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Student loan default in the United States

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Defaulting on a loan happens when repayments are not made for a certain period of time as defined in the loan's terms of agreement, typically a promissory note. For federal student loans, default requires non-payment for a period of 270 days. For private student loans, default generally occurs after 120 days of non-payment.[1]

In 2021, outstanding student loan debt has reached a record more than $1.8 trillion.[2]

Defaulter demographics

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According to analysis of borrowers from the 2003-2004 academic year over a twelve-year period, defaulters generally tend to be older, lower income, and more financially independent than those who did not default. Borrowers typically owe $9,625, which is $8,500 less than the median loan balance of a non-defaulter. The majority of defaulters did not complete their bachelor's degree, but the median completed at least one year of study while maintaining grades in the C+/B- range. This shows that defaulters are able to complete college level work. Furthermore, most borrowers do not immediately enter default - the median borrower takes 33 months to enter default on their federal loans. Generally, a little more than half of all defaulters are able to rehabilitate their debt.[3]

Debt rehabilitation

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There are a number of paths to resolving student debt default, including:

  • Completing 10 months of agreed upon payments
  • Repayment via debt consolidation or other types of loans
  • Discharge via total and permanent disability
  • Discharge via bankruptcy

See also

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References

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  1. ^ "Default on student loans". finaid.org.
  2. ^ "Student Loan Debt Clock". finaid.org. US Department of Education. Retrieved 25 July 2021.
  3. ^ "Who Are Student Loan Defaulters?". Center for American Progress.