College & Workforce Readiness

Analysis Suggests Higher Default Rate on Student Loans

By Caralee J. Adams — July 14, 2010 1 min read
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More people are defaulting on their student loans than estimates from the federal government have revealed, according to an article in The Chronicle of Higher Education.

The Chronicle’s research found that 20 percent of government loans since 1995 have gone into default. That number rises to nearly 31 percent for students who attended community colleges and 40 percent for those who attended for-profit institutions.

This is considerably higher than the numbers the Department of Education released in May, showing a draft default rate on student loans at 7.2 percent in fiscal year 2008, up from 6.7 percent in 2007. The department reported a default rate of 11.9 percent for borrowers who attended for-profit institutions.

The Chronicle notes that the data it obtained is not directly comparable to the government’s official “cohort-default rate,” which measures the percentage of borrowers who default in the first two years of repayment. Rather, it looked at loans long-term and revealed that default rates continue to climb years after borrowers have left college. The government’s figures downplay the long-term cost of defaults by capturing only a sliver of the loans that eventually lapse, the article says.

Defaulting on student loans can translate into bad credit that can hurt young people just starting out as they try to get car loans, housing, and jobs. This issue is sure to get more attention as the investigation into for-profit colleges continues in Congress.

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A version of this news article first appeared in the College Bound blog.