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Nearly 5 Million Americans in Default on Student Loans

The number of Americans severely behind on payments on federal student loans reached roughly 4.6 million in the third quarter, a doubling from four years ago, despite a historically long stretch of U.S. job creation and steady economic growth.

In the third quarter alone, the count of such defaulted borrowers—defined by the government as those who haven’t made a payment in at least a year—grew by nearly 274,000, according to Education Department data released Tuesday.

The total number of defaulted borrowers represents about 22% of the Americans who were required to be paying down their federal student loans as of Sept. 30. That figure has increased from 17% four years earlier.

The money they owe is becoming a bigger share of total outstanding student debt in repayment. Defaulted student loans totaled $84 billion at the end of the quarter, or 13% of the roughly $631 billion that borrowers were required to be paying down.

The government’s student-loan portfolio now totals $1.37 trillion. That figure includes debt in repayment; debt for which borrowers aren’t required to be paying down because they are in school or have otherwise been granted temporary reprieves; and debt from an older program that guaranteed loans made by private lenders.

The rise in defaults comes despite a strong labor market—unemployment is at a 17-year low—and carries long-term consequences for borrowers and the economy. Defaulted borrowers risk damaging their credit and their ability to borrow for other things like homes and cars. That, in turn, could restrain the economy’s growth.

Meanwhile, defaults could undermine the federal budget in coming years, since taxpayers ultimately cover any unpaid loans. Government budget officials maintain the student-loan program, as a whole, will generate profits for the government, but the program has missed revenue targets in recent years in part because borrowers are falling behind on payments and using federal options to reduce payments.

“It’s kind of phenomenal given all the tools we have at this point to avoid default that this many people are still winding up in default,” said Clare McCann, an education-policy analyst at New America, a center-left think tank.

Those tools include options for borrowers to reduce their monthly bills by setting payments as a share of their incomes, and to halt payments temporarily during tough times such as unemployment.