College Guide

Blog

March 16, 2011 4:06 PM Student Debt Is a Bigger Problem Than We Realized

By Daniel Luzer

There’s been a lot of discussion lately about student loan default rates.

The default rate, the percent of students who don’t make payments on their loans within two years of graduating, is around 7 percent, and about 12 percent for students who attend for-profit schools.

But statistics like these create the impression that everyone else is doing just fine. If the default rate is 7 percent, that seems to indicate that some 93 percent of indebted college graduates are happily able to make on time payments.

This is probably not true. The situation actually appears to be far worse. According to a piece by Tamar Lewin in the New York Times:

The Institute for Higher Education Policy, a nonprofit organization, said in a report that two out of five student loan borrowers were delinquent at some point in the first five years after they started repaying their loans.
Almost a quarter of the borrowers used an option to postpone payments to avoid delinquency.
The study, based on data from five of the nation’s largest student-loan agencies, found that only 37 percent of student borrowers who started repaying their loans in 2005 were able to fully pay them back on time.

Right, 37 percent of borrowers. And that data was generated from information from 2005 through last year. Given the high unemployment among recent college graduates, the situation is likely worse now.

It’s only a minority of debt holders who are able to successfully make on-time payments of their student loans. Maybe this whole financing college through debt thing isn’t working out so well.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer