Rohit Chopra, “A closer look at the trillion,” CFPB.
I’m not a fan of the three-year cohort default rate as the metric for the vitality of the student loan program. It’s about as unhelpful as the unemployment rate, which can hide people who left the labor force, are underemployed, left the jurisdiction, etc. Just as the definition of “unemployed” is slippery (like, any job search activity in the previous four weeks), so too is “default,” which is no payments whatsoever over the previous 270 days. The CFPB has released, to my recollection, the first ever breakdown of federal student loans by repayment status (billions of dollars):
|Direct||133.8 (24%)||40.4 (7%)||237.4 (42%)||75.6 (13%)||48.3 (8%)||30.5 (5%)||3.2 (1%)||569.2 (100%)|
|FFEL||12.2 (3%)||6.6 (2%)||256.3 (60%)||46.5 (11%)||42.8 (10%)||58.8 (14%)||6.3 (1%)||429.5 (100%)|
I get 30 percent of all federal student loan dollars in deferment, forbearance, or default. Only 49 percent of the total are in active repayment. I’d love to see a comparison to credit cards, but aside from class concerns, I think it’d tell us that the federal loan program has been a spectacular, embarrassing failure.
Here’s the same thing for borrowers (millions):
|Direct||7.9 (28%)||1.9 (7%)||10.8 (39%)||3.2 (12%)||1.8 (6%)||2.1 (8%)||0.1 (0%)||27.8 (100%)|
|FFEL||0.9 (4%)||0.5 (2%)||12.9 (56%)||2.3 (10%)||1.6 (7%)||4.4 (19%)||0.3 (1%)||22.9 (100%)|
I’m not going to do the same calculation because there’s certain to be some overlap between DLP and FFELP borrowers, but I direct your attention to the FFELP’s default rate: 19 percent. That’s a better long-term indicator of where the DLP is headed, and remember, once you’re in default, there is no IBR. People in those circumstances will have to negotiate with their lenders, but my guess is that debtors who are old enough can beg for mercy from bankruptcy judges (and federal court judges dealing with the inevitable appeals).
Another interesting factoid is that the average balance by repayment status table (omitted) shows that the average amount owed by people who are in default is less than $15,000 for both DLP loans and FFELP loans. I expected the figure to be much higher based on the belief that people would default when their loan balances are hopelessly high. It’s probably weighted-down by people who borrowed a small amount of money to go to a for-profit and then dropped out or couldn’t find a decent-paying job.
The CFPB also gives a table of repayment plan choices for direct loan borrowers (not FFELP):
Billions of dollars
Millions of recipients
Thousands of dollars
|Standard 10-year plan||139.9||9.84||14.2|
|Plans based on income||72.3||1.58||45.8|
|Pay as you earn||1.3||0.04||32.5|
|Plans not based on income||107.4||3.35||32.1|
|Extended graduated repayment||17.5||0.45||38.9|
|Other alternative repayment plan||4.4||0.23||19.1|
|Total of loans in these plans||324||15||21.6|
Note that the average balance for the 910,000 people on IBR is $55,900. This is certainly a bellwether for law school debt and other graduate or professional school programs that rely heavily on Grad PLUS loans. Going forward, student loan debtors, including undergraduates, will be on the better-publicized PAYE, which will reduce the average amount borrowed.