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Student-loan default rates have gone up dramatically in recent years. Can the system be fixed to ensure program solvency and protect borrowers? by Robert C. Cloud and Richard Fossey
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The following story is an excerpt from Facing the Student-Debt Crisis: Restoring the Integrity of the Federal Student Loan Program. 34
THE BAYLOR LINE spring 2015
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MERIEL JANE WAISSMAN
BOUT TWENTY-ONE MILLION Americans are enrolled in colleges, universities, and other postsecondary educational institutions, and a majority of these people are forced to take out student loans to pay for their postsecondary schooling. In 2012, 71 percent of graduates from all four-year institutions had student loans averaging $29,400. At public institutions, two-thirds of the graduates had federal loans, and their average debt was $25,500; at private, nonprofit colleges and universities, three-quarters of the graduates had borrowed and had an average debt of $32,300, while 88 percent of the graduates at proprietary (for-profit) institutions had studentloan debt averaging $39,950. Currently, more than forty million people have outstanding college or university loans, and the total amount of student loan debt has reached $1.3 trillion. About $1 trillion of the total indebtedness represents outstanding loans in the federally funded student-loan program. Another estimated $165 billion is owed to private banks and financial institutions outside the federal student-loan program. In recent years, it has become increasingly evident that a great many former students are having
difficulty repaying their student loans. According to the Office of the Student Loan Ombudsman of the Consumer Financial Protection Bureau (a federal agency), more than fifteen million people have either defaulted on their student loans or are not making payments due to the fact that they obtained an economic hardship deferment or another federally approved forbearance. In fact, only 60 percent of student loan borrowers were making scheduled payments on their loans one year after beginning the loan-repayment period. We may think of delinquent student-loan debtors as people in their twenties, but not everyone who is behind on a student-loan payment is young. Researchers for the Federal Reserve Bank of New York recently examined the loan status of thirtyseven million student-loan borrowers. Fourteen percent of these borrowers—approximately 5.4 million people—had at least one past-due student-loan account. Of $85 billion in total past due balances on student loans, only about 25 percent of those pastdue balances was owed by borrowers under the age of thirty; 40 percent was owed by borrowers at least forty years old; almost one sixth (16.9 percent) of the total outstanding debt was owed by borrowers fifty years old or older; borrowers at least sixty years old owed about 5 percent of the total outstanding debt.
BaylorAlumniAssociation.com
4/6/15 10:54 PM