Student loan default rates continue to rise. After two years, 10 percent of graduates and dropouts are in default; that rises to 14.7 percent after three years. That doesn’t count borrowers who aren’t paying the full amount but are in “forbearance” or income-based repayment programs.
If President Obama really wants to “shake up” higher education, he should start by scaling back student loans, writes economist Richard Vedder. In addition, colleges should share the costs of high default rates, discouraging them from enrolling students with little chance of success, argues Vedder.
Loan default rates are higher than graduation rates at 514 colleges and universities nationwide, according to Education Sector. Nearly half of the “red flag” institutions are operated by for-profit colleges and about one-third are community colleges.
Skepticism is widening about projections of a widening job skills gap, but most think there’s a shortage of “middle-skills” workers with post-high school education and training but no bachelor’s degree.
President Obama’s new College Scorecard site, which helps students and parents evaluate a college’s cost, graduation rate and default risk, is nothing new, say critics. Some of the data is old, most has been available from other sources and college shoppers can’t factor in family income to get an accurate “sticker price,” reports the New York Times.
College loans are bankrupting parents, reports the New York Times. Colleges encourage parents to take out Parent PLUS loans, which have more than doubled since 2000, to pay their children’s tuition. Others co-sign private student loans. If parents are hit by health problems, layoffs or divorce, there’s no repayment flexibility.
“You don’t want your children, much less your neighbors and friends, knowing that even though you’re living in a nice house, and you’ve been able to hold onto your job, your retirement money’s gone, you can’t pay your debts,” said a woman in Connecticut who took out $57,000 in federal loans. Between tough times at work and a divorce, she is now teetering on default.
People over 60, the fastest growing group of debtors,owe $43 billion, up from $8 billion seven years ago. More are defaulting. The government garnishes Social Security benefits to collect on unpaid student debt.
“It makes you feel like a failure as a parent, to be unable to help your children and to have all your hard work end in a pile of debt,” said one New Jersey man, who took out a second mortgage of $280,000 to help cover his children’s college costs. “I sent my older kids to private colleges, and I was happy to do it because it’s how you help them get started off. But I can’t do it for the youngest, and I haven’t even been able to start the conversation with him.”
Start talking, Dad.
A 27-year man about to complete his second bachelor’s degree — this one’s in Russian literature — tells the Times he doesn’t know how much he and his mother owe for his years in college.
Net price calculators – now required on nearly all college web sites — let future students enter their personal information and get an estimate on the true cost of a specific college, including financial aid, not just the “sticker price.” But the calculators are difficult to find, use, and compare.
Parents can borrow unlimited amounts through federal Parent Plus loans, regardless of their ability to repay the loans. Not surprisingly, an increasing number of parents face garnished wages (and Social Security checks) and ruined credit.
Nineteen percent of households owed student loan debt in 2010, more than double the share two decades earlier, according to a Pew Research Center analysis of government data. Forty percent of households headed by someone younger than age 35 owe such debt, also a record high. The average debtor family owes $26,682 in unpaid college loans, up from $23,349 in 2007.
The U.S. Education Department has released two-year and three-year default rates for student loans that came due in 2009 and 2010. In two years, 9.1 percent defaulted, double the rate six years ago. Defaults rose to 13.4 percent in three years.
The default rates don’t include borrowers who’ve deferred payment because of hardship, such as unemployment, notes the Wall Street Journal. ”Over the long haul, the government projects that nearly 1 in 5 borrowers will default on federal student loans.”
Borrowers can link repayments to their discretionary income; the balance will be forgiven after 20 years. But college debt is still a burden: Debtors are likely to postpone buying a new car, much less buying a home.
Glenn Reynolds has more in The Higher Education Bubble.
Community colleges are being asked to train Americans for jobs, but workforce training funds are exhausted, many college leaders report. General education classes are cheap; high-tech job training is costly.
Also on Community College Spotlight: Some California colleges no longer offer federal student loans for fear of being penalized for high default rates.
“Part of the American dream is that if you work hard, and you get an education and you apply yourself, you’ll be successful,” a Rutgers researcher tells NPR. A third of young college graduates don’t believe this any more.