A Plea to Add Consumer Protections to Student Loans

For years, the Department of Education, lenders, and even universities have been advertising low student loan default rates, typically in the 5-7 percent range. However, these rates have, until recently, only taken into account those loans that default in the fiscal year after the one in which the loans became payable. This window was recently extended by one year, but still does not capture a huge number of defaults.

In 2003, the inspector general for the Department of Education released a study in which it estimated that the true, lifetime default rates for 4-year, 2-year, and for-profit colleges were about 25 percent, 35 percent, and 45 percent, respectively. (An earlier version of this post incorrectly gave the last figure as 4 percent.) Simple averaging suggests that overall, about 1 in 3 student borrowers are defaulting on their student loans.

One would think that at least the Department of Education would take this information seriously, and see to it that students and their families knew these facts before taking out loans. However, this information is never referenced by anyone in power, and getting Department of Education officials to comment on this study has proven to be impossible. This has not changed with the new presidential administration, since most of the “old guard” still hold their posts in the Office of Federal Student Aid.


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