirds of these student borrowers, 63 percent, ran into repayment difficulty after they left school.

Following closely behind this group were borrowers who attended two-year public institutions such as community colleges. Among this group, 60 percent were declared either delinquent or in default at some point during the IHEP study period.

Delinquency and default rates were much lower among students who attended four-year colleges and universities: 34 percent of borrowers from public four-year institutions and 28 percent of borrowers from private institutions either became delinquent or defaulted.

College Dropouts at Highest Risk for Missing Student Loan Payments

The authors of the IHEP report also found that degree completion is one of the most significant predictors of whether a borrower would become delinquent or default on her or his student loan debt.

Regardless of the type of college attended, students who left school without completing their degree were more likely to default on their college loans and were also more likely to become delinquent without defaulting.

Two-thirds of students who dropped out of college after a year or less either became delinquent (30 percent) or defaulted (34 percent), compared with one-quarter of students (21 percent who became delinquent and just 6 percent who defaulted) who completed four years of college.

Overall, almost 60 percent of students who left college without a degree either went into delinquency (33 percent) or default (26 percent).

The borrowers least likely to default or fall behind on their student loans were graduate students who completed their graduate degrees. Nearly 70 percent of these borrowers were successfully making timely payments on their school loan debt during the five-year study.

Just 10 percent of graduate students who completed their degrees became delinquent at any point during the IHEP study period, and only 2 percent went into default.

Default Rates Miss a Large Piece of the Student Loan Picture

As an overarching message, the IHEP authors conclude that current measurements of default rates on federal education loans don’t adequately describe the extent to which students are having difficulty repaying their school loans.

In their view, federal statistics that focus purely on those borrowers who default on their school loan debts don’t tell the entire story. Difficulty with repaying student loans is also reflected in delinquencies, those late payments that may never lead to default and thus go ignored in the federal accounting.

To appreciate the magnitude of the financial burden posed by college and graduate school loans, the IHEP researchers maintain, it’s necessary to examine other borrower repayment behavior, including the number of delinquencies that don’t lead to default, as well as the frequency with which borrowers turn to repayment postponement options like forbearance and deferment in order to avoid defaulting on their student loan debts.