Here’s How Many People Default on Their Student Loans in the U.S. | Hacker News Reader

Here’s How Many People Default on Their Student Loans in the U.S.

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27 pointsthomasyoung9977 comments

This is interesting data but I'm having trouble understanding it. For instance, several years ago there was a blog posted on here about a lady that took a $250,000 loan to go to Duke University to get a Theater Management degree. She then discovered that she was, in fact, never going to be able to pay back that money, so she wrote this blog post about how awful and predatory the USA higher education system is, and that she was now running off to Russia with her (Russian) husband so that she could escape the crippling debt.

Now, there are certainly problems with the cost of higher education in USA, but that's not an example of it. Her problem was entirely different and pretty much of her own making, as far as I'm concerned. Nobody is going bankrupt trying to go to Central Detroit Community College. Or even most in-state universities. So I'm trying to understand these numbers.

What don't you understand about those numbers?

News stories are always looking for the extreme examples, someone with 10k in student debt and a stage 4 cancer is also never paying back their loans.

However, Delinquency in the article just means they missed one or more payments. That’s really easy to do even for people who eventually pay back their loans.

Default in the article is defined a few different ways (and they also talk about delinquency and loans in forebearance) but roughly corresponds to a year or so of missed payments.

Default should generally be 270 days.

It’s partly on Duke though, as the degree should come with a cigarette warning - this degree comes with a quarter million dollar debt, warning!

Federal student loans come with multiple warnings, including a mandatory 30 minute training session:

https://studentaid.gov/entrance-counseling/

https://studentaid.gov/mpn/

The people who make these really bad decisions aren't unaware of the numbers. They're making those decisions for other reasons, like misplaced expectations on their potential for success, or strong immediate social pressures to ignore costs in their future.

I don't know if it's different now, but when I took it the student aid entrance counseling was taught by a representative that worked at one of the banks funding the loans. He started by asking "How many of you are borrowing to maintain a standard of living?" and then went on to explain how it's totally normal, and encouraged, to borrow more than you need. He said it'd make college easier as you wouldn't have to work, you'd have a computer, you could relax by going out to movies when you were done with homework, etc.

Ah yeah, it's different now. All federal loans are now through the Federal Direct Student Loan Program. The loans are issued by the Department of Education and there aren't any banks involved.

There used to be some other programs in which the government backed privately issued loans; that must be what you had.

A lot of people have trouble paying their student loans and many seem to call for cancellation of all student debts.

The interest rates on US student loans are from around 5% according to https://www.valuepenguin.com/student-loans/student-loan-inte...

At the same time the US government can borrow at around 1%. Why not consider education an investment in society and let students borrow at this rate as well?

My swedish student loan has 0.05% interest rate this year.

I don't get it.

The government is a very different credit risk to a student. More likely to default -> higher interest rate.

Having said that I do think they've got something wrong over there.

Private student loans often have very high rates, like credit cards.

Very easy to end up paying $200,000 to retire a $50K debt.

> Private student loans often have very high rates, like credit cards.

Credit card rates are often something like 20%. Are student loan rates really that high?

I've seen people with above 10%.

My highest was 14%. At their suggested payment rate it was going to take something like 15 years to pay off because the payments are mostly just covering interest. Without giving too much information away this loan was for an in-state state university, not some crazy expensive private school. It's borderline criminal in my opinion.

I'm so glad I was talked into going to a state university instead of the great private school I got accepted at, the loans for that would still be absolutely soul crushing. The loans I have now are just mildly soul crushing.

I thought the unspoken truth was almost nobody actually pays the published private tuition rates so it’s usually actually cheaper or even free to go to a private university?

Maybe people more well off or the opposite than I. As someone smack dab in the middle (my parents were just starting to make OK money and not struggle as I finished high school, AKA non-existent savings but current income looked good) the university said our out of pocket costs were around $40k a year when we sat down with financial aid. They give you next to nothing in cases like that, it is expected to be all parents money or loans. Not happening.

That was the case for the 2 private schools I visited while in the process of picking a college. Very small sample size of course, YMMV.

it is expected to be all parents money or loans

It's really problematic for large families, where schools expect parents of six kids to pay tuition as if they only had one kid.

Or I wonder what happens when you have parents who just decline to pay for you.

I had parents that not only refused to pay, but also refused to fill out the FAFSA forms. At the time even being an emancipated minor wasn't enough to not look at your parents for non private loans or grants.

I only got private loans and dropped out after one year. I couldn't make the numbers work beyond that.

Or my friends who were twins, but all of the algorithms were setup as if they wouldn't be going to college concurrently for some reason.

They'll knock a few grand off for various points, kind of like you're buying a new car. You're still spending a lot of money. Think of it as a car dealership with promotional giveaways.

Depends on the private university. At the very top (HYPMS), that's true (unless your family is very wealthy). It was cheaper for me to attend Yale than my sister to attend UT Austin, despite my parents being fairly affluent (dual-income engineers).

But the generosity of grants falls off sharply as you leave that tier. Financial assistance at schools like NYU are almost 100% in the form of loans.

Sounds like you screwed up. Current private student loan rates are on the order of 3-5%. Refi's are less than that. And that's ignoring the newfangled stuff like ISAs where there aren't even any loans to begin with.

I would *love* to know how you think I 'screwed up' as a high school kid who applied for and accepted the only college loans that were approved. My parents and I went to the planning workshops to prepare for college, we filled out the endless forms, we jumped through all the hoops. That is what I got.

It seems that a whole generation must have screwed up as well - because I am far from a unique case here. The constant talk of student debt forgiveness, default rates, and tuition costs must all just be about nothing then, my bad.

What an absurd comment.

> constant talk of student debt forgiveness

This is mostly because a lot of people got useless degrees that don't result in high paying jobs, not because of some intrinsic cost of education. The number of STEM degrees awarded [1] is far outstripped by non-STEM degrees in both number of degrees awarded and growth rate [2].

I am merely saying the current private student loan rate is 3-5%. It is not possible for substantial interest to accumulate at that rate, particularly if you factor in inflation (6.8% YoY this month...)

[1]: https://www.nsf.gov/nsb/sei/edTool/data/college-14.html [2]: https://nces.ed.gov/programs/digest/d12/tables/dt12_310.asp

Are you under the false impression that the majority of people taking loans for college only utilize government provided ones? I don't believe that to be true, everyone I know (including myself) had to utilize private providers such as Navient (SallieMae) or others to cover college tuition. That is where the insane interest rates come from and aren't reflected in your data of 3-5% rates.

Them being 'private' loans is a bit misleading as well, as they are technically backed by the government, as far as even bankruptcy will not remove them. Navient is just the servicer & middleman to collect the profits. It's more complicated than this of course but that seems to be the gist of it.

My CC’s are at 10% and 12%, many student loans are in that range.

20+% CC are out there but that’s often a tradeoff for cash back programs or for people with bad credit.

The point would be that the government assumes the risk of all students as a collective. With government rates much fewer people would default.

Fewer of the people who are currently borrowing would default. That's not the same as fewer people would default.

Lower rates will cause more people to take a loan, and you have to think they are the more marginal students.

Then you're left with whether it's ok for society to pay for more people trying college and not finishing. A political question of course.

> swedish student loan

Genuinely curious how common borrowing money for university is in Europe. A lot of people here in the states are under the impression - myself included - that education is more or less free of charge over there.

Like the idea that health insurance isn’t a thing in Europe, it’s not the case everywhere.

Well, it's cheaper but not always free. And there are costs apart from tuition. You may want to study at a uni that isn't close, so you have to move/move out and rent a place. Then there's food, etc. I believe student loans sometimes are explicitly for that, so you aren't dependent on a grant from a certain uni if your parents can't cover those costs.

Almost everyone does it, but it's for living expenses, books and such, not for tuition.

Currently, a university student borrows around $800 and gets around $300 each month. Then you are supposed to pay back what you borrowed during 25 years starting 6 months after you stopped borrowing.

It really is a great system imho.

edit: Had to check, apparently only 70% takes student loans.

Hah, good luck paying for living expenses in the Bay Area with that kind of money. $1100 will get you a shack built in the 1920's with 3 roommates and drug addicts at your front door.

In many parts of the world government schools are often free or close to free. But the private universities are not and most governments do not offer student loans for private schooling as there is the freeish government alternative (if you pass the university entrance exam). That’s why many of them are both harder and more prestigious than the private sector ones. Some countries have mandatory service for a couple of years for free medical schooling though.

Theres a strong correlation between the cost of a house and mortgage interest rates (which makes sense- most people set their budget based on a monthly payment, not on an overall purchase price). I wouldn't be surprised if there was a similar correlation for tuition costs (which have blown up over the last few decades)

From what I understand, in the US it's much easier to walk away from a mortgage (with an underlying asset to reclaim) than student loans. I'm under the impression that this (and government default guarantees) makes lenders more willing to lend money. I'm curious if tuition would have risen as much if lenders were less willing to lend money due to structural changes (e.g. actually being able to lose money).

In finance, interest rates are calculated with the formula:

rate = risk free interest rate + inflation premium + default risk premium + liquidity premium + maturity premium

Stable governments can currently borrow at or close to the risk free rate because inflation is low, stable governments are at low risk of default, and bonds are fairly liquid. These things are not the case for student debt, however. Selling a student loan is harder than selling a bond, and any individual borrower is less reliable than the entire US or Swedish government.

The only other way to influence those rates is through direct intervention, like government subsidies, or other regulations that change the risk profile (like making student loans nondischargeable) Which is exactly what the US government does with their public loans, which are at lower rates than loans through any bank. (3.73% for undergrads)

Sweden must subsidize their loans more.

The people crying the loudest about loan forgiveness are people who went to expensive colleges and obtained unmarketable degrees.

It is well known that many of these boutique colleges charge a lot of money because they will find people to pay the price. Simply lowering the interest rate on a loan will do nothing to stop this.

Requiring colleges to peg the total cost of an education to what a graduate can earn in that field in one year would be a good step towards reducing pointless degrees and laughably expensive tuition.

I had an expensive education, just paid it off last year. We lived with my folks for a year to finally pay it off after 10 years.

Nobody should have to struggle that way. Make college free and forgive the outstanding debt. My $1000/mo made my life extraordinarily expensive…

In the long run, having lower taxes from not paying for other peoples' educations is cheaper for you and for anyone with a useful degree.

I will take the example of my friend. He's at a no name company as a new grad software engineer making $96k. That is, he's working at a position attainable to everyone. That's $8000/mo pre-tax and he lives in a fairly LCoL area. $1000/mo for 5-8 years is peanuts compared to the extra taxes he'd pay for a lifetime under your idea.

If you consider it from the perspective of someone working at FAANG ($200k new grad salary) $1k/mo is even more trivial.

I don’t agree with necessarily tying price to value. I don’t want people choosing art history over CS just because it is cheaper.

I do think each major should have something akin to a Nutrition Facts label laying out clear information about the financial outcomes for recent graduates. So people can understand if financing that educational pursuit is likely to be worthwhile.

Why don't you want that? Pricing signals are the way markets communicate. If we obfuscate those signals, problems invariably present themselves. As we are seeing.

Look, if everyone says something that you don't want to hear there are two ways to respond - rationally or by putting your fingers in your ears and going "LAH! LAH! LAH!" as loud as you can.

I know which one I prefer. And if you're answering this post, "LAH LAH LAH LAH"

> I don't want people choosing art history over CS [because of price]

This reasoning right here is why people are stuck in $100k student loans with useless degrees. Sometimes it is more useful for society as a whole to have fewer art history majors and more engineering majors. The overwhelming majority of highly impactful social science research (if it can be called that with the reproducibility issues it has) comes from the top 10 institutions. Everyone else is just getting a degree in barista science.

I’m not sure I like the implicit association here between a job’s income level and some vague metric of “usefulness to society,” to say nothing of the dismissiveness that comes with the “barista science” label.

We shouldn't push people without aptitude and interest in programming into the field. There is already too much bad code out there.

I'm not advocating an increase in art history majors. I'm saying if art history was cheaper, that could send even more people down a path that is financially unrewarding. By pricing degrees according to value, a CS degree becomes relatively more expensive and less attractive to somebody making college decisions with a tight budget in mind.

If you make universities responsible for student income outcomes (by for example making them take loan liability in case of default) that makes them steer students towards the CS degree, not the art history one.

Most (all?) US colleges should have reports detailing their intakes and graduation rates for all majors. Students can also look through BLS and Onet to see prospective wages, industry growth rates, and other information. Resources are there, the issue is that we're expecting 16/17 year old kids to make a multi-year commitment towards a field of study they likely have no real experience in.

There's a ton of complex research out there on nutrition data as well but we still have laws about how that information needs to be presented. The reason we have Nutrition Facts on food packaging is to summarize and present the information in a way that is standardized and quickly scannable. This helps everyone understand what they're buying and (most important) facilitates quick comparison to alternative foods.

A similar presentation of financial outcomes data would go a long way toward saving people from these inescapable student loan black holes.

So you want to punish people who get practical degrees? How will this reduce "pointless" degrees? Won't it incentivize you to get them?

By peg, I meant cap. Colleges will still compete on price for better students, so practical degrees will more or less remain the same cost.

What will vanish are $150k degrees that have no or little value in the market.

My SO is a physician assistant, which requires a graduate degree. The tuition alone at almost all of the PA programs is >100K and acceptance rates are low (<20%) so most people don't really get to choose where they go. Most of her class graduated with 150-250K in debt with 5-8% interest, they're a year into working at understaffed hospitals and are already burning out.

Quitting and getting a different job is not an option because nothing else will pay them anywhere near enough to cover the $1800-2500/month tuition payments.

I sometimes think applying Matt Levine's Certificate of Dumb Investment, discussed at https://news.ycombinator.com/item?id=24285305, would be relevant to the massive-graduate-student-loans process.

There are economic hazards here. If the loan has interest below the market rate, then the students provide a vehicle for the transfer of money from the state to the (possibly for-profit) university.

Education is an investment in society only if it benefits the student. Looking at a default rate of around 45% for students who did not receive any degree at all and also for students who received some kind of certificate (cosmetology school), I would guess the students are not repaying because they gained no benefit from the "education".

There needs to be some mechanism to ensure that education loan subsidies benefit society and not just some institutions.

There are problems all around. E.g., state laws governing cosmetology certification that require hundreds of hours of training.

Neither do I, and I'm an American who had a few tens of thousands of dollars in loans when I graduated.

I wasn't making any money early in my career, $40k, and I had my loans paid off inside of five years.

I don't know exactly how Sweden works and don't have the basis to make a comparison with the American system. But I believe that many countries emphasize some kind of competitive exams for college entry and have far fewer good college spots than are available in America? Is that the case? Perhaps there's some significant differences in the overall system that just wouldn't work in America that drastically changes the financial incentives.

But speaking strictly about America, is it possible that dramatically expanding access to cheap educational loans may have some unintended negative consequences?

For instance, you could argue that the price of education in the US has continued to increase even as more and more funding assistance became available. Some observers see it as colleges taking advantage of society's goodwill and just continuously expanding their administrations and spending as students attain more access to credit. Let's conduct a thought-experiment: if society offered students 100K free per year for the sake of education, is it any doubt that college prices would find a way to rise to around that amount soon after?

As another consequence, maybe unserious people are financially incentivized to go to college to take nearly useless degrees. Is it a good thing for society to perpetuate this system of debt? Keep in mind that we live in an Instant Gratification society, and many people go to school purely for the fun social experience. Kids are basically pressured to take on tens of thousands of dollars (or more) in debt just to live life on easy mode for a few years and many people don't take actually useful degrees that are hard (some kind of engineering for instance) but many people take degrees with truly marginal or even negative social value. Would expanding access to credit not just exacerbate this?

I'm surprised private schools have a lower default rate, since they cost more. I suppose people who attend private school come from wealthier families on average?

For reference, those numbers are all higher than the typical mortgage default rate: https://www.statista.com/statistics/205959/us-mortage-delinq...

There are probably plenty of reasons why wealthier families attend prestigious private schools even if tuition were free, perhaps the most conspicuous being the high profile bribery scandals.

Private non-profit - Harvard Medical School - very low under 1% default

Private for-profit - Joe's No Good Truck Driving School - maybe 25% or even 50% default

With a spectrum in between depending on quality of school and area of study.

The big for profit schools sound like a big name but aren't. Like University of Phoenix.

The sad fact is: the typical American doesn't even do enough research to know if they are going to a private for profit school or a prestigious state school.

They are just happy they 'got into college', nonethewiser that the school they got into is a money trap.

That is not what the data says. The data says that public universities have the lowest. But public and non-profit private are very similar, so the real split is probably between private for-profit (i.e. scams) and everyone else.

https://infogram.com/student-loan-default-rate-by-school-typ...

The system in the U.K. is income-based repayment with automatic forgiveness after 30 years and an interest rate linked to inflation and income (your interest rate is up to 300bp higher if your income is higher). In some sense this is good because it avoids defaults or unmanageable repayments, but it can be a bit unegalitarian in how different people are affected: those with low incomes are ok but they have low incomes, those with particularly high incomes get to pay the loans off quickly and so don’t have much interest whereas those who follow a more common or somewhat good career progression will end up paying the loan off slowly with a lot of extra income. Furthermore, those people who had more family support would have lower principals and so would pay off less. So it comes out a bit like a graduate tax but borne most by people with middle incomes.

This page is very frustrating to read. There is no way that it has enough information to make any informed conclusion. I feal like a real analysis needs to drill deeper into the data.

Why are students not repaying their loans?

After a student is "in default" on a loan (no payments for a year), do they ever pay it off? Being in default isn't like bankruptcy; the debt is still there and there may be reasons later to pay it off. I know at least some institutions that will not release transcripts while they are owed money; I don't know if there are any incentives to keep paying student loans.

The risks of default broken down by course of study is there, very roughly, but would more detail reveal the issues more clearly?

I'm sure that economists and think tanks have studied this problem. Maybe someone can post a link to some good article or survey on the topic.

Do these default statistics include perma-forbearance? The link in the page was dead.

The whole system of putting students in debt to get education seems horribly messed up.

It aligns incentives between society and the student. If the student fucks around or majors in something useless, they're on the hook for it.

I'd gladly subsidize more STEM degrees with my taxpayer dollars but I won't give a single dollar towards underwater basket weaving type degrees. Every single humanities class I took in college was utterly useless. Advocates claim you're learning how to read and write competently but I learned that from business school, not sociology and history.

Student are in debt either way. So I don't see how it aligns anything except for those who profit on it.

Because for some students the debt is paid off quickly, so in the long run the lower taxes from the state not paying for everyone's education make that student better off. For other students with useless degrees, the consequences of their actions come home to roost with their debt.

That being said I do think student debt should be dischargeable in bankruptcy. As is the market for education is dysfunctional.

Define "useful" here. Lot's of people with useful education struggle with paying off their debt. There is something pretty crooked in such attitude.

Objectively, from the statistics, that's just not the case. Average undergraduate student loan debt in public California schools was $23,600 in 2019 [1]. That is less than the price of most new cars.

[1]: https://www.sacbee.com/news/politics-government/capitol-aler...

From what I've seen, it's not something to be brushed off as "not the case".

You're talking from anecdotes, I'm showing you the objective statistics supplied by the state of California. One is going to give a more complete picture than the other.

Still not a reason to brush it off. It's still crooked.

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