[Skip to page content]
< Back
NMSI Blog

Financing Education: Why We Need Better Data on Student Loan Defaults

American students have a host of challenges to overcome these days – ranging from developing the skills they need to becoming college ready, to getting a job post-graduation. But perhaps one challenge we might often overlook is how students pay for their college education. Many are given grants and scholarships, which is absolutely fantastic, but many more are forced to take on thousands of dollars of debt.
 
A new report has been published by the Education Sector focuses on this student debt crisis, which is an issue that author Andrew Gillen believes is absolutely critical for every American college student to be informed about. Titled In Debt and In the Dark: It’s Time for Better Information on Student Loan Defaults, the report casts a much needed ray of light on the rising cost of college and student loan default rates, both of which, Gillen asserts, can be amended by the government providing more detailed information about student loan default rates. “Better loan default data,” he says, “would hold institutions to a stricter level of accountability, provide more useful information to students and parents, and help researchers determine which students struggle most to afford college, why they struggle, and how to address those problems.”
 
Currently, data on loan defaults is reported by the institutions themselves, but there is no depth or variety to the information. These institutions simply report the percentage of borrowers and number of defaults within the first three years of the loan repayment period, regardless of degree program, age, gender, or ethnic group, all of which can – and do – factor into what causes a student to default on their loans. And despite the gross lack of information, Gillen reports that default rates “are one of the primary means by which the federal government determines eligibility for federal aid.” Therefore, “it would make sense for the government to provide more detailed information on defaults, not just as an accountability lever but as a basic consumer right.”
 
So here are a few things that you, as a consumer, should know:
•Under new federal rules, schools with default rates greater than 30% for three consecutive years will lose access to federal student aid (the previous rule was 2 years and 25%)
•The government lends more than $100 billion every year, and the current three-year default rate for student loans is 13.4%. That means taxpayers are paying more than $13.4 billion annually to make up for the defaulted loans.
•514 colleges have been identified as “red flag colleges,” meaning their official default rate is higher than their graduation rate. 61% of these are public, two-year colleges.
 
America needs to wake up and realize that the incredible student loan default crisis will not just go away. “Until we have better data on loan defaults,” Gillen asserts, “the federal government will continue to lend billions to students every year with little to show students, taxpayers, or policy makers about what happens when those students have to pay back that money.” In other words, the hole of student debt will only continue to grow deeper and wider beneath our nation’s feet until the government decides to take action to reverse the trend of defaulting.
 
“With stakes this high, students and taxpayers need to know more about what they are getting themselves into,” says Gillen. “Improving default-rate data would be a good place to start."