A Crisis in Student Loans?: How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults

Abstract

*This paper examines the rise in student loan delinquency and default drawing on a unique set of administrative data on federal student borrowing, matched to earnings records from de-identified tax records. Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. These non-traditional borrowers were drawn from lower income families, attended institutions with relatively weak educational outcomes, and experienced poor labor market outcomes after leaving school. In contrast, default rates among borrowers attending most 4-year public and non-profit private institutions and graduate borrowers-borrowers who represent the vast majority of the federal loan portfolio-have remained low, despite the severe recession and their relatively high loan balances. Their higher earnings, low rates of unemployment, and greater family resources appear to have enabled them to avoid adverse loan outcomes even during times of hardship. Decomposition analysis indicates that changes in characteristics of borrowers and the institutions they attended are associated with much of the doubling in default rates between 2000 and 2011. Changes in the type of schools attended, debt burdens, and labor market outcomes of non-traditional borrowers at for-profit and 2-year colleges explain the largest share.JEL Classification: D14, E24, I23, G28, H52, H81

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“…Default was highest among students who had attended for-profit institutions, about five times higher than the rates among students who had attended the most selective four-year institutions (Looney and Yannelis 2015). Black college graduates held $25,000 more in debt than white college graduates, four years after graduation (Scott-Clayton and Li 2016).…”

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Reforming Higher Education Finance in Turkey: The Alumni - Crowdfunded Student Debt Fund “A-CSDF” Model

“…Especially in hard times of fiscal austerity and the lingering credit crunch following the global financial crisis of 2008, competition for limited scholarships has become fierce and students with no or low family support, who can't find any kind of scholarship, are faced with the burden of managing and paying back their student debt. In the United States, student debt surpassed USD 1.1 trillion in 2014 (Mezza & Sommer, 2015), while default rates among student loan borrowers rose to their highest levels in twenty years (Looney & Yannelis, 2015). The situation is not bright for Turkey either with a total of almost one million debtors whose overdue student debt has been turned over to collection agencies (YURTKUR, 2014).…”