The Looming Student Loan Default Crisis Is Worse Than We Thought

from Brookings

This report analyzes new data on student debt and repayment, released by the U.S. Department of Education in October 2017. Previously available data have been limited to borrowers only, follow students for a relatively short period (3-5 years) after entering repayment, and had only limited information on student characteristics and experiences. The new data allow for the most comprehensive assessment to date of student debt and default from the moment students first enter college, to when they are repaying loans up to 20 years later, for two cohorts of first-time entrants (in 1995-96 and 2003-04). This report provides a broader perspective on student debt and default that considers all college entrants rather than just borrowers, provides substantially longer follow-up, and enables a more detailed analysis of trends over time and heterogeneity across subgroups than previously possible.

Key findings from new analysis of these data include:

More here.

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3 Responses to The Looming Student Loan Default Crisis Is Worse Than We Thought

  1. Joe D February 9, 2018 at 9:47 pm #

    According to data shown, I am a student fortunate enough to be among the 48% of the academic population without student debt. Being a student in this minority it’s interesting to have an outside perspective in the loan default crisis especially when it is happening all around me. What stuck out the most in this article was the fact that student debt is the second-largest source of household debt. The reason this is becoming a crisis is how this massive $1.4 trillion in debt continues to grow every year but there seems to be no solution to combat it.
    Education Secretary Betsy DeVos has a spotlight on her department as she makes controversial decisions on student debt. Criticized for her financial ties with a debt collection agency, chosen by her own department, to collect student loan debts worth hundreds of million dollars; the solution seems absent. Data shows that there is a growth in student’s defaulting on loans that may rise to 40% by 2023. The real question to ask is if debt collection for student loans becoming it’s own profitable industry and at the end of the day, is this ethical?
    The average income for graduates has seen a 5% increase from 2014 showing a salary of $50,556 annually before taxes. After cost of living expenses, taxes and the monthly student loan debts are deducted the remaining income makes it difficult to build assets or retain savings. Ethically speaking, is it right to charge students for education who are trying to greater their lives and escape poverty? If the answer is yes then is it ethical to make education too expensive so these students needs to borrow money from banks? If this answer is also yes then we must ask the important question, if students incur debt to pay for expensive educations, is charging interest ethical?
    Many would argue, “yes” to the last question but surprisingly, “no” to the first two. In Germany, Sweden and Norway education is free and are, interestingly enough, countries that rank very high on literacy rates compared to The United States. These countries are also as rated highly as some of the most educated in the world. It seems clearer than ever, The United States’ educational department needs an overhaul. According to the article, data shows that black bachelor degree graduates default on their loans five times the rate of white graduates. Seemingly enough, race and the boundless income inequality of this country continues to take advantage of the underprivileged, keeping the rich richer and the poor poorer.
    In my own opinion, education is too expensive for the average student to afford. As bachelor degrees become more common they water down the benefits making master degree programs more and more necessary for success. Thus, continuing the cycle and boosting loan deficit for Americans. It almost seems backwards that the richest and most powerful people in the country are using all the resources at their disposal to take away the little resources from future leaders.

  2. Greg Mattessich February 15, 2018 at 5:29 pm #

    I find it really awful but not so surprising that student loan debt is the second largest source of household debt in the country. Education is one of the single most integral pieces of any civilization, and the student loan industry often takes advantage of people who decide to explore their career paths. One thing I found interesting (that wasn’t pointed out in this article but I read elsewhere) is that student loans can be particularly haunting, they remain for nearly the rest of your life. Even in the case that someone starts their own business, goes bankrupt, and gets absolved of all their debts, student debts still remain.

    One of the best things we can do for young students in america (if it is even possible, or doesn’t ruin the education system further) is to have free education. People would be able to live more freely knowing that any inhibitions they have about their career path and allow them to try several different things. With the cost tuition increasing, the average annual wages declining, and the educational system remaining relatively stagnant, I think it’s important to see how much the student loan industry is able to exploit students and have them graduate with massive amounts of debt. Student loan debt is very profitable, and diplomas are branded based on which school you go to and what field you graduate from.

    I think in talks of student loan debt, we should be having the discussion on whether or not education is a consumer product, or a public good, as it’s the only access many people can go to for a middle class life.

  3. John A. February 16, 2018 at 1:26 pm #

    Student debt is the second largest cause of debt and is the only form of debt that grew throughout the Great Recession. Student debt is second only to housing debt and equals close to $1.4 trillion in outstanding loans. Estimates show that 28-29 percent of borrower’s default on their loans from the time of college entry up to 12 years. The estimates project that the default rates continue to rise through the 20th year to 38 percent of all borrowers.
    The projections are based on data from students that entered college in 1995 and 1996. The averages are then used to predict the default rates for students that entered college in 2003 and 2004. It is possible that many variables can occur to change these predictions. The economic state could be drastically different between the two time frames, however both will likely be impacted by the sub-prime mortgage crisis that hit the economy in 2007 and 2008 causing the housing market to plummet. The study shows that students who attend for-profit institutions are four times more likely to default than students in non-profit schools.
    Obtaining a higher level of education should be sought after as it can open many opportunities in life. Students become part of the school culture, their own self capital is increased, they expand socially, they find new interests in subjects, sports and hobbies and a degree is important when looking for employment. College graduates are more likely to earn a larger lifetime wage than those that do not attend college as they are more likely to be employed (https://www.usnews.com/news/articles/2014/02/11/study-income-gap-between-young-college-and-high-school-grads-widens), (https://www.bls.gov/opub/ted/2015/unemployment-rates-by-educational-attainment-in-april-2015.htm).
    However, college might not be for everyone. Financial costs of college needs to be measured against the benefits (https://www.khanacademy.org/college-careers-more/college-admissions/get-started/importance-of-college/a/financial-costs-and-benefits-of-college). Direct costs of tuition, fees and books and the indirect costs of earnings that are given up to attend school equal the total cost of attending college. The earnings difference between a high school diploma and a college degree can be estimated to determine if attending college is the right choice. The students need to determine whether their career objectives require a degree and if so how do these objectives and school selection relate. The question needs to be raised whether a more expensive school will have a return on the investment and much of this is determined by the drive and level of intelligence of the student.
    The level of college debt is at a staggering amount of money. Students enter the workforce with a hefty loan that they pay for years to come and many default on these loans. Who is to blame for this debt? The schools sell a service and the students purchase this service, this is supply and demand. Schools will lower their tuition rates if their attendance levels decrease. I feel that much of the onus is on the student to determine if they will benefit economically from a degree and if so they should apply some economic rationale to the school selection decision.

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