This chart might surprise you (from NY Federal Reserve):
First some background information on the chart before we think about takeaways:
- The 2009 cohort in the title of the chart refers to the set of borrowers who entered repayment in FY 2009 (October 1, 2008 to September 30, 2009).
- You are considered to be in default on your student loan obligations if you have not made a payment in 270 days (per Dept. of Education website)
- School-leaving balance refers to the amount of student loan debt owed upon leaving school (upon graduation or leaving school early)
So, what are the takeaways from this chart?
- The students with the lowest loan balances ($1,000 – $5,000) have the highest propensity to default (over 1 in 3 have defaulted on their loans).
- There is an inverse relationship between student debt amount and propensity to default.
- Most students leave school (72%) with less than $25,000 in debt.
- 21% under $5,000
- 22% from $5,000 to $10,000
- 29% from $10,000 to $25,000
Bonus question: What is the overall default rate for this sample of data (what percentage of borrowers overall have been in default)?
Answer: Between 25-26%. Here is the spreadsheet I used to calculate it: StudentLoanDefaults
The chart provides data on the percentage of borrowers in a given student loan debt range and the default rate for the borrowers in that debt range. For example, borrowers with student loan debts between $1,000 and $5,000 constitute 21% of all borrowers and default at a rate of almost 35%. By multiplying these two numbers for each student loan debt range and then adding them up, you get the default rate for the overall data set.
Here are some resources that provide additional commentary on this data set: