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.

,

7 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.

  4. Samuel Kozlov February 23, 2018 at 3:41 pm #

    Student loan defaulting is undoubtedly a common occurrence these days, as well as in the past 20 years. I have experienced firsthand how student loans can adversely affect my and many other peoples’ lives. The analysis for the new student loan trends are troubling, but unsurprising to say the least. I was particularly troubled when I read that nearly 40 percent of college students may default on their student loans by 2023. Given these alarming trends, it seems apparent that a solution should be presented in order to make it easier for all students to afford college.

    Indeed, when it is much too easy for somebody to default on their student loans, the rates of student loans are bound to increase exponentially in short periods of time. In fact,

    “You are responsible for repaying your student loans even if you do not graduate, have trouble finding a job after graduation, or just didn’t like your school. If you do not make any payments on your federal student loans for 270-360 days and do not make special arrangements with your lender to get a deferment or forbearance, your loans will be in default.” (FinAid Paragraph 2)

    If the conditions of repaying student loans remain as strict as they are now, college will become an institution that can only be afforded by the rich. In my opinion, higher education should be afforded by any person willing to put in the hard work to reach self-actualization. There are $1.4 trillion in loans outstanding, and that is certainly a clear sign that there needs to be tremendous change in the cost of college.

  5. Christopher Salimbene March 2, 2018 at 5:00 pm #

    In today’s world, student loans are one of the largest causes of debt and is increasing semester by semester. Education is one of the most important aspects that people should receive in order to accomplish their goals and one of those ways of having an education is to apply for student loans if deciding to attend a four-year university. Something that I realized from this was that it can take up to twenty years to repay your student loans and could even take some people to finish paying off their student loans by the time they become a senior citizen. For students that take out student loans but are unable to graduate from the university, they still have to pay back whatever they took out and possibly struggle if they can’t find a job in a matter of time. Even if someone decides to start their own business, they have to be capable of having a positive profit or else they will become bankrupt and also have to pay off any student debt that they still have from school. I believe that there should be a system to handle student loans in an uncomplicated way that would cause more students to feel comfortable taking out a student loan and paying it off by ten years the most. Students today take out student loans and become frightened when they still are paying off student debt by the age of 50 or realize that they won’t be able to buy a house or car until majority of the debt is payed off.

    One of the solutions for this issue is that students attend community college for two years for an Associate’s degree and then transfer to a university for the Bachelor’s degree. For example, I decided to attend Middlesex County College first before attending a four-year university because I heard a variety of scary stories of people paying off student loans when they’re still in their 50s and I’ll rather be debt free for my first two years of college than attend a four-year university for my first year and already be in student debt. Also, students who attend community college first take similar core classes that students at a university would take and the only difference for this is that community college students save more money than those who take core classes at a university. From what I seen, students would attend a university for a year and then transfer to a community college because they either can’t afford the tuition or struggle with a major that doesn’t fit their future. I believe that students who attend community college first made the right choice because majority of them will be debt free for their first two years of college and have the chance to earn scholarships from a university if they succeed in their classes at the community college. At first, I was going to attend a four-year university but when I saw the tuition for the university, my parents weren’t pleased with the price and recommended me to attend community college so that I would be prepared to handle attending a university. According to studies, students who attend community college first are most likely to finish paying off their student loans faster than those who attend a university and have a better chance of receiving an internship either before or right after receiving their Bachelor’s degree.

    Finally, I agree that this student loan crisis is worse than we expected because the current level of student debt is at a prominent level and could possibly cause some students to delay on buying a house or car until majority of their debt is payed off. From my point of view, I believe that college tuitions should decrease because students that attend the university with a variety of debt could struggle to find a job right after receiving their Bachelor’s degree and would be paying off their debt until around their 40s or 50s. All students are responsible of paying back their student loans regardless if they leave the university or not and some students struggle to pay it all back in time if they don’t have the job that they expected to have for their future. Universities should create a student loans plan for those that can’t pay off most of their debt by a certain time to allow them to find a job that would pay back their student loan sooner than later. If colleges see a reduced attendance of students at their institution, then they would decrease their tuition to allow students to attend their university with a comfortable tuition amount per year. Students need to realize how far they need to go education wise in order to receive the job of their future such as for example, majority of students interested in the criminal justice field just need to receive an Associate’s degree and they will earn a job they expected. Overall, I believe that colleges should reduce their tuition or offer more scholarships for students to attend their university and create a way for students to have more time paying off their student loans to allow them to finish college on a positive note and cause them to not pay off student debt until they’re around fifty years old.

  6. Carley H March 27, 2018 at 3:22 pm #

    In the article it is stated that student-debt is the second largest household debt in the United States at just about 1.4 trillion dollars in loans and that it is continuing to rise because of more and more people enrolling into higher education. In my opinion it is bad that student debt is one of the highest household debts because getting a higher education is promoted all over the country. If students can’t get a high paying job without getting a higher education then there should not be this much of an issue.
    Being a college student I know how expensive college can get between tuition, room and board and then textbooks. There has to be another way to lower the cost of everything in order for students to be able to afford to attend colleges and universities. I know that from experience private colleges and universities give out a lot of academic money and financial aid to a point where it can be cheaper to attend rather than going to a state school. Which is okay, but what about state schools tuition?
    I am a New York resident and I am aware that the State University of New York recently just set a new action for free tuition. If a household income is under a certain amount of money (I believe it is $100,00 but I am not sure), than that particular student can go to the SUNY school free of charge. However, most people like my family do not meet the required household income to send their children there for free. It is great that there is another opportunity for people to attend college for free but on the other hand is it really fair?
    College is most defiantly not for everyone. However, I believe that the government should try to help lower the cost for students who really cannot afford to pay tuition. Financial aid is great and all but most students only end up with loans that they have to pay back. This is why there is a 1.4 trillion dollar debt for student loans. Something needs to be done about it sooner rather than later because the cost of tuition is only going to increase as time moves forward.

  7. jaymie nieves March 30, 2018 at 12:23 pm #

    Student debt has become a common factor in today’s society just to get an education. Its no surprise that the student loan debt is the one of the largest household debts in America. Americans owed a total of $1.31 trillion in student-loan debt. This translates to an average of $10,397 in student-loan debt per household. We come to view Student loans as an investment into ourselves. I believe this outlook on student loans has gotten society use to students taking out these loans as a common custom to college.
    I find this process to be exploiting students trying to obtain an education. Education is one the most important factors that help advance a country. It has been proven a country’s standard of living improves when they primarily focus on education. Education is a beneficial process that should not haunt student for the rest of their lives. The article mentions that student loans cannot be absolve through bankruptcy. Someone can become bankrupt due to their financial situation but they are still liable for paying off their student loans. These loans are broken and are exploiting students for advancing their future.
    The best solution to stop the student loans is to make college free or more affordable. This idea is not as radical as most people think. In fact, it’s what many of our colleges and universities used to do. The University of California system offered free tuition at its schools until the 1980s. There was one plan proposed by a politician would have made tuition free for public colleges and universities. Even though it seems like a foreign idea universities did not cost Americans thousands of dollars in loan to get an education. In 1965, average tuition at a four-year public university was just $243 and many of the best colleges did not charge at all.
    College has become more of an expensive luxury more of an opportunity for to advance a student’s future. Students have learned to focus on education to get a better future so when putting a price on an education it’s hard to value. 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. The cost of tuition only continues to rise and college education is becoming hard to afford. Soon college would only be accessible to the middle class people and wealthier.

Leave a Reply