Student’s Default Unabated Climb

This week the U.S. Department of Education announced the Student Default rates for borrowers who were to begin repayment after October 1, 2008 and had defaulted by September 30, 2010 and the numbers were dismal.

Of the approximately 3.6 million borrowers in the 2009 cohort, 320,000 had defaulted for an over-all Default rate of 8.8%. This rate was an increase from last year’s 7%, representing a 26% increase in one year. This continues a troubling trend that has seen overall default almost double in only four years (2005 4.6% DR).

As you can see from the graph below, the increase has occurred in all three sectors of higher education with a 24% one year increase in not-for-profits, a 22% one year increase in publics and a 36% one year increase in for-profits.


The other group, which is not counted in these numbers, is those who are delinquent but not yet in default. This means that there is another large number of borrowers who are having trouble paying back their loans and probably receiving a negative credit history as a result.

There is no doubt that much of the problem can be attributed to the lack of job opportunities and the difficult financial times. In fact, young college graduates, those under 25, are venturing into the worst employment market since the Labor Department started tracking their cohort in 1985.

From April 2010 to March 2011, the unemployment rate for young college graduates was 9.7%. This is significantly higher for this group at the same time during the last two recessions, 6.4 summer 2003 and 6.9% summer 1992.

The unemployment numbers are even more pronounced for Hispanic and Black graduates.

According to the Economic Policy Institute’s Report “The Class of 2011”, this group of graduates will be trying to start their careers in the highest unemployment rate for them since the onset of the Great Recession.   

And those who are fortunate to find jobs are making 10% less than new graduates did 3 years ago.

New York city Mayor, Michael Bloomberg just today cautioned of the possibility of riots in the streets if the federal government is unable to generate jobs. Bloomberg stated in his weekly radio show, “We have a lot of kids graduating college, can’t find jobs…That’s what happened in Cairo. That’s what happened in Madrid. You don’t want those kinds of riots here.”

So with such a bleak labor market can anything be done?

The answer is a resounding YES.

First, student loan literacy must be increased. It’s not just a piece of paper or a few words at the application or disbursement stage. Institutions must put in place a comprehensive program to continue to remind and educate student borrowers and their families about their responsibilities, the consequences and most importantly their help options throughout their loan term.

Many borrowers are unaware of their help options.

For example, in the recent New York Times editorial, “Help Needed for Student Debtors”, it is noted that the Income Based Repayment plan (IBR), which can lower a borrower’s monthly payment by re-determining it in relation to his or her income and family size, goes unknown and unused by many borrowers in distress.

Also, colleges and universities must make Retention, Persistence and Graduation a separate program that is given the money, the resources, and the planning to help students to degree or certificate completion. After all, even in this economy and job market, those with a college degree or certificate are faring much better finding and keeping a job at a better salary than those without one.

The High Cost of Higher Ed Failure

As a new group of young Americans start to arrive on college campuses, the stakes couldn’t be higher for them and for our country.

Report after report has verified that in most cases, the higher the educational attainment, the higher the economic attainment.

In fact, the U.S. Census Bureau in its 2009 Population Survey found that the mean annual earnings for those with a High School diploma or GED was $31,300, whereas earnings were $39,500 for those with an Associate’s degree, $58,600 with a Bachelor’s degree, $70,900 with a Master’s degree, $99,700 with a Doctorate degree and $125,000 with a Professional degree.

When you extrapolate these earning differentials out over a forty year work life, the difference becomes even more dramatic and substantial.

It is important to note that these numbers are averages. We all know of individuals without a degree who have done very well but on average, those with a college degree do much better financially than those who have no degree.

What most people are not aware of, is that over the past few decades, barely 1 out of every 2 entering four year college students have earned their bachelor degree in 6 years. The six year graduation rate for all four year institutions in 2008, as reported by the National Center for Education Statistics, was 57.2 percent.

The cost of this failure to achieve is enormous for the individual student, the taxpayers and society. In fact, a recent study by the American Institute for Research (AIR) has quantified the economic loss and its findings are not just sobering – they are staggering.

AIR’s report is entitled, “The High Cost of Low Graduation Rates: How Much Does Dropping out of College Really Cost?” It found that just for the 2002 class of entering students, the failure to graduate with a bachelor’s degree cost the students $158 billion in lost lifetime income, which cost our country and the states $32.8 billion and $7.6 billion in income taxes, respectively.

Remember, these numbers are just for one entering class. Now, multiply them by every class that entered over the last few decades. The numbers will be higher for those entering before 2002 and less for those entering after 2002, due to inflation. But, in the aggregate, we are no longer talking billions – we are talking trillions.

It also costs the state taxpayers a total of $1.3 billion and federal taxpayers $300 million annually for amounts spent on the education of freshmen who do not continue on to the second year.

And, this study does not attempt to quantify the spin off financial benefit of this increased income churning through our economy or our increased competitiveness from a more educated workforce. Both would be substantial and add to the enormous loss and cost.

Last year, in a speech at the University of Texas, President Obama identified our precipitous decline when he said, “In a single generation, we’ve fallen from first place to 12th place in college graduation rates for young adults.”

This realization caused him to set an ambitious goal of increasing the number of young adults with Associate’s degrees or higher (40.4% presently)  by 2020 so that America will regain first place in educational attainment and remain the leader in the global market place of the 21st Century.

As the President said, “We know that in the coming decades, a person’s success in life will depend more and more …on a higher education.”

This concern and goal has also been echoed in a recent report issued by the Georgetown University Center for Education and the Workforce, “Projections of Jobs and Education Requirements Through 2018.” This report found that the percentage of U.S jobs needing post-secondary degrees or certificates went form 28% in 1973 to 59% in 2008 with that number estimated to grow to 63% over the next ten years.

The report’s authors estimate we will need 22 million new college graduates and 4.7 million new post-secondary certificate holders to fill these jobs. However, under current conditions, we will be significantly off from meeting this demand and “this shortfall will mean lost economic opportunity for millions of American workers.”

If we are to meet these goals, then we must make a more concerted effort in retaining and graduating those who have the motivation and education to enter through the front doors of American Higher Education by keeping the back doors from being easily accessed portals to unfulfilled potential, dashed dreams and unrealized economic attainment for the individual student and American society.

More planning, investment and resources must be dedicated to the retention, persistence and graduation of America’s college students. In short, this means more academic support services, more student support services, proactive tracking of student progress, and much more personal contact with the individual student. The technologies, methods and support systems necessary to improve graduation rates are well-known. There now needs to be both the institutional and public will to allocate the appropriate resources.

For many tuition-dependent schools, investing in comprehensive retention strategies will not only generate an impressive return on investment but also improve institutional reputation. For our institutions largely supported by public funds, such investments will generate long-term returns in tax collections as well as potential savings in social spending. While funding for retention initiatives may be scarce on most campuses, this should be as much of a priority as keeping the lights on in classrooms.

The American Dream is a little different for everyone, but one common truth is that the higher your education, the greater your chance to achieve that dream. Therefore, it is critical that we expend as much energy not just getting students enrolled in degree or certificate programs but that we get them through to completion.  Their future and our future depend upon it.