A startling new report by Urban Institute, a progressive think-tank in Washington, estimated that in 5 years, 40% of student loan borrowers would be in default. In other numbers, it’s estimated that 44 million americans have student loans, and so 17.6 million students would default. It’s not just private loans that are unwieldy, but also federal loans causing students to fall into default, despite various protections to keep them from doing so.
A borrower goes into default in a two-step process: after missing just one student loan payment puts a borrower in “delinquent” status. After nine months of delinquency, a borrower is in default. The only way to get out of default is by making an arrangement with the lender, often a creditor or the Department of Education, but if they refuse to make an arrangement, the borrower must take more intensive measures.
Most of these expected borrowers come from either low-income neighborhoods, of black or Hispanic backgrounds, or college dropouts with lower debt. Students of color are expected to default based on multiple statistical factors including higher loans, less parental financial support, and lower employment rates. A report by The Brookings Institution found “black students borrow more than other students for the same degrees, and black borrowers are more likely than white borrowers to drop out without receiving a degree” (“Black-white disparity in student loan debt more than triples after graduation”, Brookings). However, further data on race connected to student debt is limited by the Department of Education.
Urban Institute found that college dropouts are unable to repay their loans, even if the amount is less than graduates because they lack the degree to get a job that would be financially sufficient for their debt. Suddenly, because of high-interest rates and collection fees, a $5,000 loan can increase by a much as 10%.
“Almost 1 in 3 people who owe less than $5,000 for their education default within four years, compared with just 15 percent of borrowers who owed more than $35,000,” said Annie Nova in a CNBC article “More than 1 million people default on their student loans each year”.
The consequences of default are not limited to higher debt, but also towards a borrower’s career through “wage garnishments, tax offsets” and some states even revoke “state-issued professional licenses” and “driver’s licenses”.
Source: “More than 1 million people default on their student loans each year” CNBC https://www.cnbc.com/2018/08/13/twenty-two-percent-of-student-loan-borrowers-fall-into-default.html