Much of the discussion about student loan debt has focused on the small percentage who borrowed the most money. However, two-thirds of students who default on federal loans owe less than $10,000.
Many of those students were enrolled in community colleges. A new report from the Association of Community College Trustees (ACCT) confirmed “previous findings that low-balance borrowers are at the highest risk of student loan default,” said ACCT President and CEO J. Noah Brown.
The ACCT study looked at students who had taken out federal loans in Kentucky, Louisiana, and Iowa. Default rates in those states ranged from 18.5% (Iowa) to 26.2% (Kentucky). In all three states, the number of defaults rose among students who owed the least, even though the states offered income-based repayment plans.
ACCT recommended more study on the reasons behind the high default rates, but also suggested that the repayment process was too complicated and that borrowers should have better options for paying off loans. The report also said there should be more “transparency in the loan program” so that students understand what they’re getting into.
Another study, conducted by the Navient financial services company and the EverFi education technology company, showed that students tend to underestimate how they’re going to finance their education. Only 41% of high-schoolers bound for college expect to borrow for educational expenses, but once they’re in college, 61% of students plan to take out some type of loan.
Students whose parents had attended college were actually more likely to land in debt, the study found. First-generation students tended to exhaust other options first—such as working during school, commuting from home, or attending cheaper institutions—before applying for loans.