By Claire Zillman
September 10, 2015

Much has been made of the so-called student loan crisis, but a new paper out Thursday from The Brookings Institution suggests that the apparent apocalypse is “selective.” It’s concentrated among a subset of borrowers: students at for-profit and community colleges.

Outstanding student loan balances in the United States total some $1.2 trillion—a figure that’s quadrupled in the past 12 years. From 2000 to 2011, the default rate on student loans doubled.

Researchers sought to find out what’s behind the rising default rates. By studying newly available Department of Education administrative data on federal loan borrowing, they determined that the upsurge is due to a shift in where students are studying, with for-profit schools and community colleges as the key culprits. By 2011, almost half of all borrowers who were leaving school and starting to repay loans were from for-profit and two-year institutions and they accounted for 70% of student loan defaults.

“Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, two-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers,” the study says.

In 2000, just one of the top 25 schools whose students owed the most federal debt was a for-profit institution. In 2014, that number rose to 13. Borrowers from those schools alone owed about $109 billion, which amounts to almost 10% of all federal student loans.

The report says that students who borrowed to attend for-profit schools selected institutions with sub-par completion rates where graduates met poor labor market outcomes. For instance, the median borrower for a for-profit institution who left school in 2011 and found employment in 2013 earned about $20,900—but over one in five were not working. In that same time frame, the median loan balances of for-profit borrowers jumped almost 40%, from $7,500 to $10,500, thanks to greater financial aid eligibility and need, higher loan limits, cuts to state aid, and increased tuition costs.

“[The] type of institution students attend matters; default rates have remained low for borrowers at most four-year public and private non-profit institutions, despite the severe recession and relatively high loan balances,” the study says.

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