Study shows students with the lowest student loan debt tend to default more than students carrying more debt

Default rates compared for colleges, universities, and vocational schools; for-profit institutions had the highest 12-year default rate (52%)


RESEARCH TRIANGLE PARK, NC—As higher education tuition levels continue to rise, there’s concern that increasing student loan debt will lead to higher default rates. A new analysis suggests otherwise.  The study, conducted by RTI International for the National Center for Education Statistics, indicates there’s an inverse relationship between the amount students borrow and their likelihood of defaulting.

To illustrate this relationship, consider the following data points on students who began their postsecondary education in 2003-04.

Loan Amounts by Education Level

As can be expected, the data show that students who obtain a bachelor’s degree borrow more in student loans than their counterparts who obtain an associate’s degree or certificate. Among borrowers, the median amount borrowed by highest degree attained is below:

  • Bachelor’s: $22,600
  • Associate’s: $16,000
  • Certificate: $6,600

Loan Default Rates by Education Level

The data show that 12 years after beginning college, the students more likely to default are those with lower amounts of debt. The percent of borrowers who defaulted on any federal student loan within 12 years of beginning postsecondary education are:

  • Bachelor’s: 8%
  • Associate’s: 22%
  • Certificate: 44%

“Default rates are higher than we have seen before, which is likely because we looked at repayment over a 12-year time horizon,” said Erin Dunlop Velez, PhD, co-author of the study and a research analyst at RTI. “Also, contrary to popular opinion, it’s not just students with large debt burdens who are defaulting. Bachelor’s degree earners borrow more, but their default rates are a lot lower.”

Default Rates by Institution Type

Default rates were also compared by the type of institution the student first attended. Here are the percent of borrowers who defaulted on any federal student loan within 12 years of beginning postsecondary education, by first institution type:

  • For-profit school: 52%
  • Public 4-year school: 17%
  • Private nonprofit 4-year school: 18%
  • Public 2-year school: 26%

“The for-profit sector can seem attractive to many students, but graduating from public or private nonprofit institutions may give students a better chance to be in a situation to ultimately pay back their loans,” Velez said.

The data come from a First Look report by RTI that studied student loan repayment among two cohorts: those who began their postsecondary education in 1995-96 and 2003-04. This study marks the first time student-level loan repayment and default have been examined over such a long period of time, up to 20 years.

Access to the new data is available through the PowerStats program on the Department of Education website.