For-profit colleges take the brunt of the blame for the quadrupling over the last 12 years of outstanding federal student loan balances in the U.S. that exceed $1.1 trillion, and the resulting surge in defaults, according to a new report by the Brookings Institution in Washington
Researchers found that most of the increase in student-loan defaults is due to an upsurge in the number of borrowers attending for-profit schools and, to a lesser-extent, community colleges and other non-selective institutions “whose students had historically composed only a small share of student borrowing.”
But by 2011, borrowers at for-profit and 2-year institutions represented almost half of student-loan borrowers leaving school and starting to repay loans, and accounted for 70 percent of student loan defaults.
In 2000, only 1 of the top 25 schools whose students owed the most federal debt was a for-profit institution. However, by 2014, 13 were for-profit. Borrowers from those 13 schools owed about $109 billion—almost 10 percent of all federal student loans.
“The so-called student loan crisis in the U.S. is largely concentrated among non-traditional borrowers attending for-profit schools and other non-selective institutions, who have relatively weak educational outcomes and difficulty finding jobs after starting to repay their loans,” the report states. “In contrast, most borrowers at four-year public and private non-profit institutions have relatively low rates of default, solid earnings, and steady employment rates.”
Increased enrollment in for-profit schools and increased borrowing rates among community college students account for much of the recent doubling in default rates, with changes in the type of schools attended, debt burdens, and labor market outcomes of non-traditional borrowers explaining the change, Looney and Yannelis find.
Adam Looney, of the U.S. Department of the Treasury, and Stanford’s Constantine Yannelis examine the rise in student-loan defaults In “A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and the Institutions they Attend Contributed to Rising Loan Defaults.” See chart below.