Smart Borrower Blog

Long-term Student Loan Defaults Reach 40%

Jan 24th, 2018 @ 9:42 PM by Amber Nelson

U.S. borrowers who have had student loan debt for 15 to 20 years are defaulting at rates much higher than previously thought, according to a recent report, a sign that current college students may default on their loans at even more outrageously high rates.

A report from the Brookings Institute, released earlier this month, studied loan data from students who entered college during the 1995-1996 school year and those who entered during 2003-2004. For those who entered in the earlier year, the study found that cumulative default rates on their student loans continued to rise between 12 and 20 years after the first year of school. If the same holds true for the 2004 cohort, they may be defaulting on their loans at a rate of 40% by 2023.

The study also found large disparities in defaults among those who attended public universities and colleges versus those who attended for-profit colleges. Those in the 1996 cohort who attended for-profit schools, 23% defaulted on their loans within 12 years and 43% of the 2004 had the same problem. Those numbers were dramatically lower for those who only attended private or public colleges. Just 8% percent of the 1996 cohort had defaulted within 12 years and 11 percent of the 2004 cohort. And it is much more common to for students to borrow money at for-profit schools public ones so these rates will likely hold true or even grow for current college students.

One source of the growing default rates may be the rising costs of tuition and the increased amounts of debt that students are incurring. During the 2003-2004 school year, the average undergraduate borrower had $10,700 in federal student loans upon leaving college. Currently the average graduate walks away from school with roughly $39,000, an increase that is much higher than the rate of inflation during the same period. Add in that there has been almost no national earnings increases since the Great Recession and it is easy to see why many grads have had a hard time repaying those hefty student loans.

And they probably will continue to have a hard time. Other reports have shown that student loan defaults increased by 400,000 in 2015 and jumped up by an incredible 1.1 million in 2016. This suggests that the current lifetime default rate on student loans is likely to be around 50% – half of all those with loans today are likely to never repay their loans. And the effects of that on the economy can’t be good.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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