The Department of Education hasn’t been so transparent about the success of its student loan program. In its newest data release, they gloss over the difficulties that students have in making timely payments.
“Nearly half of outstanding direct loan balances for borrowers not in school are not in repayment,” Preston Cooper wrote for Economics 21.
Due to delinquency, loan deferments, forbearance, or default, 47 percent of loans aren’t being repaid on a monthly basis. The repayment rate has crept up to 53 percent compared to 48 percent two years ago, but the situation remains underwhelming.
The Department of Education estimates outstanding loans at around $1.3 trillion among 42 million borrowers.
Too many students have taken on debt during a weakened economy. The result has been a struggle to reap the economic benefits promised to them by colleges and supporters of a “college for all” education plan.
“It is up to all of us to make the dream of a college education more accessible for more families by removing roadblocks to college and giving borrowers options to help manage their debt,” Secretary of Education John B. King Jr. said in a statement with the data release.
The Department of Education could help students better manage their debt, however, if they wouldn’t make it so easy to get. Easier access to large amounts of loans make tuition and fees payable to earn a degree, but approximately 40 percent of students who pursue a four-year degree don’t complete one within six years. For students pursuing a two-year degree, about 70 percent don’t complete it in three years. They earn a debt, not the degree.
That limits their economic opportunities at a time when they need to repay college debts. The difficulty for so many of those students to make timely payments reveals that a significant portion of students in higher education aren’t benefiting from it.
Instead of acknowledging the bleak reality of repayment rates, the department focused on the increased enrollment of income-based repayment plans which tie monthly payments to a set portion of a borrower’s income. That’s good news in the sense of more borrowers have adjusted their repayment plans so they can meet them every month.
Income-driven payment plans have increased to 38 percent of payments, compared to 25 percent two years ago, Cooper noted.
But it’s less ambiguously good when it’s realized that those borrowers can’t repay based on the original terms of their loans. The rise in income-driven repayment plans looks like it’s decreased “hardship deferments, delinquencies, and new defaults,” the Department of Education noted. That isn’t improvement so much as it is choosing an option that’s less bad, but not a sign of economic stability.
This isn’t the first time the Department of Education has distracted the public from unflattering statistics. In the last data release in March, it focused on a drop in default rates as the total amount of loans in default jumped $15 billion.
That penchant for pushing the good news and ignoring the bad news could bode ill for the health of the student loan industry.
“Since defaults overall rose, default rates for non-income driven plans must have gone up enough to offset whatever small reduction in defaults the surge in income-driven repayment led to, and then some,” Cooper wrote. “The limitations of this data could be masking a substantial amount of trouble at the lower end of the borrower spectrum.”
The portrait of student borrowers that’s emerging could mean that borrowers who didn’t complete a degree are facing economic hardships that the federal government has been slow to recognize. The student loan industry has benefited college graduates, but there could be a growing gap between graduate success and dropout misery.
