What’s the ‘real story’ on student loan default rates? ‘It’s not pretty.’

Newly released federal data on students’ loan default rates show that the student debt crisis “is worse than we imagined,” according to an analysis in The New York Times by Ben Miller, the senior director for postsecondary education at the Center for American Progress.

Federal law requires colleges participating in the student loan program to keep their student borrowers’ default rate below 30 percent. Currently, the Department of Education monitors the share of students defaulting on loans for just the first three years of repayment. But, new information providing an expanded, five-year picture reveals “the real story… and it’s not pretty,” Miller says.

A different story at the five-year mark

Miller’s analysis of data from more than 5,000 U.S. schools shows that, of borrowers who started repaying their student loans in 2012, 15.5 percent had defaulted by 2016, compared with 10.4 percent when “official tracking” ended in 2014. When the calculation also includes borrowers who were severely delinquent or not repaying, it turns out that 30 percent of borrowers were “facing serious struggles” at the five-year mark and collectively owed more than $23 billion. “Those are crisis-level results,” Miller says.

Looking again at the 2012 cohort, 93 of those borrowers’ colleges had “high” default rates (over 30 percent) at the conclusion of the official three-year tracking period. That number rose to 636 two years later. Miller also explored default rates by school type, finding that for-profit colleges had “particularly awful results”—25 percent of their borrowers had defaulted five years into repayment.

Using deferments to avoid accountability

To explain the disparity between five- and three-year outcomes, Miller highlights how some colleges are encouraging borrowers to take advantage of deferments—repayment options that allow borrowers to pause payments without defaulting or becoming delinquent. In fact, when Miller looked at schools that had high default rates in 2016 but not in 2014, almost 20 percent of their borrowers had used deferments.

Saying that federal laws “are not doing enough to stop loan problems,” Miller calls on policymakers to track loan performance for at least five years. Further, he says, schools, states, and the federal government should work to make college more affordable to “reduce the number of students who need a loan in the first place.”

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