LendEDU, which developed software to help students see which loans would be best for them, has found that default rates on student loans vary widely across the county.
“While the national default rate was Buntoshopping 10.10%, it was 15.66% at Historically Black Colleges and Universities), 5.35% at women’s colleges, and 9.45% at non-designated schools,” the report found. “For-profit schools had a default rate of 15.20% compared to a 9.60% default rate at public schools, and a 6.60% default rate at private schools.” Rates also varied by geography. Nevada had the highest state default rate (18.16%) with the next highest being Mississippi (14.94%). Massachusetts had the lowest default rate (5.82%) with the next lowest being Vermont (6.17%).
An entrance gate to Princeton University (Photo by DeAgostini/Getty Images)De Agostini via Getty Images
The consequences of student loan default can be severe, like having your tax refunds, Social Security benefits, or wages garnished. Your credit score will be severely damaged and you may have to deal with a lawsuit, a debt collector, and, in rare cases, U.S. Marshals if you fail to address the issue, said Mike Brown, research analyst at LendEDU who developed the survey. ‘Unfortunately, as colleges continue to raise tuition rates and with outstanding student loan debt in the United States at an all-time high of $1.6 trillion, student loan default only figures to be a growing issue.”
Presidential candidates have addressed the issue with proposals ranging from Sen. Elizabeth Warren’s proposal to forgive up to $50,000 in student debt for borrowers with household income of $100,000 or less and smaller sums for wealthier households up to $250,000 to other proposals allowing refinancing at lower rates, tuition-free community college. Others call for an expansion of the Pell Grants, creating a college savings account for every baby born, getting rid of tuition at public colleges and universities, improve support for Historically Black Colleges and Universities and end federal loans for private for-profit colleges. Sen. Bernie Sanders has called for cancelling all outstanding U.S. student loans which he said would provide a $1 trillion boost for the economy over 10 years and create 1.6 million new jobs.
The economic argument might carry some weight. Housing Wire reports that the $1.5 trillion in student debt could buy every house on the market in the U.S. — twice.
“Student debt has ballooned to an all-time high as the price of education continues to outpace wage growth, and this is holding back many potential buyers from being able to purchase a home,” realtor.com’s senior economist George Ratiu said. “Student debt is already impacting borrowers’ ability to buy a home and education debt is expected to hamper consumers’ financial decisions for many years down the road.”
The Department of Education has said that wage growth is stagnant but tuition is not — at public universities it has grown at 4x the rate of wage growth since 1986. Meanwhile, some families are still recovering from major wealth losses as home values dropped, or they lost homes to foreclosure, during the financial crisis.
The LendEDU report based on Department of Education default data, found that Southern states had some of the highest default rates. Mississippi’s default rate of 14.94% was the second highest in the country, behind only Nevada’s 18.16%, which was an outlier.
“The link between student loan scams and for-profit schools has long been documented, so it came as no surprise to see these schools producing the highest default rates. For the 2016 fiscal year, for-profit (a.k.a. proprietary) institutions had a collective default rate of 15.20%, compared to a public school default rate of 9.60%, and a nonprofit private school default rate of 6.60%.”