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What we don’t know about the $1.2 trillion student debt problem
Originally published September 3, 2011
President Obama recently unveiled a higher education plan that had one central element: improving data on college costs and affordability. We know that student loan debt skyrocketed in the last few decades, and a study by the New York Fed recently showed how academic debt reduces other forms of borrowing, like mortgages and car loans.
For a form of debt that’s an acknowledged drag on the economy, it’s surprisingly difficult to find good information on the number of students who can’t pay their loans back. Even basic questions about student loan defaults can be tricky to answer.
Matt Taibbi puts it this way:
“…Data about student-loan-default rates has been carefully concealed from the public and from Congress. For years, when it reported statistics about student defaults, the DOE relied upon a preposterous arbitrary calculation called the “cohort default rate,” which essentially measured the rate of default only within the first two years of graduation. In 2008, Congress passed a law forcing the DOE to switch to a theoretically more accurate three-year measurement, which it sent to Congress for the first time last year. Overnight, the picture looked a good bit grimmer. The 2009 number, based on the old two-year 2009 “cohort” rate, was 8.8 percent. When the new three-year number came out, the rate had jumped to 13.4 percent.”
Taibbi is broadly right about the lack of good data from the Department of Education — Obama’s plan hopes to counteract this. Still, we know a bit more about student loan defaults than Taibbi suggests, even though the data are messy and incomplete. Critics say the education industry has fought to keep some of the most crucial information private.
Here’s a rundown of what data is available on student debt, and what information could be coming:
$1.2 trillion — the estimated amount in outstanding student debt.
$260 billion — what that amount was in 2004.
37 million — Americans with student loan debt outstanding, according to estimates from The New York Fed.
$28,000 — The typical 2012 college graduate’s debt load upon Graduation Day, according to Hamilton Place Strategies.
$9,000 — That debt load in 1993.
$810 billion and $670 billion — The total outstanding auto and credit card debt held by Americans, respectively, putting student debt into a clear lead.
The default rates:
13.4% — the national default rate for borrowers whose loans entered repayment from fall 2009 – fall 2010. (This is the first year for which the government has released three-year default data.)
22.7% — defaults in the first three years for graduates from for-profit colleges. “For-profit institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11 percent and private non-profit institutions at 7.5 percent,” according to the Department of Education.
Nearly 47% of all defaults were from for-profit colleges, the Institute for College Access & Success said, even though those institutions have just a 13% share of college enrollment.
Ok, so are those the best and final figures?
Well, no. Another measure is Consumer Financial Protection Bureau’s recent calculations, which give us an indication of how many Americans have defaulted on their loans outside the two or three-year window. The CFPB’s data covers the government’s direct loan program and the Federal Family Education Loan (FFEL), a middleman-driven government program that was discontinued in 2010. FFEL has been replaced by direct student lending by the government.
7 million — Number of student loan borrowers in default, out of an estimated 37 million total. That includes public and private loans, according to the CFPB.
4.4 million — Number of FFEL program borrowers who are in default.
19% of borrowers from the government’s legacy FFEL program are in default.
What don’t we know about student loan defaults?
In a recent report, Andrew Gillen, research director of Education Sector, a think tank, noted that the DOE’s information doesn’t allow for an easy way to get standardized data by gender, age or ethnic group. (Though the DOE’s data does allow for some sorting, including by school, it’s hard to imagine a prospective college student querying obscure government databases.)
Income data on college students, he notes, is one of the big missing data points. “We know that the percentage of low-income students is one of the main drivers of a college’s default rate, but the only thing in the default database is the default rate,” says Andrew Gillen.
What’s the Obama plan trying to do about this?
The DOE promises a “Datapalooza” to “catalyze new private-sector tools, services, and apps to help students evaluate and select colleges.” While it’s not clear from the White House’s fact sheet that it’ll lead to more data on student loan defaults specifically, it’ll broaden the info available to students about college costs and outcomes. The key measures:
Publish data on affordability, student loan debt and tuition. This will include, perhaps controversially, scorecards.
“Help ensure borrowers can afford their federal student loan debt by allowing all borrowers to cap their payments at 10 percent of their monthly income.” This is an option that’s only available to some borrowers right now, and which the CFPB says could really help more borrowers.
Part of that effort, the White House’s fact sheet says, will be to award more funds to colleges that enroll and matriculate more low-income Pell grant recipients. This measure, however, will need Congressional approval. (Here’s a handy guide to what does and doesn’t need Congressional buy-in.)
Post-graduate earnings data: This fall, the White House says it’ll publish school-level data on what graduates earn, which would give students some indication of just what they’re borrowing for. “If they can do that they will have won one of the biggest fights over releasing new data,” Gillen says. “It’s just a matter of releasing data that may make some colleges look bad.” Predictably, this is one of the factors that that the industry is pushing back against.