Sources of Default and Delinquency among Student Loan Borrowers - - PowerPoint PPT Presentation

November 28, 2016

Sources of Default and Delinquency among Student Loan Borrowers

No Board endorsement of any person or entity

Two Crises in Student Loan History

.1 .15 .2 .25 .3 .35 3-year CDR 1970 1980 1990 2000 2010 Fiscal Year

No Board endorsement of any person or entity

First Crisis: Entry of new institutions surged in early 1980s

100 200 300 400 500 600 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

New Entrants

No Board endorsement of any person or entity

New institutions were high-risk (for-profit, correspondence)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 100 200 300 400 500 600 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Entry Default

No Board endorsement of any person or entity

Resolution: Strong accountability standards

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 100 200 300 400 500 600 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Entry Exit Default

No Board endorsement of any person or entity

Second crisis is similar in one dimension: New borrowers

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 Graduate Selective Somewhat Selective Non-Selective 2-Yr Pub/Priv For-Profit

Number of First-Time Borrowers

No Board endorsement of any person or entity

The number of borrowers at higher-risk institutions surged…

237 153 196 305 286 107 929 473 407 555 447 143

• 100

200 300 400 500 600 700 800 900 1,000

For-Profit 2-Yr Pub/Priv Non-Selective Somewhat Selective Selective Graduate Only

Number of Borrowers Entering Repayment (thousands) 2000 2011

292% 34% 56% 82% 108% 209%

No Board endorsement of any person or entity

…and they were higher-risk borrowers

20,000 40,000 60,000 80,000 Prop 2-Yr Non-Selective Somewhat Selective Selective

Family Income

.2 .4 .6 .8 1 % Prop 2-Yr Non-Selective Somewhat Selective Selective

Dependent

.2 .4 .6 % Prop 2-Yr Non-Selective Somewhat Selective Selective

First Generation

.2 .4 .6 .8 % Prop 2-Yr Non-Selective Somewhat Selective Selective

Completion

2-Yr 4-Yr No Board endorsement of any person or entity

Conclusion: Increase in default rates largely due to composition

26% 28% 18% 12% 7% 3%

0% 5% 10% 15% 20% 25% 30%

For-Profit 2-Yr Pub/Priv Non-Selective Somewhat Selective Selective Graduate Only

3-Year Cohort Default Rate

2011 Cohort No Board endorsement of any person or entity

Expansion in credit also involved increases borrowing amounts

5 10 15 20 25 1970 1980 1990 2000 2010 Fiscal Year Undergraduate Graduate Parent

Average annual disbursement per borrower

No Board endorsement of any person or entity

..and accumulated to very large balances for some borrowers

.1 .2 .3 .4 1970 1980 1990 2000 2010 Repayment Year Over $25k Over $50k Over $100k

No Board endorsement of any person or entity

Result: small share of borrowers with balances over $50,000 owe majority of the debt

.2 .4 .6 1970 1980 1990 2000 2010 Repayment Year Share of Borrowers Share of Debt

No Board endorsement of any person or entity

Most debt is held by borrowers in the top half of the income distribution

15 11 16 24 35

5 10 15 20 25 30 35 40

Bottom 20% 20th-40th 40th-60th 60th-80th Top 20%

Federal Student Debt Owed by Income Quintile

Income Quintile

No Board endorsement of any person or entity

Large-balance borrowers rarely default (Five-year default rate, 2000s)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

<$5k $5k-$10k $10k-$15k $15k-$25k $25k-$50k $50k-$100k >$100k

No Board endorsement of any person or entity

Composition of borrowers with >$50k balances (borrower type)

.2 .4 .6 .8 1 1990 1995 2000 2005 2010 2015 Repayment Year Independent Undergraduate Graduate Borrower Parent Borrower

No Board endorsement of any person or entity

Composition of borrowers with >$50k balances (institution type)

.2 .4 .6 .8 1990 1995 2000 2005 2010 2015 Repayment Year For-Profit Public 4-Year Private 4-Year

No Board endorsement of any person or entity

Substantial heterogeneity across institutions: 5-Year repayment rates by institution repayment rate decile

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 60%

1 2 3 4 5 6 7 8 9 10

Undergraduate Graduate Parent

No Board endorsement of any person or entity

No Board endorsement of any person or entity