Default and Repayment Among Baccalaureate Degree Earners

Abstract

More than low default rates, lenders are interested in the expected return on their loans. In this paper, we consider a number of other measures of repayment and nonpayment that are likely to be of direct interest to lenders. Using data from the Baccalaureate and Beyond Longitudinal Study, we document repayment and nonpayment outcomes 10 years after graduation for American students receiving BA/BS degrees in 1993. We estimate differences in these outcomes across individual/family background characteristics, college major, type of institution, the amount borrowed, and post-graduation income. A key contribution is our analysis of the following outcomes in addition to student loan default rates: the fraction of the original undergraduate loan amount repaid as of 2003, nonpayment rates (including deferment and forbearance as well as default), and the fraction of original undergraduate loan amounts on which borrowers defaulted or are currently not repaying.

Understanding Loan Default Among Community College Students

“…Hillman (2014) employed a logistic regression model to contrast the characteristics of borrowers in student loan repayment who defaulted on their student loans against those who did not and found that African American and Hispanic borrowers were roughly 9% more likely to have defaulted on their debts than non-minority borrowers. This finding is consistent with other studies which suggest that students of color are at greater risk of loan default (Addo et al, 2016; Barone et al, 2005; Christman, 2000; Dynarski, 1994; Flint, 1997; Harrast, 2004; Herr & Burt, 2005; Hillman, 2014; Knapp & Seaks, 1992; Lochner & Monge-Naranjo, 2014; Podgursky et al, 2002; Steiner & Barone, 2014; Volkwein et al, 1998; Woo, 2002b). Notably, recent work by Scott-Clayton, (2018) revealed that Black bachelor’s degree graduates were five times more likely to default than White graduates.…”

“…Gender has also been shown to impact default risk; numerous analyses find significantly higher rates of default among male borrowers (Barone et al, 2005; Herr & Burt, 2005; Podgursky et al, 2002; Steiner & Barone, 2014; Woo, 2002b). There are a few studies, however, that find no significant difference between the default rates of male and female borrowers (Christman, 2000; Lochner & Monge-Naranjo, 2014; Volkwein & Szelest, 1995).…”

“…Human capital and ability to pay are the chief economic theories used in studying loan default both explicitly (e.g., Christie & Munro, 2003; Christou & Haliassos, 2006; Flint, 1997; Volkwein et al, 1998) and implicitly (e.g., Harrast, 2004; Lochner & Monge-Naranjo, 2014). The cost-benefit comparison is a fundamental tenet of human capital theory.…”

“…Borrowers from lower-income households are more likely to default (Christman, 2000; Hillman, 2014; Knapp & Seaks, 1992; Lochner et al, 2013; Lochner & Monge-Naranjo, 2014; Wilms et al, 1987; Woo, 2002a, 2002b) and on average accumulate more student loan debt (Herr & Burt, 2005; Steiner & Teszler, 2005; Volkwein & Szelest, 1995), an unsurprising point as low-income borrowers are less likely to have access to monetary resources (Choy & Li, 2006; Hillman, 2014; Knapp & Seaks, 1992; Steiner & Barone, 2014; Volkwein et al, 1998; Woo, 2002b). A few studies find that as the sum of debt incurred increases, risk of default also increases (Choy & Li, 2006; Lochner & Monge-Naranjo, 2014). However, this relationship is nuanced by the fact that in many cases, a larger debt sum incurred is “a harbinger of success, not failure” (Woo, 2002b, p. 15)—that is, a larger debt burden is often an indication that a student has successfully advanced through a degree program (Cunningham & Kienzl, 2011; Hillman, 2014; Steiner & Barone, 2014).…”

What’s Behind—and Beyond—the Default Rate on Student Loans?

“…If such a pattern holds for more recent cohorts, the true default rates for recent years are probably even higher than the measured ones because some default might be temporarily masked as deferment or forbearance. The default projections for recent cohorts might need to be downgraded even further, since the results of Lochner and Monge-Naranjo (2014) …”