WASHINGTON–Many of the official statistics around student loan debt and the ability to repay it are misreported or misleading, according to one new analysis, which says “early warning signs” are being ignored.
Noting the typical student borrower will take out $6,600 in a single year, averaging $22,000 in debt by graduation, according to the National Center for Education Statistics, the New York Times said there are “two ways to measure whether borrowers can repay those loans: There’s what the federal government looks at to judge colleges, and then there’s the real story. The latter is coming to light, and it’s not pretty.”
The Times noted the official statistics show that of borrowers who started repaying in 2012, just over 10% had defaulted three years later, which isn’t bad, but which also isn’t “the whole story.” Federal data never before released shows that the default rate continued climbing to 16% over the next two years, after official tracking ended, meaning more than 841,000 borrowers were in default, the Times said.
“Nearly as many were severely delinquent or not repaying their loans (for reasons besides going back to school or being in the military). The share of students facing serious struggles rose to 30% overall,” according to the report. “Collectively, these borrowers owed over $23 billion, including more than $9 billion in default.”
‘Crisis-Level Results’
“Nationally, those are crisis-level results, and they reveal how colleges are benefiting from billions in financial aid while students are left with debt they cannot repay,” the Times report continued. “The Department of Education recently provided this new data on over 5,000 schools across the country in response to (a) Freedom of Information Act request. The new data makes clear that the federal government overlooks early warning signs by focusing solely on default rates over the first three years of repayment. That’s the time period Congress requires the Department of Education to use when calculating default rates.”
The Times added that among the group who started repaying in 2012, just 93 of their colleges had high default rates after three years and 15 were at immediate risk of losing access to aid.
“Two years later, after the Department of Education stopped tracking results, 636 schools had high default rates,” the Times said. “For-profit institutions have particularly awful results. Five years into repayment, 44% of borrowers at these schools faced some type of loan distress, including 25% who defaulted. Most students who defaulted between three and five years in repayment attended a for-profit college.”
The secret to avoiding accountability, according to the Times, is that colleges are aggressively pushing borrowers to use deferments or forebearances that that allow borrowers to stop their payments without going into delinquency or defaulting. Nearly 20% of borrowers at schools that had high default rates at year five but not at year three used one of these payment-pausing options, the Times found.