Why Do Student Loan Borrowers Default?

On Monday, we shared the results of a two-year Senate investigation into how much federal money is going to for-profit colleges, and what kind of return students and society as a whole are getting on that investment. (Answers: $32 billion, and a pretty terrible return on that investment.) A study that the National Consumer Law Center released yesterday shows the college bubble from a different perspective: that of student loan borrowers who have gone into default. It’s not pleasant.

The NCLC gave very detailed surveys to forty student loan borrowers in default. Their sample size is much too small to draw definitive conclusions, but is still revealing. Predictably, 80% of the survey participants were unemployed. 65% received some form of public assistance. 53% of them dropped out of their programs, and 65% of students attended at least one for-profit institution. 69% of them were first-generation college enrollees.

We knew all of that, though. The revealing and scary part of the NCLC’s survey results is how little borrowers seem to know about their loans. Many weren’t aware that they were in default. (They admittd that was because they may have ignored important-looking letters and ducked more than a few phone calls.) About half said that they shouldn’t have to pay their debt back. 90% of the borrowers who said this had attended for-profit colleges. It sort of makes sense that the students of low socioeconomic status that for-profit colleges aggressively recruit might believe they don’t have to pay back loans for a degree that they’re unlikely to finish, can’t transfer credits elsewhere, and and their education won’t help them get a job even if they do complete the program.

The Student Loan Default Trap [Student Loan Borrower Assistance]