Discussion Paper

Who Falters at Student Loan Payback Time?

Abstract: This is the final post in a four-part series examining the evolution of enrollment, student loans, graduation and default in the higher education market over the course of the past fifteen years. In the first post, we found a marked increase in enrollment of 35 percent between 2000 and 2015, led mostly by the for-profit sector?which increased enrollment by 177 percent. The second post showed that these new enrollees were quite different from the traditional enrollees. Yesterday?s post demonstrated an unprecedented increase in loan origination amounts during this period?nearly tripling between 2000 and 2015. This surge was driven most prominently by a massive increase in the number of borrowers in the public community college sector and the private for-profit college sector. Given the large increase in the borrower pool and loan originations, it is paramount to understand the consequences of these changes for the student loan default rate. This post aims to do just that. We focus on three-year cohort default rates reported by the United States Department of Education. The three-year cohort default rate is defined as the percentage of a school's borrowers who enter repayment during a particular federal fiscal year?running from October 1 to September 30?and default prior to the end of the second following fiscal year. Most federal loans enter default when payments are more than 270 days past due.

Keywords: community colleges; default; higher education; for-profit; student loans;

JEL Classification: J00; Q1;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2016-09-09

Number: 20160909