Do We Have a Crisis of Student Loan Defaults?

Here’s some sobering news. The default rate on federal student loans is the highest it’s been in almost two decades. Student Loan Defaults Surge To Highest Level In Nearly 2 Decades reports the following based on Department of Education data:

  • One in 10 recent graduates defaulted on their federal student loans within the first two years, the highest default rate since 1995.
  • Within the first three years of required payments, one in seven borrowers defaulted.
  • The average borrower carries more than $26,000 in debt, a nearly 43 percent increase from 2007.

In the article, Education Secretary Arne Duncan called the defaults “troubling.” But at what point do we call it a crisis?

Saddling young people with debt, more than they can repay in their early working years, and sometimes with an amount that will hang over them for decades, could lead to lower retirement savings and greater dependence on social programs. The article points out, too, that the high number of loan defaults illustrates the Obama administration’s failure to enroll qualified borrowers into new government programs that cap monthly payments based on their lower incomes. Sadly, it notes three programs, Income-Based Repayment, Income-Contingent Repayment and Pay as You Earn remain relatively unheard of by the population who could benefit from them the most. What good are these programs if the people who need them most remain unaware of them?

As upsetting as the default statistics are, the article concludes with another troublesome trend. The for-profit sector in higher education, which includes schools like the University of Phoenix and ITT Technical Institute, receives more than 80 percent of its revenue from federal loans and grant dollars. And here’s the kicker: “The for-profit sector educates only about 13 percent of students, yet takes in nearly a quarter of federal loan and grant dollars and contributes to about 47 percent of loan defaults.”

Clearly something has to change there – and with the price of college tuition that continues to outpace inflation.

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