The national student loan default rate is now over 11 percent, and the total outstanding student debt shows no signs of shrinking any time soon.
When you think about the 44 million+ borrowers with student loan debt, that default rate is a little more frightening. Millions of borrowers throughout the United States are not making payments and are digging themselves into a hole that is not easy to get out of.
Without even considering the issues caused by defaulting, student loan debt causes plenty of other problems. Many graduates move back home because they can’t afford to buy a new home as they can't afford rent or mortgage payments. Student debtors are also pushing off their family plans as well. It’s hard to pay for a wedding and a child when a significant part of your income goes towards your student debt each month.
These are common problems experienced by student loan borrowers who are successfully paying their loans. Borrowers in default have even more issues to consider, such as the impact on their credit. Defaulting on a student loan right out of college can wreck someone’s credit report, and this will only cause difficulty down the road whenever applying for a mortgage, credit card, auto loan, or anything else that requires credit.
It’s no secret that student loans cause problems for graduates. But, why exactly is this happening? Who’s to blame? Do they even understand how default works? Do they understand how student loan repayment works? These are some of the questions that we wanted to answer, so we decided to pry into the minds of defaulted student loan debtors with a survey. Read on to see what we found.
Key Findings & Results
Most People Just Didn’t Have Enough Money to Make Payments
We wanted to understand why people were entering default, so we decided to ask our respondents what their main reasons were for entering default. Here are those results:
A majority of respondents, 77.8 percent, said a lack of money was the main culprit. This isn’t too surprising, and it’s pretty logical to assume. While there are plenty of reasons why someone could have entered default, the first one that comes to mind, lack of funds, happens to be the biggest reason according to our survey.
No other reasons broke 10 percent, including student loan servicer mistakes, lack of know-how to make payments, and other misconceptions about repayment.
Here's Why Defaulted Borrowers Didn't Have Enough Money
To all of the respondents who said they didn’t have enough money, we asked them to explain why. Here are those results:
Accounting for over 80 percent of the respondents, three reasons are largely to blame for borrowers not being able to make payments. 30.85 percent said they didn’t secure well-paying jobs, 22.62 percent said they lost their jobs, and 28.52 percent said their living expenses were too high.
It appears that the major culprit is income. The most common problems stem from either not working or getting laid off. Furthermore, a large group said their living expenses were too high, leading them to miss student loan payments. These all point to income problems - whether it’s too low or non-existent.
We decided to follow up on this question. We asked all of our respondents whether they were working full-time, and the data lined up with the previous question. 61 percent of respondents claimed they were not currently working full-time.
Most Defaulted Borrowers Weren’t Able to Earn a Degree
Playing off of the questions about work, we wanted to see whether our respondents were able to get degrees from their college programs. Here are those results:
As you can see, most respondents (48.2 percent) didn’t have a degree of any sort from their college program, and the second largest group (27.6 percent) claimed they had Associate’s degrees.
The lack of a degree can be viewed as a significant explanation for why these borrowers weren’t working and consequently missing student loan payments long enough to enter default. Other research has indicated that the lack of a degree is a common characteristic amongst defaulted borrowers. Oftentimes, the lack of a degree leads to the inability to find a high paying job (or any job), which is quite necessary when dealing with student loan payments.
Without Degrees or Jobs, Defaulted Borrowers Blame Themselves
Considering that a large group of students didn’t get a degree or acquire a job, it’s reasonable to think that a disgruntled student loan borrower would blame someone else for their problems.
And why not?
There’s plenty of ire about for-profit colleges defrauding college students, and many are unnerved by the idea that the federal government profits from student loan interest payments. Not to mention, student loan servicers have recently come under fire for some malpractice. Despite all this, defaulted student loan borrowers seem to have their heads on straight. Here’s why:
They blame themselves.
Though some people still put the blame on others, a clear majority (59.6 percent) seem to take responsibility for their default statuses. This was taken as a very positive signal because student loan borrowers need to understand that their loans are their problems.
So far, we’ve figured out that people in student loan default either aren’t working or making enough money, and many of them do not have a degree after taking out student loans for college. Also, they largely blame themselves for their predicaments.
However, some of these factors could be out of their hands to some degree, so we wanted to delve further into why these borrowers are blaming themselves. After all, there are various different programs offered by the federal government meant to avoid default.
Borrowers Don't Know Much About Their Debt
We next asked questions about government repayment programs, as well as the defaulted student loan rehabilitation program. Here are some of those results:
This is pretty bad. Only 12.8 percent of respondents knew that you need to miss nine consecutive monthly payments to enter default status. This means 87.2 percent of student loan borrowers do not understand the basic definition of student loan default - even though they are in default themselves.
Next up, we found out that 69.4 percent of defaulted student loan borrowers don’t even know about the federal government’s default rehabilitation program. This program sets defaulted borrowers up on a payment schedule calling for nine payments over ten months. After completing the rehab schedule, a borrower is out of default. This could be some pretty useful knowledge to someone who’s late on their payments.
As shown in the graph, a whopping 58.0 percent of defaulted borrowers were not aware of the income-drive repayment (IDR) plans available to them. This was pretty astounding because an IDR plan can be pretty helpful to someone who’s struggling to pay their student loans. Since these plans base monthly payments on income, someone who isn’t making much (or any) money would have considerable relief by switching to one of these plans. This would also help them avoid default.
To top it off, plenty of student loan borrowers in default don’t have the right expectations when it comes to student loan forgiveness. Just about half of defaulted borrowers (48.0 percent) think their loans will be forgiven eventually.
While this would be nice for those borrowers, student loan forgiveness is pretty difficult to qualify for. Most people have to make payments for an extended period of time under the public service loan forgiveness program or another program that have strict eligibility requirements.
Despite the Bad, There’s Some Hope
Earlier we commented on how borrowers seemed to have their heads on their shoulders because they blamed themselves for default. This is a good thing, but we also found a few more positive signals:
Though all of these borrowers are in default, a vast majority,73 percent, say they have plans to get out of default. While we don’t really have any specific details as to what these plans are, it’s still pretty encouraging to know that these troubled borrowers don’t intend on sitting in default forever.
We also found out that most student loan borrowers in default understand that their default statuses impacts their credit scores. A solid 86.2 percent understood the impact on their credit. Defaulting on any debt can have a serious impact on credit history, and it’s best to avoid it entirely. What’s even worse, though, is defaulting on a student loan and not realizing its long term impact. Luckily, that is not the case here for most borrowers.
However, take all of the good news with a grain of salt. While there is hope, there is still some doubt.
Only about 27.2 percent of defaulted student loan borrowers think they will likely get back to good standing with their student loans. A much larger group, 39.2 percent, are unsure about their chances, and another big group of respondents (34.6 percent) don’t have much hope at all.
Full Poll Results & Data
All of the following questions were asked of respondents fit this criteria: they had student loans, they were in repayment, and they had not made a payment in the last nine months.
Q1. How many months need to pass by without a payment before a direct student loan is in default?
A. 3 months – 30.2%
C. 9 months – 12.8%
B. 6 months – 25.6%
D. 12 months – 31.4%
Q2. How many student loans do you have in default?
A. One – 49.0%
B. Two – 26.6%
C. Three – 13.2%
D. Four or more – 11.2%
Q3. Which type of student loan are you late on payments with?
A. Private loan(s) – 20.0%
B. Federal loans(s) – 47.6%
C. Both federal and private loans – 32.4%
Q4. Is a cosigner being affected by your default loan status? (Only asked to those who answered A or C to Q3)
A. Yes – 30.5%
B. No – 69.5%
Q5. What percentage of your defaulted student loan(s) were paid off before entering default?
A. 0 percent – 33.8%
B. 1 to 10 percent – 27.6%
C. 11 to 25 percent – 16.0%
D. 26 to 50 percent – 14.4%
E. 51 to 75 percent – 4.20%
F. 76 to 90 percent – 1.6%
G. 91 to 99 percent – 2.4%
Q6. Have you ever received any formal education about student loans and paying for college?
A. No – 54.6%
B. Yes, in high school – 18.6%
C. Yes, in college – 18.0%
D. Yes, in both high school and college – 8.80%
Q7. Were you able to earn a degree from your college program?
A. No – 48.2%
B. Yes, an Associate’s – 27.6%
C. Yes, a Bachelor’s – 18.6%
D. Yes, an advanced degree (Master’s, Doctorate, Professional, etc.) – 5.60%
Q8. Are you currently working full-time?
A. Yes – 39.0%
B. No – 61.0%
Q9. Who is your student loan servicer?
A. I don’t know my servicer – 23.6%
B. Navient – 16.0%
C. Nelnet – 12.8%
D. FedLoan Servicing (PHEAA) – 18.6%
E. Great Lakes – 14.8%
F. Other – 14.2%
Q10. Did you receive any sort of notification from your servicer about entering default?
B. Yes – 63.6%
A. No – 36.4%
Q11. Did your student loan servicer present you with options to avoid default?
B. Yes – 55.2%
A. No – 44.8%
Q12. What's the main reason for why you are defaulted on your student loans?
A. I could not understand how to make a payment – 6.00%
B. I did not have enough money to make payments – 77.8%
C. My student loan servicer did not apply my payments correctly – 7.40%
D. I don’t think I should have to repay my loans – 4.20%
E. I didn’t know I was late on my payments – 4.60%
Q13. Why didn't you have enough money to make payments? (asked to respondents who answered B to Q12)
A. I never secured a well-paying job after college – 30.85%
B. I lost my job – 22.62%
C. I had an expensive medical emergency – 10.8%
D. I fell for a student loan relief scam – 3.86%
E. I overspent on miscellaneous things – 3.34%
F. My living expenses are too high – 28.53%
Q14. Who do you blame for your default loan status?
A. My student loan servicer – 8.20%
B. The federal government – 11.2%
C. My parents – 6.00%
D. My college program – 10.4%
E. My private student loan lender – 4.60%
F. Myself – 59.6%
Q15. Do you have a plan to eventually get out of default?
B. Yes – 73.0%
A. No – 27.0%
Q16. Do you know about the federal government’s rehabilitation program for defaulted student loans?
B. Yes – 30.6%
A. No – 69.4%
Q17. Are you aware of income-driven repayment programs from the federal government?
B. Yes – 42.0%
A. No – 58.0%
Q18. Do you think your student loans will be forgiven eventually?
B. Yes – 48.0%
A. No – 52.0%
Q19. Do you think your student loan default status is impacting your credit score at all?
B. Yes – 86.2%
A. No – 13.8%
Q20. At this point, how likely do you think you are to get out of default and successfully repay your debt?
A. Very unlikely – 21.6%
B. Unlikely – 13.0%
C. Unsure – 39.2%
D. Likely – 18.8%
E. Very likely – 7.40%
This poll was run through polling company Pollfish. We surveyed 500 respondents; all respondents passed a screener question to be included in the survey. More details on that screener can be found above in the Full Poll Results & Data section.