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

Sources of Default and Delinquency among Student Loan Borrowers November 28, 2016 No Board endorsement of any person or entity

Two Crises in Student Loan History .35 .3 .25 3-year CDR .2 .15 .1 1970 1980 1990 2000 2010 No Board endorsement of any person or Fiscal Year entity

100 200 300 400 500 600 First Crisis: Entry of new institutions surged in early 1980s 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 No Board endorsement of any person or 1985 1986 1987 New Entrants 1988 1989 entity 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

100 200 300 400 500 600 New institutions were high-risk (for-profit, correspondence) 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 No Board endorsement of any person or 1985 1986 1987 Entry 1988 1989 entity 1990 1991 Default 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

100 200 300 400 500 600 Resolution: Strong accountability standards 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 No Board endorsement of any person or 1985 Entry 1986 1987 1988 1989 Exit 1990 entity 1991 1992 Default 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Second crisis is similar in one dimension: New borrowers 4,000 Number of First-Time Borrowers 3,500 3,000 2,500 2,000 1,500 1,000 500 - No Board endorsement of any person or entity Graduate Selective Somewhat Selective Non-Selective 2-Yr Pub/Priv For-Profit

The number of borrowers at higher-risk institutions surged… Number of Borrowers Entering Repayment (thousands) 1,000 929 900 800 292% 209% 108% 82% 56% 34% 700 555 600 473 447 500 407 400 305 286 300 237 196 153 200 143 107 100 - For-Profit 2-Yr Pub/Priv Non-Selective Somewhat Selective Graduate Only Selective No Board endorsement of any person or 2000 2011 entity

…and they were higher-risk borrowers Family Income Dependent 20,000 40,000 60,000 80,000 1 .8 .6 % .4 .2 0 0 Prop Non-Selective Selective Prop Non-Selective Selective 2-Yr Somewhat Selective 2-Yr Somewhat Selective First Generation Completion .6 .8 .6 .4 % .4 % .2 .2 0 Prop Non-Selective Selective 2-Yr Somewhat Selective 0 Prop Non-Selective Selective 2-Yr 4-Yr No Board endorsement of any person or 2-Yr Somewhat Selective entity

Conclusion: Increase in default rates largely due to composition 3-Year Cohort Default Rate 30% 28% 26% 25% 20% 18% 15% 12% 10% 7% 5% 3% 0% For-Profit 2-Yr Pub/Priv Non-Selective Somewhat Selective Selective Graduate Only No Board endorsement of any person or entity 2011 Cohort

Expansion in credit also involved increases borrowing amounts 25 Average annual disbursement per borrower 20 15 10 5 1970 1980 1990 2000 2010 Fiscal Year Undergraduate Graduate Parent No Board endorsement of any person or entity

..and accumulated to very large balances for some borrowers .4 .3 .2 .1 0 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 .6 .4 .2 0 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 Federal Student Debt Owed by Income Quintile 40 35 35 30 24 25 20 16 15 15 11 10 5 0 Bottom 20% 20th-40th 40th-60th 60th-80th Top 20% Income Quintile No Board endorsement of any person or entity

Large-balance borrowers rarely default (Five-year default rate, 2000s) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% No Board endorsement of any person or entity <$5k $5k-$10k $10k-$15k $15k-$25k $25k-$50k $50k-$100k >$100k

Composition of borrowers with >$50k balances (borrower type) 1 .8 .6 .4 .2 0 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) .8 .6 .4 .2 0 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 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 -10% Undergraduate Graduate Parent -20% -30% No Board endorsement of any person or entity -40%

No Board endorsement of any person or entity