For defaulters, completion—not debt—drives payment difficulties

Study finds high debt levels not tied to high default rates

High student debt levels are not tied to default rates, according to a new report from the Institute for College Access and Success, the New America Foundation's Clare McCann writes in The Hill.

The report analyzes the results of a survey conducted by the National Center for Education Statistics (NCES). The survey was administered to students who entered college in the 2003-04 academic year, then to those same individuals three and six years later.

The report concludes that individuals who default on student loans usually carry a below-average amount of debt. The average bachelor's degree holder carries about $16,000 in student loans—but the average defaulter carries only $6,000.

Also from EAB Daily Briefing: Study shows students who borrow more, earn more

In fact, although low-balance borrowers make up only 52% of those with debt, they represent 84% of those in default. Individuals less than $10,000 in debt were four times more likely to default than other borrowers.

McCann points out that this data contradicts intuition and many media narratives about the so-called student debt crisis. She suggests that the data can be best understood in terms of completion: the larger predictor of default is not the value of a person's outstanding loans, but whether they completed their degree.

Those with lower debt levels, she argues, probably got that way because they did not complete their degrees. This situation would also make it more difficult for them to repay their student loans.

Other, related factors may also be at play. The data also shows that those in default have lower average wages and are more likely to be caring for a child—both factors that may make it more difficult to keep up with payments.

As McCann argues, this data could indicate that current default-relief strategies—such as income-based repayment programs—are ill-suited to helping those most in need. For policymakers, "that means considering those students' experiences in college—not just their debt levels," when formulating solutions to provide relief (McCann, The Hill, 11/26).

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