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The Student Loan Train Wreck: Why the Default Rate Is Just the Beginning

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New data obtained by the Chronicle of Higher Education reveals that of student loans that entered repayment in 1995, fully 20% have since gone into default.

I wrote about the new data on DailyFinance last week and it is indeed horrifying.

But here's what most horrifying: it's only the beginning. In 1995, the average borrower was leaving school with only about $13,000 in debt. Today's borrowers are leaving with, on average, about $10,000 in additional debt -- and most students are borrowing to pay for college than at any point in the history of the world.

Then there's the problem of whether the default rate is really a good indicator of how many students are struggling. I would argue that it isn't. Looking at the default rate as a measure of difficulty in repayment is a lot like analyzing obesity in America by looking at the percentage of people who are so fat that they're unable to get out of their chairs.

Given the consequences of defaulting on a student loan -- trashed credit, garnished wages/tax refunds/Social Security, inability to obtain a security clearance, and the fact that student loans can almost never be discharged in bankruptcy -- most people will, quite rationally, do just about anything to avoid defaulting on a student loans.

Here's a better question: what percentage of student loan borrowers had the course of their lives altered by their debt? How many pursued careers that that weren't passionate about in order to make their monthly payments? How many had to rely on their parents -- whose own retirement situations are often dubious -- for a bailout? How many had to put off marriage or having children? How many suffered from stress or anxiety as a result of the struggle to make their monthly payments? How many had to skip grad school in order to start making a dent in their debts?

20% tells us how many had their financial lives literally ruined by their debt. But it tells us nothing about how many sacrificed their lives to pay their debt, and that's the real tragedy of a nation that decided, in the span of a few years, that it makes sense to send 21 year olds out into the world with 5- and even 6-figure debt loads. Admissions officers, most financial journalists, and guidance counselors told kids that student loans were OK and a worthwhile investment while doing literally no research into the impact such debt would have on their lives.

Zac Bissonnette's book Debt-Free U: How I Paid For An Outstanding College Education Without Loans, Scholarships, or Mooching Off My Parents is available for pre-order and will be published by Portfolio/Penguin August 31st.