A Crisis in Student Loans?: How Changes in the Characteristics of Borrowers and in the Institutions They Attended Contributed to Rising Loan Defaults

This paper examines the rise in student loan default and delinquency. It draws on a unique set of administrative data on federal student borrowing matched to earnings records from de-identified tax records. Most of the increase in default is associated with borrowers at for-profit schools, 2-year institutions, and certain other nonselective institutions. Historically, students at these institutions have constituted a small share of all student borrowers. These nontraditional borrowers have largely come from lower-income families, attended institutions with relatively weak educational outcomes, faced poor labor market outcomes after leaving school, and defaulted at high rates. In contrast, default rates have remained low among borrowers who attended most 4-year public and nonprofit private institutions and among graduate school borrowers—who collectively represent the vast majority of the federal loan portfolio—despite the severe recession and these borrowers’ relatively high loan balances. The higher earnings, low rates of unemployment, and greater family resources of this latter category of borrowers appear to have helped them avoid adverse loan outcomes even during times of hardship. Decomposition analysis indicates that changes in the characteristics of borrowers and the institutions they attended are associated with much of the doubling in default rates between 2000 and 2011, with changes in the type of schools attended, debt burdens, and labor market outcomes explaining the largest share.