Student Loan Debt through Rose-Colored Glasses

The College Board made news this week with the release of its latest Trends in College Prices and Trends in Student Aid reports, which showed tuition rising faster than inflation and student grant aid lagging behind. The reports also showed continued growth in student borrowing, particularly in private education loans that are not guaranteed or subsidized by the federal government. And so the trend continues—higher college prices and higher debt for students.

But how much of a burden is this growing student loan debt? If you look at the Department of Education’s student loan default rates—the percentage of students not repaying their loans—student loan debt isn’t much of a problem. The Department of Education’s reported default rates are still remarkably low. The logical conclusion from these low default rates is that students must be just fine managing their debt – or are they?

A recent Education Sector CYCT shows that some students—those with high debt, low incomes, and minority students—are at much higher risk of defaulting on their loans than overall default rates indicate. And the average time from graduation to the first default is four years—two years longer than the Department of Education follows students for its calculations. According to this Business Week article, even loan companies don’t put much stock in the Department of Education calculations and prefer to look at lifetime default rates.

If lawmakers, college officials, and the general public want an accurate picture of student loan defaults—an important indicator of how well students are handling their debt—we need default rates disaggregated by student characteristics and data that follows students over the life of their loan. While this might paint a less-rosy picture of student loan debt, it will be a far more accurate indicator of how well students are managing their debt.