TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Tuesday, November 19, 2013

Student Loan Default Rates Skyrocket

The Atlantic, All of a Sudden Students Have Stopped Paying Their Loans, Again—Why?:

Legal Education | Permalink



Periodically, a new wave/cohort will (finally) run out of the numerous exemptions/delays/forbearances/etc. that permit the long-term delay of actual student loan repayment.

My guess is that the delayed day of reckoning for the 2008-2009 graduating class is finally hitting the (heavily cooked) government books.

Prepare for geometrically accelerating financial ugliness.

Wide reporting of these stats will drive law school applications *further* (deservedly) down.

Posted by: cas127 | Nov 19, 2013 1:11:08 AM

"All of a Sudden Students Have Stopped Paying Their Loans, Again—Why?"

Because those high paying jobs those kids were told would allow them to repay those student loans don't exist inside the US. Our entire government and financial system are totally focused on taking money away from the people and nobody is working on building an economy that allows people to trade their labor for the money to meet those increasing demands. This may be a result of the bankers ruling our nation and the bankers themselves ruled by their financial computers which are not programmed to consider the health of the economy as a whole but only the maximization of profit for the next quarter!

Posted by: Michael Rivero | Nov 19, 2013 5:40:58 AM


Keep in mind that this is the default rate for federal student loans, which are of course eligible for IBR/PAYE and default can be put off forever, even if one never lands a job. The spike in default rates must be due to more than just folk running out of forbearance/deferral periods, because they effectively have access to unlimited default rates these days.

On the other hand, it is important to remember that this *overall* student loan delinquency rate is artificially lowered by including all of those loans in forbearance and deferral (which can't be delinquent, because they aren't in repayment) in the total. The Federal Reserve Bank of New York keeps track of a separate delinquency rate that only considers student loans that have entered repayment. I have not seen an updated number for that cohort this week, but this summer, it was 31%, or nearly 1 in 3. Which is approaching subprime delinquency rates during 2008-09.

Posted by: Unemployed Northeastern | Nov 19, 2013 7:18:27 AM

The rates reported in The Atlantic are for all student loans, including undergrad and trade colleges. Historically, default rates for law grads have been very low. As of Nov. 2012, 2-year cohort default rates for "graduate students" were at 6.1%, compared with 11.9% for 4-year college junior and seniors, and 48.4% for 2-year proprietary schools. The numbers reported in The Atlantic aggregate apples, oranges, and toothpaste. Something's going on, but we can't tell from the reported numbers.

Posted by: Theodore Seto | Nov 19, 2013 11:17:28 AM

Why is this surprising??? People are paying off what they need for day-to-day survival.

Gotta use a car, have a place to live, and credit cards to use. Paying for an educational loan is 5th in line. Besides, why pay, anyways? It's become clear that they can't punish everybody, and some kind of student loan "jubilee" will have to come sooner, than later.

Posted by: Mark | Nov 19, 2013 12:54:10 PM

@Theodore Seto,

And what percentage of law school graduates are on IBR, PAYE, or PSLF at the moment, I wonder? In other words, what percentage of law school grads currently have a partial economic hardship with regards to their student loans? I think that would be more pertinent information than the default rate for law grads, particularly since everyone borrows federal loans that can be pushed off forever through one of those income-based plans. I would expect the student loan default rate to be 0.0% for law school grads these days. I would expect the partial economic hardship-induced enrollment in an income-based repayment plan to be north of 50% for law school grads these days.

Posted by: Unemployed Northeastern | Nov 20, 2013 7:49:31 AM