Student Loans: It’s Complicated

The scope of student loan default is staggering.

Over 1 million student loans enter default every year, and 1 in every 10 Americans has defaulted on a student loan.

Some 7.8% of all student loans are currently in default… a total debt of $124.4 billion.

A high percentage of borrowers default long before they enter peak earning years:  More than 1 in 10 default within Year One… and 1 in 4 by Year Five.

The effects of default are devastating both for borrowers and their families.  Federal student loans are only considered in default after 270 days of non-payment, after which:

• The loan is immediately due in its entirety, and interest and late fees continue to accrue until it is paid.
• The borrower loses eligibility for future benefits including further student aid, deferment or forbearance of payment, and tax deductions.
• The borrower’s credit score declines, which impedes the ability to secure home and auto loans.
• The government or private lender can sue in court to garnish a portion of the borrower’s wages until the loan is repaid.  The borrower will incur court costs or other fees related to the lawsuit.
• Schools may withhold proof of attendance.  It is also legal for them to withhold academic transcripts.

But default is only part of the story. 

Within a year of graduation, almost 3 in 5 borrowers are delinquent at least once, and nearly another 1 in 3 are already chronically delinquent.

The challenge for student debt relief is arriving at an equitable formula for a very unevenly distributed problem.

For starters, while more than 1 in 3 borrowers owe less than $20,000, almost 1 in 5 owe more than double that.

Student’s choices also play a significant role in default.

Those attending private, for-profit colleges are almost twice as likely to default as those attending other schools.

That should be unsurprising:

The average tuition and fees at public schools for in-state students in 2021 was $5,514 ($12,145 for out-of-state.  The average tuition for private schools was $24,107.

But even tuition at public universities rose by 63% between 2008 and 2020.

Default rates are also significantly higher for borrowers employed in selected professions and industries, and holders of selected degrees:

Regardless of the band-aid ultimately slapped on the current problem, the real question is whether the high cost of higher education is strangling American competitiveness and upward mobility.

College tuition at public universities is free or nominal for nationals of a long list of nations large and small, and both developed and developing: 

Argentina, Austria, Belgium, Brazil, Cuba, Czech Republic, Denmark, Egypt, Estonia, Fiji, Finland, France, Germany, Greece, Iceland, India, Iran, Italy, Kenya, Lebanon, Luxembourg, Malta, Mauritius, Mexico, Morocco, New Zealand, Norway, Panama, Philippines, Poland, Russia, Slovenia, Spain, Sri Lanka, Sweden, Taiwan, Trinidad & Tobago, Turkey, Uruguay.

But in America, education – like healthcare – is too often driven far more by profit than by public interest.