The Department of Education annually reports the percentage of student borrowers who default three years after beginning repayment. That figure--about 10 percent in recent years--is concerning but not alarming.
Non-governmental studies (Pew Foundation and Brookings Institution) have found that the 5-year default rate for recent cohorts is double the 3-year rate: about 25 percent. In other words, 1 out 4 student-loan debtors default on their loans within five years of beginning repayment. Now that is alarming.
But the situation is a lot more dire than that. A recent report from the Urban Institute (authored by Kristin Blagg, Laurie Goodman, and Kelia Washington) noted that 8 million student-loan debtors are in income-driven repayment plans (IDRs). According to this report, that amounts to about 30 percent of all college borrowers.
That's really scary because almost no one among those IDR participants is paying down the principal on his or her debt. Instead, just about all of these 8 million people are making very small monthly payments based on their income--not the amount that they borrowed.
It is always dicey to compare one student-loan analysis to another because we are always measuring apples and oranges. Some of the people counted as 5-year defaulters in one study may be the same people identified as IDR payers in another. (And the Brookings and Pew studies examined cohorts, not the entire student-debtor population.)
Nevertheless, it is clear that when the 5-year defaulters and the IDR participants are considered together, about half of all student-loan borrowers are not paying off their loans. In my opinion, that's a meltdown.
You may love Senator Bernie Sanders and Senator Elizabeth Warren or you may hate them, but both deserve credit for putting a serious proposal on the table to address the student-loan crisis. Forgiving all student debt (Bernie's plan) or $50,000 of a borrower's debt (Elizabeth Warren's plan) are reasonable ideas.
One thing seems clear (at least to me): The student-loan program is out of control and it is kicking millions of people out of the middle class. The program hinders overburdened debtors from buying homes, having children, getting married, and saving for retirement.
And who benefits? Our corpulent, incompetently run colleges and universities whose leaders say the universities need more federal money.
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| Greedy colleges: "Feed me, Seymour!" |
