Rise in income-based repayment plans masks distress that default rates used to reveal
Despite all the concern about the student loan crisis in our nation, student loan default rates have been dropping.
In September 2019 the Department of Education’s Office of Federal Student aid released data showing two consecutive years of falling default rates. Only about 450,000 people or 10.1 percent of students who graduated or dropped out of college during the 2015-16 academic year defaulted before the end of September 2018. One can think of it as a measurement of students who go into default shortly after leaving college.
The latest figure is a drop of 1.4 percentage points from the default rate of students who graduated or left school in 2013-14. Even this small percentage drop means that more than 100,000 fewer people are going into student loan default annually. And it’s a whopping 4.6 percentage point drop from the peak default rate of 14.7 percent of students who graduated or left school during the 2009-10 year.
I discussed the latest data with two economists who are student loan experts, Sandy Baum at the Urban Institute and Adam Looney at the University of Utah. They pointed to several reasons for the improvement in student loan repayments: a strong job market, fewer students going to colleges with the worst track records and new ways to avoid default by restructuring student loans.