Troubling (and Politicized?) Data on Student Loan Defaults

March 27, 2009

The most important fact about the preliminary data the U.S. Education Department released Thursday about student loan default rates is that the rate at which borrowers whose loans went into repayment in 2007 defaulted rose sharply, to 6.9 percent from 2006's 5.2 percent. That would seem to be a clear sign that the economic downturn is increasingly taking its toll, a worrisome trend from a public policy standpoint. However, in the highly politicized environment of our nation's capital, the department's release of the numbers drew attention for other reasons, most notably because the agency -- for the first time ever -- broke the data down to highlight the differences between how borrowers fared in the government's two competing loan programs, showing that borrowers were likelier to default in the lender-based guaranteed loan program, 7.3 percent to 5.3 percent. (A department official told The Wall Street Journal that it had done so in response to a records request by the newspaper.) Supporters of the guaranteed loan program questioned the validity of the data, noting that it appeared to significantly underreport the number of loans processed in the lender-based program and failed to note that borrowers in the direct loan program can go as much as two months longer before being declared in default. The reason for their suspicion, of course, is that President Obama and Education Secretary Arne Duncan have proposed eliminating the guaranteed loan program as soon as next year.

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