Tuesday, September 1, 2015

Highest Student Loan Default Rates For Borrowers With Lowest Debt Amounts

From The New York Times, The Upshot, "Why Students With Smallest Debts Have the Larger Problem" by Susan Dynarski:
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Defaults are concentrated among the millions of students who drop out without a degree, and they tend to have smaller debts. That is where the serious problem with student debt is. Students who attended a two- or four-year college without earning a degree are struggling to find well-paying work to pay off the debt they accumulated.
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Student Loan Default Rates By Debt Levels
Source: The New York Times

Most borrowers have small debts, according to the Federal Reserve Bank of New York; 43 percent borrowed less than $10,000, and 72 percent less than $25,000. And borrowers with the smallest debts are most likely to default. Of those borrowing under $5,000 for college, 34 percent end up in default. The default rate steadily drops as borrowing increases. Among the small group (just 3 percent) of those borrowing more than $100,000, the default rate is just 18 percent.

What does this all mean for loan policy? Getting students to borrow less is not an obvious path to reducing default, since 51 percent of defaulters left college with less than $10,000 in student loans.