Washington, D.C. — A new issue brief from the Center for American Progress paints a comprehensive profile of who comprises the 1 million student borrowers who default on $20 billion in federal loans each year. The final installment in a series on student loan default—which has focused on the student loan default crisis for African American borrowers and for borrowers with children—uses new federal data to highlight the demographics of defaulters, the amount of time it took borrowers to default, and what happened after they defaulted.
“You can’t fix what you don’t understand,” said Ben Miller, senior director for Postsecondary Education at CAP and author of the brief. “It’s difficult to craft an effective solution to the default crisis without a complete picture of who student loan defaulters are and their path into and out of default.”
Until now, robust data on student loan defaulters has been almost nonexistent, affording policymakers little context with which to address the growing issue. But using new data from the Department of Education’s National Center for Education Statistics, CAP’s analysis paints the following portrait of student loan defaulters:
- Defaulters represent a large portion of today’s college students. Nearly 90 percent of defaulters also received a Pell Grant at one point; 70 percent came from families where neither parent earned a college degree; 40 percent came from the bottom quarter of the income distribution; and 30 percent were African American.
- Defaulters borrowed less than nondefaulters. The median defaulter owed $9,625–$8,500 less than the median loan balance for a nondefaulter.
- Defaulters are not immediate dropouts. 49 percent of students who defaulted dropped out of college, while just 10 percent finished a bachelor’s degree.
- Borrowers take years to default. The median defaulter spent two years and nine months to default after entering repayment.
- Only slightly more than one-half of defaulters fixed their most recent defaulted loan.
To create a truly equitable system of higher education, it’s imperative that federal policy not let this situation persist. Policymakers must recognize that default does not occur in a vacuum and consider the many factors that are forcing borrowers into default and dictating how long they stay there. Notably, the data do not include any information on the usage of income-driven repayment plans, making it impossible to know what role those solutions may be playing in averting the default crisis.
While the federal government alone cannot solve the default crisis, it can make a significant impact by better ensuring that federal aid programs, especially options for defaulted borrowers, are structured to help students find success in repayment.
Click here to read the issue brief, “Who Are Student Loan Defaulters?”
For more information or to speak with an expert, please contact Kyle Epstein at firstname.lastname@example.org or 202.481.8137.