A short article in the Wall Street Journal today confirmed our worst fears: Student loan repayment simply isn’t happening for millions of borrowers. We knew it was bad, but it’s much worse than we thought.
Evidently, some of the Department of Education’s statistics were completely off, and they readily admitted in a memo that “it had overstated student loan repayment rates at most colleges and trade schools.” Following the admission of a statistical blunder, they provided updated stats that paint a picture of a much more distressed picture of the student debtor population.
The error affected the results of the College Scorecard, a website that helps students make smart financial decisions when choosing a place to study. A great deal of the information on College Scorecard shows potential students their Return on Investment (ROI) on their education, based on a given school’s postgraduate outcomes.
Key statistics include average salary after graduation, average indebtedness, and average loan repayment rates. As mentioned, the embarrassing error revolved around loan repayment.
According to the Wall Street Journal’s analysis, the Department of Education had “inflated the repayment rates for 99.8 percent of all college and trade schools. No college saw its repayment rate improve under the revision, and some schools saw their seven-year repayment rates fall by as much as 29 percentage points.”
In other words, virtually all of their repayment statistics were much rosier than reality.
The federal agency blamed a coding error in the memo, which turned out to be the last public release from the department before handing over the keys to the Trump administration.
The department claims that “repayment rate coding error does not affect other calculations on the Scorecard.” So rest easy, the rest of the data is supposedly “fine.” Yes, sure.
The updated stats reveal that at about 1,000 institutions of higher learning (¼ of schools in America), “at least have the students had defaulted or failed to pay down at least $1 on their debt within seven years.”
That means millions of real people, a whopping seven years after graduation, haven’t paid off a dollar of their debt.
Take it from this 30-something year old, relatively few of my colleagues with alarming amounts of student debt are aggressively paying it down. More often than not, they’re signing up for Income Based Repayment (IBR), which caps their payments to 10 or 15 percent of their income. This program only applies to federal debt (private student debt doesn’t qualify).
In many cases, people who use IBR see their loan balances grow over the years, because what they pay isn’t even enough to cover their interest payments. Fortunately, the loans are eventually forgiven after 20-25 years.
All in all, people don’t have cold hard cash to pay their loans back, plain and simple. This statistical revision merely confirmed what we already knew: the student debt crisis is a ticking time bomb.
This article originally appeared on GenFKD.org
Header image: Adobe Stock
David is the Editor of Bold. He's especially passionate about millennial economic empowerment. A former local news reporter, David is originally from the Little Havana area in Miami, and later became a pioneer resident of the Disney-inspired town of Celebration, Florida. David holds a Master’s in Public Policy from the Harvard Kennedy School.