In a blog post, the Federal Reserve Bank of New York asks, “Who Is More Likely to Default on Student Loans?” The question is relevant because the percentage of student debtors who have defaulted on their loans after five years has grown to 28 percent for 2010-11 grads, up from 19 percent for 2005-06 grads. Undoubtedly, a substantial reason for this elevated default rate is that debtors who cannot afford to repay their debts simply choose not to because it’s so difficult to discharge them in bankruptcy.
Looking at Equifax data for the Consumer Credit Panel (CCP) and National Student Clearinghouse data, the N.Y. Fed’s researchers compared characteristics of student-loan defaulters. Here is what they found:
- Unsurprisingly, the cumulative default rate for 33 year olds who attended for-profit colleges tended to be highest, around an astonishing 40 percent.
- What did come as a surprise is that defaults among debtors from two-year public colleges were nearly as high at 35 percent. It’s unclear why the trend for them was closer to the for-profits.
- By contrast, debtors from four-year public schools and all private college debtors had cumulative default rates of about 20 percent.
- Meanwhile, degree completion rates significantly affected default rates. Debtors who did not complete their studies defaulted at rates ranging from 35 to 40 percent. Meanwhile, the rate was 25 percent for people with associate’s degrees and 15 percent with bachelor’s degrees or greater.
- When looking at 33 year olds by their colleges’ selectivity (as determined by magazine rankings) and their courses of study, debtors from non-selective institutions were much more likely to default no matter what they studied.
- People who studied arts or the humanities were more likely to default on their student loans than business majors, who were then followed by students in vocational programs and then science, technology, engineering, and math (STEM) majors.
- Debtors from above-mean-income ZIP codes, which the researchers used as a measure of family background, tended to default on their student loans at lower rates than those from below-mean-income ZIP codes, again with for-profit students faring worse than public university students and then students who attended private schools.
The authors emphasized that their findings were correlational, and they do not show that attending a private, for-profit college will result in default. However, they did describe the results as “suggestive,” implying that they are consistent with what we know about student-loan defaults.
The New York Fed post is here.
Student loan debtors tend to owe other types of debts too, so consulting with an experienced New York bankruptcy lawyer can help you assess whether a chapter 7 bankruptcy will free up income from other debts for student loans.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.