Student loan debt in the US has reached a staggering $US1.2 trillion, and many refer to the seemingly inexorable levels of mounting debt as a crisis. It’s easy to overlook the fact that the crisis hurts some borrowers more than others.
The Brookings Institute, a DC-based think tank, published a paper in September that examined the types of borrowers most prone to default and delinquencies on loans, and presented some surprising findings.
The student loan crisis is actually a “selective” crisis, according to Brookings. Students who attend for-profit or community colleges are much more likely to default on their debts than other graduates.
“Half of borrowers exiting school in 2011 attended a for-profit school or a 2-year college,” the paper noted. “These borrowers represented 70% of defaults.”
That is a relatively new phenomenon, as the makeup of student loan borrowers has changed drastically since 2000. You can see in the chart below that a significant number of the colleges in America whose students owe the most in 2014 come from for-profit schools.
The paper continues on to explain that students from for-profit and community colleges have higher numbers of defaults and delinquencies, because they are less likely to complete their degree programs, have higher levels of unemployment, and normally earn less than students who attend 4-year colleges and graduate programs.
These factors were further exacerbated by the economic downturn.
Brookings, however, does have some positive news for student borrowers. The paper predicts that delinquency is set to decrease as the economy continues to improve and there are more job opportunities. Additionally, as oversight over for-profits strengthens, there will be less opportunity for abusive tactics.
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