20 years of student loans

New research shows students continue to default years after leaving college


Newly released data on federal student loan repayment have helped to dispel several commonly held myths about student debt. Until recently, most publicly available student-level data only followed students for several years after they exited school. This period was not a long enough to examine loan repayment—which can take 10 years or more—nor was it long enough to examine students who defaulted many years after they exited school. Newly released data from the National Center for Education Statistics (NCES) at the U.S. Department of Education help to correct some common misconceptions about loan repayment.

Myth #1: Most students repay their loans within 10 years.

The standard repayment schedule for federal student loans is 10 years. Some students may repay quicker by making larger payments, while others may repay slower if they use an income-based repayment plan, which lowers monthly payments for students with lower incomes. Until recently, researchers could only guess that the typical student takes approximately 10 years to repay his or her loans, since long-term data on loan repayment were not available. However, it appears students take longer to repay their loans than previously thought. Using newly available data, RTI finds the following:

  • 20 years after beginning college, only 38 percent of students have paid off all their federal student loans.
  • 20 years after beginning college, the average borrower still owes half of what he or she originally borrowed.
  • 20 years after beginning college, the average borrower still owes $20,000.

Myth #2: Most defaults occur in the first few years after students leave college.

Currently, federal default statistics measure default in the first 3 years after students exit college. Many policy makers assume most defaults occur in the first few years after students exit school, when individuals may be struggling to find a job or working at an entry-level position. New data suggest this is not the case. RTI finds:

  • Among all students who defaulted within 20 years of beginning college, more than half were in repayment for more than 3 years before they defaulted.

Given that more than half of defaults occur outside the window of current federal default statistics, overall default rates are higher than previously thought:

  • One out of four first-time postsecondary students who began college in 1995–96 defaulted on a federal student loan within 20 years of beginning postsecondary education.
  • Among a more recent cohort who began college in 2003–04, the same percentage defaulted in just 12 years after beginning college.

Myth #3: Higher student debt burdens are associated with increased default rates.

Logically, one would assume the more debt a student acquires, the more likely it is he or she will default on repayment. Research at RTI concludes the opposite: There is an inverse relationship between the amount a student borrows and the likelihood of defaulting.

As expected, the level of education attained is associated with the level of debt—students who obtain a bachelor’s degree borrow more in student loans than their counterparts who obtain an associate’s degree or certificate. Surprisingly, it is not just students with large debt burdens who are defaulting. Bachelor’s degree earners borrow more, but their default rates are much lower. Those who earn certificates have much lower debt burdens, but are much more likely to default.

More Detail on the New Publicly Available Data

The new data used in this analysis are the U.S. Department of Education’s 2015 Federal Student Aid Supplements to the Beginning Postsecondary Student Longitudinal Studies of 1995–96 and 2003–04 (BPS:96/01 and BPS:04/09). BPS:96/01 and BPS:04/09 include nationally representative samples of students who began college in 1995–96 and 2003–04, respectively. The students were interviewed over the subsequent 6 years, and information was collected on their postsecondary experiences, degree attainment, and post-college employment. The 2015 Federal Student Aid Supplements append federal student loan records to these historical BPS datasets. This allows for an examination of students’ loan outcomes through 2015, 12 years after the 2003–04 cohort began postsecondary education and 20 years after the 1995–96 cohort did so.

These statistics are just the tip of the iceberg of the analyses that can be conducted with this new data source. Our hope is that the data can trigger a deeper understanding of loan repayment and how student loans continue to impact borrowers many years after they exit postsecondary education. We are eager to hear about analyses using this data: tweet @EdNCES or @RTIEdWork and let us know.