The Brookings Institution put out a report earlier this month projecting that default rates for students who first took out federal loans in 2004 will reach nearly 40 percent by 2024. Yes, 40 percent — as in, four out of every 10 student borrowers will default. This long-term data upends any notion that higher education degrees guarantee financial stability.
According to the study, default rates have been rising and give no indication of letting up. That scary 40-percent default number is a rough projection based on historical trends. It could be lower if the economy stays on track. But it could also be higher if, say, the economy goes into recession in the next few years. What we know for sure is that the direction we’re headed is not great and that student loan defaults are bound to get worse.
“What’s really shocking and tragic is that average levels of debt would not predict this severity of default rate,” said Judith Scott-Clayton, author of the Brookings report and a professor of economics and education at Columbia University, in a phone interview.
Scott-Clayton places a hefty portion of the blame on for-profit universities, which have played a disproportionate role in the student-debt crisis. Nearly half of all students who enrolled at a for-profit school in 2004 defaulted within 12 years. That’s almost three times the average default rate for all students — even though students at for-profit schools accrue considerably less debt on average than their peers in four-year programs at public and nonprofit private schools.
In a normal world, that would be reason enough for federal policymakers to take action on for-profit schools that take advantage of students.
But in fact, the Education Department under Secretary Betsy DeVos has rolled back Obama-era regulations, aimed at for-profit schools, that tied federal student aid money to students’ financial success. She has also stalled the review process for debt forgiveness to thousands of students who claim that for-profit schools cheated them, indicating that the federal government might only grant them partial relief. She even hired a former executive at DeVry University, a for-profit school that in 2016 paid $100 million to students claiming the company misled them, to police fraud in higher education.
DeVos has defended her policy changes, ironically, by arguing that she’s attempting to help students. She decries overburdensome regulations and unjustified claims against for-profit schools. But in actuality, the research shows that the for-profit sector has driven the default crisis.
“It’s frustrating to a lot of people who are aware of the data on this,” Scott-Clayton said. “It’s not like [for-profit schools] were being picked on.”
Perhaps it’s time to put this issue in terms that conservatives would understand. Defaults on federal loans mean wasted taxpayer dollars. And they mostly hurt students who are most desperate to “pull themselves up by their bootstraps” and improve their lives. This is especially true for students taking a risk at for-profit institutions.
Our high default rates also contribute to stark racial disparities. Consider this contrast between two extremes of privilege from Scott-Clayton’s report: Only 4 percent of white graduates who had never attended a for-profit college defaulted within 12 years of taking out a loan. But 67 percent of black dropouts who had ever attended a for-profit college defaulted.
Lawmakers have a responsibility to take this issue seriously. Perhaps they might consider expanding graduate-level debt forgiveness programs already in place to low-income people at lower-level schools. Or they might make existing repayment programs for low-income borrowers less cumbersome. At the very least, they should strengthen regulations that hold predatory schools accountable.
What they can’t do is ignore the growing plight of struggling student borrowers. Student debt can no longer be an election-year-cycle issue.