More Than 1-In-5 Students At For-Profit Colleges Default On Student Loans Within Three Years

For the first time, the Dept. of Education has provided stats for people three years into their student loan repayments, and the numbers don’t paint a pretty picture. The percentage of college students defaulting on their loans is on the rise, with 9.1% of recent students defaulting within two years of their first payment coming due, and a whopping 13.5% defaulting within three years. And at controversial for-profit colleges, that number is alarmingly higher.

Looking at borrowers whose first student loan payments came due between Oct. 2008 and Oct. 2009, a startling 22.7% of those who had gone to a for-profit college had defaulted by Sept. 2011. That’s more than double the 11% three-year default rate for students at public institutions and triple the rate (7.5%) for those who had gone to private, non-profit schools.

For those who have been out of school — whether they graduated or not — for two years, the numbers are slightly less dire, but on the rise.

Overall, the two-year default rate has increased from 8.8% to 9.1%. For-profit colleges make up the largest chunk of this (12.9%) though that number is down from 15% the previous year. The rate for defaults from public college students went up from 7.2% to 8.3% while private, while the rate for non-profit school students increased from 4.6% to 5.2%.

For-profit institutions have come under incredible scrutiny in recent years. There have been lawsuits from former students who claim they did not receive the education or the career placement that was promised. Additionally, many for-profit schools have a higher drop-out rate than other institutions, meaning that students are leaving these schools without degrees while still being saddled with debt.

Meanwhile legislators and federal regulators have investigated for-profit colleges’ vigorous marketing tactics and accusations that some schools have pushed students into taking out loans they did not need.

Meanwhile, a recent Pew Research Center study found that a record one-in-five U.S. households are carrying some sort of student loan debt, with the average being nearly $27,000.

The effects of having so many younger people amassing such debt they can not be could be far-reaching. The ages of 22-40 are supposed to be the years in which you make your first big investment when you buy your first home. But if an entire chunk of the population can’t afford to buy because they are stuck in a student loan debt hole, that could be billions of dollars that are not injected into the economy.

In the long run, amassing student loan debt that can’t be paid means that these people will likely be unable to properly save for their retirement — or even for their kids’ education.