What Accounts for Gaps in Student Loan Default, and What Happens After
Earlier this year, The Brookings Institute released a report detailing the high rates at which borrowers default on their student loans within 12 years of college entry and the dramatic gaps in default by institutional sector and race/ethnicity. Among other things, the results showed that black, non-Hispanic students and for-profit students experience default at much higher rates than their peers. In a recent update to that report, What accounts for gaps in student loan default, and what happens after, the same data was analyzed to see whether these gaps can be explained by other factors. This new report also examined what happens after students default and whether this too varies by race and sector.
Among the report’s findings:
- 38% of black non-Hispanic students who entered college in 2003-2004 experienced a default compared to 12% of white non-Hispanic students.
- Differences in family background such as family income and wealth accounted for only about half of the gap between black students and white students.
- 47% of for-profit students who entered college in 2003-2004 experienced a default compared to 13% of public two-year students.
- Differences in family income and wealth also accounted for only half of the gap in default rates between for-profit and two-year institution borrowers.
- More than half of borrowers (54%) who defaulted were able to resolve at least one of their defaulted loans within 12 years through rehabilitation, consolidation, paying in full or having the loan discharged.
- Black defaulters were more likely to resolve via consolidation.
- White defaulters were more likely to rehabilitate or pay in full.
- Defaulters from private institutions, both for-profit and non-profit, were more likely to resolve their default than defaulters from public institutions.
- Students from private institutions were more likely to resolve via a consolidation.
- 14% of defaulted borrowers managed to resolve their default and re-enroll in school.