A Look At Which Students Are Most Likely To Default On Their Student Debt

Since the early 2000's the amount of student debt outstanding has grown exponentially, along with annual tuitions, and now stands at nearly $1.5 trillion.  Moreover, and not terribly surprisingly, defaults on that growing mountain of student debt have also surged as graduating students quickly discover that they just dropped $200,000 on a near-zero ROIC investment.

Student Debt

But while a lot of attention is given to the growing default rates on this particular future economic disaster in the making, less time is spent trying to understand which students are most susceptible to default.  That said, the following series of charts from the Federal Reserve Bank of New York help to shed some light on that particular topic.

To our complete 'shock', students attending the nation's predatory for-profit colleges, with their aggressive lending programs, are almost twice as likely to default on their student loans than those attending non-profit schools. 

Student indebtedness has grown substantially, increasing by 170 percent between 2006 and 2016. In addition, the fraction of students who default on those loans has grown considerably. Of students who left college in 2010 and 2011, 28 percent defaulted on their student loans within five years, compared with 19 percent of those who left school in 2005 and 2006. Since defaulting on student loans can have serious consequences for credit scores and, by extension, the ability to purchase a home and take out other loans, it’s critical to understand how college and family characteristics correspond to default rates.


Interestingly, though the difference in default rates between two- and four-year private college students is not large (less than 5 percentage points at age thirty-three), this is not the case for public college students. Default rates for community college (two-year public college) students are nearly 25 percentage points higher than those for their counterparts in four-year public colleges. The chart below also shows that while for-profit students have the highest default rates, the default rates of community college students are not too different from those of for-profit students (36 percent versus 42 percent for two-year and 39 percent for four-year for-profit students, respectively, at age thirty?three).

Meanwhile, in another total shocker, "Arts/Humanities" graduates were seen to be way more likely to default than engineering majors...

In analysis not reported here, we find that Arts majors have the highest overall default rates, while STEM majors default at the lowest rates. Both Business and Vocational majors default at higher rates than STEM majors, but at rates closer in magnitude to STEM majors than to Arts majors. Next, we separate students not only by major, but also by school selectivity; the chart below presents patterns at age thirty-three. We find that students attending nonselective colleges have higher default rates no matter what they study. Arts majors have the highest default rates regardless of college selectivity, but major matters much more among students at nonselective colleges: the gap in default rates between the best performing major and worst performing major is much smaller (3 percentage points by age thirty-three) among students at selective colleges than among students at nonselective colleges (8 percentage points by age thirty?three).

...and dropouts are nearly 3x more likely to default than students who finish their degrees.

Finally, students who can depend on mom and dad to take over student loan payments when they get 'triggered' by their boss and decide to quit are less likely to fall behind on payments than students who lack that safety net.

In the chart below, we group debt holders by our family background measure, as well as by college type. We find that within each college type, students from less-advantaged backgrounds have higher default rates than their peers from a more-advantaged background. There is a nearly 30 percentage point difference in default rates between the group with the highest default rates (private for-profit students from less advantaged backgrounds) and the group with the lowest default rates (private not-for-profit students from more advantaged backgrounds). However, public college students from more advantaged backgrounds default at nearly the same rate as private not-for-profit students from less advantaged backgrounds (about 20 percent by age thirty-three). As before, at every age, for-profit students have the highest default rates, and students from less advantaged backgrounds attending for-profit colleges default at an even higher rate.

Of course, while the NY Fed didn't address the topic, somehow we suspect that default rates are also highly correlated with the percentage of student debt spent on binge drinking spring break trips to Cancun...just a hunch.


Benito_Camela jamesmmu Tue, 11/21/2017 - 18:23 Permalink

It was Reagan who decided that in order to keep military spending at Cold War levels and ensure that any cuts had very little chance of gaining acceptance, he would spread MIC work (aircraft, IT, weapons, administrative, insurance, etc.) to as many Congressional districts as possible. Seems to have worked.  And that's a bullshit article for that very reason. Totally neglects to mention the bloated military budget.

In reply to by jamesmmu

GoldenDonuts Tue, 11/21/2017 - 17:58 Permalink
  • Women's studies
  • Native studies
  • Art history
  • Sociology
  • Psychology
  • Anthropology
  • Theatre studies

Basically anything agend driven or teaching what to think in place of how to think.

Ben A Drill Tue, 11/21/2017 - 17:58 Permalink

Just because you rub elbows with the rich kids doesn’t your going to get a good paying job. It takes connections that your parents don’t have all the while the rich kids do. It’s not what you know, it’s who you know that counts.

XBroker1 serotonindumptruck Tue, 11/21/2017 - 22:55 Permalink

Very few if any fee-males will acknowledge the grade gap or pussy pass. They're victims who live in a patriarchy if you ask them.  Two of my sisters bragged about getting promotions for 'extra work' at their gov jobs (Social security admin, yes that is where your tax dollars are going) .  Meanwhile, as the only boy, I could never get a gov. job in the who you blow area where I grew up; and the cunts weren't about to help me w/ their 'connections'.

In reply to by serotonindumptruck

Peak Finance Tue, 11/21/2017 - 18:02 Permalink

LOLZ!!!Predatory "For-Profit"I worked for "NON-Profit" and "Predatory For-Profit" schools, and let me tell you, there is not a worse bunch of evil cocksuckers in the fucking world than the non-profit administration. These fuckers preach "tolerance", diversity and other Marxist crap, and then have the nerve to treat their professionals (professors, adjuncts, and so on) like a 19th-century Robber Barron.Actually, now that I think about it, some of the shit they do would make a Robber Barron blush. Worst fucking predatory capitalists in the country, only lawyers and politicians are worse.Wheres the fucking money going???? It sure as hell is not going to us!

decon Tue, 11/21/2017 - 18:00 Permalink

"Since the early 2000's the amount of student debt outstanding has grown exponentially..."I know I developed math anxiety in the 3rd grade but the graph of student debt the above quote references looks like a pretty straight line and therefore would be a linear increase not exponential?  Am I wrong or are the Tylers really slipping since Dan sold the outfit?

Peak Finance Tue, 11/21/2017 - 18:07 Permalink

BTW a word of advice:Never, EVER default on a student loan. They get you by the balls and do terrible things to you, especially that "loan rehabilitation program" scam.Get an IBR, get one as soon as possible, and try to lower your taxable income and increase your off-the-books income.They give these IBR's to anyone, just need to fill out some paperwork, then a one-yearly renewal.http://www.ibrinfo.org/how.vp.htmlhttps://studentaid.ed.gov/sa/repay-lo… 

css1971 Tue, 11/21/2017 - 18:08 Permalink

Not near zero.Negative.We screen CVs based on course. People dumb enough to take a useless degree have auto-categorised themselves into the "bin" pile.It's actually quite useful for businesses. We can discriminate without seeming to.

besnook Tue, 11/21/2017 - 18:20 Permalink

lol. my lifelong prejudice has been affirmed. business majors are dumb twats. i always wondered why microeconomics left most of the business majors in the class(any economics class) totally dumbfounded.

Peak Finance besnook Tue, 11/21/2017 - 18:35 Permalink

In my opinion, the Business Admin guys are basically kids that are clueless about their future and know they want to go to college, but really don't know what to do. Only a few have really clear business goals. Honestly, good kids mostly (these are who I used to teach actually). They have a lot more sense than the fucking libtard students in their useless women's studies and other bullshit programs. 

In reply to by besnook

besnook Peak Finance Tue, 11/21/2017 - 18:53 Permalink

unfortunately, many of the business majors, like in many of the other basket weaving degrees, have no business in college and only serve to dumb down the disciplines they study. they are good kids but the world needs insurance salesmen and tire changers and a college education is not needed for either job. it's a shame they wasted all their money thinking college was necessary to pay their future rent. i am surprised no college has yet offered a degree in baristary. coffee can be quite complicated but not very lucrative like a degree in art appreciation.i have to admit my own prejudice that a lack of math aptitude exhibits a lack of brains in general so forgive my condescending attitude.

In reply to by Peak Finance

GeoffreyT besnook Tue, 11/21/2017 - 19:36 Permalink

Double-lol... in my day (second half of the last millennium), the entry cutoff for BBus was significantly lower than for BCom (Commerce) or BEc (Economics).BBus students thought "Management" was a hard subject: the subject did not count towards a BEc because it was not considered sufficiently rigorous.The only economics that BBus and BCom were required to take was first-year Micro and Macro, which were absolutely pedestrian: Micro was all about conceptual frameworks and other such hand-waving nonsense (as I thought at the time)..CODA (new *afinils acquired... OCD instantiated)In the interest of full disclosure... I managed to fail first year Micro - twice - before I got my shit all in one sock. I had to 'show cause' (i.e., why they shouldn't kick me for a double-fail of a course requisite), and only my awesome results in Econometrics, Mathematics and Accounting stopped me from being kicked out.Like a lot of smart kiddies, I am wired up in ways that are not conducive to effort in pointless shit. I originally intended to be an accountant, and being forced to study Microeconomics 101  engaged my inner "Fuck this" machine. (Turns out that the best way to get me to fail at a thing I'm not interested in, is to try and force me to do it).A 2nd year Economics unit was also mandatory: I approached it with my usual defiance, but I got super lucky. I decided on a subject with a bullshit title ("Economic and Social Issues"), but the readings were Rothbard, Mises, Hayek, Bastiat... even Lysander Spooner got a run. And literally by the end of the first lecture (90 minutes starting at 4:30pm on Friday - WTF???), I was hooked and the following Monday I changed my subject selections from Accounting/Econometrics to Economics/Econometrics.By the end of the semester I had merit scholarships (and had made up First year Micro at the third attempt); 2 years after that I topped the graduating class, then topped the Masters order of merit, then went on to PhD (and like anyone with analytical talent, I was hired out by a financial-services startup: it was 1999).I had exactly the same experience in high school: failed grade 9 by having a strongly bimodal effort distribution for 'give a fuck'... 'A' for English, Maths, Science, and French... 'F' for everything 'mandatory but bullshit' - Community Studies, Woodwork, Metalwork, History, Geography, Phys Ed (though I was on regional representative football, cricket and swimming teams, and have been an avid reader of history since I was about 8: that's how deep my hatred of pointless shit goes).Back then, three subject-fails meant you had to repeat the year.Once I was in 'elective-only' years (10 through 12) I was golden - Physics, Chemistry, Pure and Applied Maths, English and French, and a national top-2% overall score.If I was in school nowadays, I would be diagnosed with ODD and medicated into compliance (assuming my parents would be 'people of the times' and not their actual selves)... and I would therefore be a 'C' student on my way to being a wage slave.

In reply to by besnook

Boonster besnook Tue, 11/21/2017 - 20:35 Permalink

When Albert Einstein died, he met three New Zealanders in the queue outside the Pearly Gates. To pass the time, he asked what were their IQs. The first replied 190. "Wonderful," exclaimed Einstein. "We can discuss the contribution made by Ernest Rutherford to atomic physics and my theory of general relativity". The second answered 150. "Good," said Einstein. "I look forward to discussing the role of New Zealand's nuclear-free legislation in the quest for world peace". The third New Zealander mumbled 50. Einstein paused, and then asked, "So what is your forecast for the budget deficit next year?"

In reply to by besnook

SmedleyButlersGhost Tue, 11/21/2017 - 18:28 Permalink

These 'student' loans need to be forgiven with a bank bailout so that the 'students' can take on a car debt they can't afford, a ton of credit card debt and a mortgage they can't afford. See, no MBA required to figure out this banking shit. 

anonymike Tue, 11/21/2017 - 18:32 Permalink

Student loans are a classic example of usery where credit is granted when it is obvious in advance that the loan will be a severe burden, without the ability to default. The mass murdering psychopathic criminals who call themselves US government, and their global financial elite owners are the perpetrators. Guarantees of loan payment by the former allows the latter to excrete these loans upon the kids without any due diligence. They are assured payment and indoctrination of legions of obedient debt serfs who didn't understand the lies told to them by the schools who are also complicit in the perpetration of usery.Because of the criminal nature of student loans to kids who had little likelihood of being able to afford the debt, these debts are illegitimate on their face and not owed. Everyone with a student debt resulting from poor due diligence by the lender have no obligation to repay the loan. If all of these loans stopped being paid upon immediately, the evil guaranteed student loan system would collapse very quickly. Because of the scale of the defaults, the perpetrators would have no choice other than collecting on the guarantee. Its just fake funny money anyway that didn't even exist before it was loaned. By all rights, the ledger should simply be cleared and the banks receive nothing for these illegitimate guarantees, instead of paying them for their part in the crime.Always remember, the people outnumber 100 to 1 the mass murdering psychopathic criminals, their financial elite owners and their goon endorcers. Join forces and give 'em hell.

toocrazy2yoo Tue, 11/21/2017 - 18:31 Permalink

There's a 1.4% tax on return from hedge fund dowery income in play for the Harvards with 30 and 40 billion in the bank. They're howling over it of course. As they rake in the billions from taxpayer-backed loans for college. For their worthless fucking "educations". Jesus.

Gold N Glocks Tue, 11/21/2017 - 18:33 Permalink

Faggots, lesbians, trannies, blacks, mexicans, SJW's, participation trophey holders and white trash are all bound to default.  Of course you will have some crossover in that list and those are the ones that will default first.  Not rocket science...

CRM114 Tue, 11/21/2017 - 18:40 Permalink

Interested to note that the census data for my local area indicates not a single person has an arts/humanities degree; it's all STEM, Business, Education and Agriculture.No wonder I love it here!Oh, and zero unemployment. I wonder if those two facts are connected? ;)

HRH of Aquitaine 2.0 Tue, 11/21/2017 - 19:18 Permalink

It would be nice if they started teaching kids, and parents, this distinction while they are in sixth grade.

Private for-profit, private non-profit, public. I would add technical or trade schools and there are some areas that have decent trade / technical schools.

Most people don't understand the difference between these types of schools. A basic intro course should be taught.

Many states allow someone to transfer from a two-year school to a four-year school. I did that. I think it is a more affordable way to obtain a college degree or a technical degree. If someone is unable to obtain a two-year degree that is a big clue that they should not consider going into debt, or wasting their time, on a four-year degree.

As someone else pointed out, the real purpose of higher education is to network and to find a spouse. I thought the purpose of attending university was to become educated. I know. My mistake. Students should consider day one of college as the day the meter begins ticking on that loan, on their CV, on who they make friends with, on who they vacation with, on who they date. That time is quite limited. I failed at everything but the actual diploma.

Aubiekong Tue, 11/21/2017 - 19:53 Permalink

At least 50% of college kids shouldn't even be in college.  They simply dont have the brain power needed to do well and end up in easy worthless degree programs...

83_vf_1100_c Aubiekong Tue, 11/21/2017 - 20:15 Permalink

Local Jr College, probably 85% black. 20% grad rate. Most start for the free money and dorm room just to get out from under Mom's roof.  Fat chance of seeing reimbursement on those loans nor any benefit from their education. It's just 1s and 0s on the Fed puters aka play money.I am rarely the smartest guy at the table but I can see where all this is leading. The USA is headed towards that dystopia all the better classic fiction books foretold. Better to go out in a blaze of ww3 glory. Light up those nukes. Tired of waiting on Niburu, super volcanoes, giant meteors et. al.

In reply to by Aubiekong