Study: Student Loan Default Rate Much Higher than Reported

A new study on student loan default rates reveals that commonly-reported rates hide a much deeper problem among certain groups of students.

The U.S. Department of Education announced last month that the student loan default rate for fiscal year 2005 (October 1, 2004 – September 30, 2005) was 4.6 percent, in-line with historical averages of around 5 percent.

But an in-depth report released this month by Ed’s National Center for Education Statistics (NCES) showed that minority students and those with high debt burdens after graduation default at a much higher rate than the 4.6 percent rate cited in the FY05 report.

NCES conducted a 10-year follow-up study on students that graduated in the 1992-93 school year. It found that students who carry a loan balance of over $15,000 after graduation defaulted at a rate of nearly 20 percent at some point in the intervening 10 years. Further, the study found that black students defaulted at a rate approaching 40 percent in the same time period.

The discrepancy lies in the timeframe of the two reports, according to EducationSector.org, an independent nonprofit education policy think tank based in Washington. The Department of Ed’s reported default rate covers defaults within the first two years of repayment whereas the NCES report covers defaults over a 10 year period. Both the NCES and the Department of Ed reports examine undergraduate students only.

The NCES study also found that, on average, defaults occurred four years following graduation, two years longer than the Department of Education follows borrowers for its default rate calculations.

The NCES report found the default rate was nearly 10 percent for all students, regardless of race or loan balance amount. Even students with loan balances under $5,000 were twice as likely to default as the students covered in the fiscal year 2005 report.