Student Loans could see default rates reach 40% by year 2023

By: Linda G., Published: Jan 25, 2020 | Related: Easy Loan Application

Student loans are going to experience a lot of upheaval in the coming years, and most people who are going to be affected don't have any idea what's to come. There is currently about $1.4 trillion owed in student loans across the United States, and new reports show that a crisis in the US economy could be on the horizon as a result of numerous student loan defaults.

Recently released data on college students who entered school in 2003 or 2004 show a trend toward more defaults, and it has been predicted that by 2023, the default rate for that group will surpass 40 percent. This should be alarming to anyone who understands the implications of a default rate that reaches almost half for just a single group of borrowers.


For those that entered school in either 2003 or 2004, the current default rate is about 25 percent. That means it could rise 15 percent in just five years. According to the Department of Education, the default rate for those who received loans in 2014 was already near 12 percent. That points to the fact that the default rate is going to rise exponentially for all age groups. Why is this happening?

One of the main issues with student loans is the prevalence of for-profit universities and colleges. Of the students who took out student loans to pay for tuition at a for-profit school in 2004, almost 70 percent of them are expected to default on those loans before 2023. Schools that fall in the for-profit category include familiar names like ITT Technical Institute, DeVry University, and Corinthian College. Those who borrowed money to pay for public schooling in the same years are likely to see a default of 26 percent by 2023.

Interestingly, the projection for a rise in default rates is mirrored by a removal of several regulations set up by the Department of Education during the Obama administration to protect students against fraudulent behavior exhibited by for-profit schools. Trump-appointed Secretary of Education Betsy DeVos is to thank for those regulations being removed, and it is likely to create a situation where many students could be defrauded by a school, which would cause a rise in loan defaults.


Regulations on for-profit schools might have been set up during the Obama years, but it was grossly incompetent for DeVos to freeze these regulations simply because they were put in place by a political rival. To think that removing these regulations is going to help anyone except the dishonest schools trying to siphon money from unsuspecting students is asinine.

What's more, students of ethnic races tend to default at higher rates than white students. Even when a black student has earned a bachelor's degree, he or she is five times as likely to default as a white student with a bachelor's degree. Black students with degrees are even more likely to default on their loans than white students who dropped out and didn't receive a degree. Many point to this being an issue with employers and their likelihood to hire a qualified candidate if that candidate happens to be black.

Black borrowers who started loans in either 2003 or 2004 are projected to reach default rates of nearly 75 percent. Previous studies have shown that the labor market isn't as favorable for black graduates.

Some experts have suggested an income-based loan repayment system that would set a repayment rate in line with your income regardless of your ability to get a job with the degree you paid to receive.

However, you might already have trouble paying back your student loan. Even if the system was fixed perfectly today for all future loans, there would still be millions of students in trouble due to the failures of the past.

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There are certainly things you can do if you are in danger of defaulting on your student loan. You aren't the only one experiencing such an issue, and there are numerous ways to help reduce your debt. You can attempt to refinance your loan, which could save you several thousand dollars. Try to earn money on the side, or download savings and rewards apps on your mobile device. If you can save money on rent by moving in with your family, take advantage of that option.




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