High Loan-Default Rates Won’t Be Solved by Income-Driven Repayment, Report Finds

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As Democratic presidential candidates debate how best to address the federal student-loan crisis, a new report shows that the status quo is disproportionately failing black student borrowers.

About one in three black borrowers who began college during the 2011-12 academic year defaulted on their student loans within six years, a rate that is two and a half times that of their white peers, according to a new report from the Center for American Progress, a liberal think tank.

The startling racial disparity, which was calculated using U.S. Department of Education data, has not changed much since a previous federal report showed that over twice as long a time frame, half of black student borrowers who started college during the 2003-4 academic year defaulted on their student loans.

What’s different is that the later group had access to income-driven repayment plans throughout the entire time they were in college. That indicates that the repayment plan, which caps the amount a borrower pays per month based on income, is not quite the silver bullet to solving the student-loan crisis that lawmakers had hoped for.

“Clearly we need other ways to help these black borrowers,” said Ben Miller, the center’s vice president for postsecondary education. “There’s some group out there that’s really struggling and not really being helped by the existing structures.”

Democratic presidential hopefuls have proposed a range of methods to fix a system that allowed 18 percent of all borrowers who began college during the 2011-12 academic year to default on their loans.

A plan by Sen. Bernie Sanders of Vermont would cancel the $1.5-trillion student-loan debt in its entirety. A more modest approach by Pete Buttigieg, mayor of South Bend, Ind., would cancel the debt of students who enrolled in what he has described as low-quality, overwhelmingly for-profit colleges that failed the gainful-employment test. Buttigieg would also automatically enroll all student borrowers in income-driven repayment plans.

It’s possible that income-driven repayment plans prevented a larger loan-default crisis, said Miller, but it’s clear they are not enough to solve the problem.

Despite using income-driven repayment plans at higher rates than Latino and white students, black borrowers defaulted on their loans at significantly higher rates: 21 percent compared with 18 percent of all 2011-12 borrowers.

Cracking down on for-profit colleges could help: Thirty-four percent of all borrowers that year who attended for-profit colleges defaulted on their loans (42 percent among black borrowers). And ensuring students complete college and earn a degree is also important, since 41 percent of all students who did not do so defaulted.

Miller said there are multiple ways lawmakers could approach the problem. But the report suggests the need to discuss either some amount of debt cancellation, more generous income-driven repayment plans, or automatic enrollment of borrowers in those plans, he said.

Editor’s Note: Danielle McLean previously worked for ThinkProgress, which, before its closure in September, was an editorially independent news outlet owned by the Center for American Progress Action Fund.

McLean writes about federal education policy, among other subjects. Follow her on Twitter @DanielleBMcLean, or email her at dmclean@chronicle.com.