Earlier this summer, Lisa posted about total student loan debt in the U.S., which has increased overall as more people go to college. “Student Lending’s Failing Grade,” a report from Moody’s Analytics provides more information about student loan debt. Demand for student loans continues to increase as the number of high school graduates who go on to college rises. Over 40% now attend (blue line; the right axis shows percents):
Enrollment at for-profit institutions such as University of Phoenix is still a small minority of all those going to college, but it’s growing rapidly:
This is significant for student loan debt because students at for-profit (or proprietary) institutions have much higher default rates than students at private or public colleges:
However, the report points out that default and delinquency rates on student loans are quite low compared to other forms of debt. This is partially due to the consequences of defaulting, but also because it’s easier to defer student loan repayment and thus avoid being labeled as “defaulting” than it is for most other loans.
Overall, the report argues that projections of future student loan debt are worrisome. Loans taken out more recently have higher default rates than in the past, and students may have unrealistic expectations of how much they will make after graduation, and so overestimate how much they’ll be able to pay in student loan debt each month. From my experience watching students, I would add that it’s not even that they overestimate how much they’ll be able to afford; many don’t have a clear sense of how much their monthly payment will be, especially since they take out loans on a semester-by-semester basis and may not really think about the cumulative debt they’re taking on. Many are then shocked to discover that their monthly bill isn’t the insignificant sum they’d assumed it would be.