Who Defaulted on Student Loans Before the Moratorium — And Who Is Most Likely to After Payments Resume

 July 26, 2022
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With the end of the federal student loan moratorium on the horizon, many Americans are worried about resuming payments. (UPDATE: The pause has been extended through Dec. 31, 2022.) A recent Student Loan Hero survey showed that 72% of federal loan borrowers say they don’t feel ready to resume payments.

With rising inflation rates and financial struggles, some U.S. borrowers could start to feel student loan default pressure once the payment pause is over. While borrowers with paused federal loans will receive a “fresh start” and reenter payment in good standing, the threat of default in the future could linger.

To learn more, SLH researchers analyzed data released in 2021 at the 10-year cohort level from the U.S. Department of Education’s National Center for Education Statistics (NCES). (We also looked at three-year default rates to provide a view that incorporated the coronavirus pandemic.)

Researchers found that more than 12% of borrowers from the class of 2008 with at least $5,000 in federal student loans defaulted on them at least once in the following 10 years — including nearly a third of Black men.

Here’s what we learned about those who are the most and least likely to default on their student loans and why.

Key findings

  • According to the latest data from 2021, 12.3% of the undergraduate class of 2008 defaulted at least once in the following 10 years. Our analysis included only those who graduated with at least $5,000 in federal student loans.
  • About one-third (30.9%) of Black male graduates from the same class defaulted at least once in the next 10 years. That’s the highest rate of any group tracked by race and gender.
  • Despite wide disparities in the default rates among races, more than half of borrowers who defaulted in these 10 years were white. Specifically, 31.7% were white women and 22.5% were white men.
  • If previous trends remain, those with student debt who attended schools in Louisiana are most likely to default after payments resume. A narrower look at borrowers who started repayment between October 2017 and September 2018 (fiscal year 2018) and defaulted by October 2020 shows an 11.5% default rate in Louisiana. Mississippi (11.3%) was the only other state above 10%.
  • Attendees of private, for-profit schools were the most likely to default within three years after entering repayment in 2018, at 11.2%. Students who attended public schools had a default rate of 7.0% — second on the list.

12.3% of borrowers from the class of 2008 defaulted on their federal student loans

2021 data from the U.S. Department of Education’s National Center for Education Statistics (NCES) showed that 12.3% of undergraduate students in the class of 2008 defaulted on federal loans at least once within the following 10 years. These borrowers graduated with a minimum of $5,000 in federal student loan debt.

People who defaulted borrowed an average of 26.3% more than those who didn’t — $45,323 versus $35,890.

Other information researchers uncovered about American borrowers who defaulted included:

  • 29.6% of those with children defaulted on federal student loans, versus only 9.4% of borrowers without children
  • Those who defaulted on their loans tended to make less than $75,000

For context, student loan default means a borrower has stopped paying their debts for a certain period, though the precise terms may vary depending on the type of loan.

Federal student loans are considered to be in default after 270 days of zero payments. What private student lenders consider to be default, on the other hand, may vary by lender and be sooner than 270 days.

When a borrower defaults on their student loan payments, there are various consequences. Even if borrowers file for bankruptcy, student loans are difficult to discharge.

Here’s what borrowers may face if they default on their student loans:

  • They may no longer be eligible for some federal repayment plans.
  • Their credit score may decrease and the default could show up on their credit profile (as well as their cosigner’s).
  • They may have to pay extra fees.
  • Their lender may sue them.
  • Their paychecks may be garnished to repay the debt.
  • Their tax refunds may be withheld.
  • They may lose their professional license in some cases.

Nearly a third of Black male borrowers in the graduating class of 2008 defaulted in the next 10 years

Student Loan Hero researchers found that nearly a third (30.9%) of Black men who graduated in 2008 with at least $5,000 in federal debt defaulted at least once over the next 10 years.

This group was followed closely by Black women at 28.7%, Hispanic or Latino men at 24.9% and multiracial men at 20.5%.

Borrowers who fell into default within 10 years of earning their bachelor’s degree
Borrower Percentage who defaulted within 10 years
Asian men 4.9%
Asian women 5.1%
White women 9.1%
White men 9.2%
Overall 12.3%
Multiracial women 16.8%
Hispanic or Latino women 17.0%
Multiracial men 20.5%
Hispanic or Latino men 24.9%
Black or African American women 28.7%
Black or African American men 30.9%
Source: Student Loan Hero analysis of U.S. Department of Education National Center for Education Statistics (NCES) data. Note: Limited to class of 2008 undergraduate students who borrowed at least $5,000 in federal loans by 2009.

Overall, Black Americans had the highest default rate compared to any other race. This may be traced back to the financial disparity Black men and women face in the U.S.

In 2020, white poverty rates stood at 8.2%, according to the U.S. Census Bureau. Meanwhile, Black poverty rates were more than double that at 19.5%. A separate 2020 study from the Federal Reserve showed that white families are typically eight times wealthier than Black families and five times wealthier than Latino families.

These wealth disparities demonstrate that many Black Americans may have less access to safety nets and wealth-building opportunities than their racial counterparts.

However, while there are significant default rate gaps depending on race, SLH researchers found that white borrowers made up more than half of those who defaulted in these 10 years. Broken down, 31.7% were white women and 22.5% were white men.

Breakdown of borrowers who fell into default within 10 years of earning their bachelor’s (by race)
Borrower Percentage who defaulted within 10 years
White women 31.7%
White men 22.5%
Black or African American women 17.0%
Hispanic or Latino women 7.7%
Black or African American men 7.0%
Hispanic or Latino men 6.2%
Multiracial women 2.0%
Multiracial men 1.3%
Asian women 1.1%
Other women 1.0%
Asian men 0.9%
Other men 0.7%
Source: Student Loan Hero analysis of U.S. Department of Education NCES data. Notes: Limited to class of 2008 students who borrowed at least $5,000 in federal loans by 2009. Totals don’t equal 100% due to rounding.

Not only were Asian Americans least likely to default, but they made up the smallest percentage of defaulters among the tracked races.

Louisiana borrowers may be the most likely to default when the moratorium ends

As a reminder, the federal student loan moratorium is on track to end after Dec. 31, 2022. If former trends repeat themselves after the imposed “fresh start” from the U.S. Department of Education, SLH researchers found that Louisiana borrowers are at the highest risk of default after student loan payments resume.

Specifically, researchers examined borrowers who started their student loan repayments between October 2017 and September 2018 (fiscal year 2018) and defaulted by October 2020. At the state level, we looked at this period since the moratorium wasn’t enacted until March 13, 2020. This gives us a clearer picture of what could happen after the moratorium ends.

Borrowers who studied at schools in Louisiana had an 11.5% default rate, followed closely by Mississippi students (11.3%). All other default rates remained below 10%.

Other states with high default rates among their students included:

  • Wyoming: 9.7%
  • New Mexico: 9.5%
  • South Carolina: 9.5%

Meanwhile, borrowers who studied in Utah and Nebraska were the least likely to default at 3.9% and 4.0%, respectively.

These statistics fall in line with poverty rates in the U.S. Mississippi and Louisiana have the two highest poverty rates in the country at 18.8% and 17.4%, respectively, according to U.S. Census Bureau three-year averages from 2018 through 2020. Meanwhile, Utah (7.2%) and Nebraska (9.2%) are among the states with the lowest poverty rates. In fact, Utah’s is second-lowest in the U.S.

These poverty rates may explain why borrowers in Louisiana and Mississippi may be more likely to default on their student loans while those in Utah and Nebraska can keep up with payments.

Full rankings

Percentage of student borrowers who entered repayment in fiscal year 2018, attended schools in these states and defaulted within 3 years (by state)
Rank State Percentage who defaulted within 3 years
1 Louisiana 11.5%
2 Mississippi 11.3%
3 Wyoming 9.7%
4 New Mexico 9.5%
4 South Carolina 9.5%
6 West Virginia 9.4%
7 Nevada 8.9%
8 Kentucky 8.7%
9 Tennessee 8.2%
10 Arizona 8.1%
10 North Carolina 8.1%
12 Colorado 8.0%
12 Florida 8.0%
14 Georgia 7.9%
14 New Hampshire 7.9%
16 Alabama 7.8%
16 Texas 7.8%
18 Oregon 7.7%
19 Indiana 7.6%
19 Michigan 7.6%
21 Kansas 7.5%
22 Connecticut 7.3%
22 Ohio 7.3%
22 Oklahoma 7.3%
25 South Dakota 7.1%
26 Arkansas 7.0%
27 Iowa 6.8%
28 Hawaii 6.7%
29 Delaware 6.6%
29 Maryland 6.6%
29 Virginia 6.6%
32 Maine 6.5%
32 Montana 6.5%
34 Pennsylvania 6.4%
35 District of Columbia 6.3%
35 Missouri 6.3%
35 New York 6.3%
38 New Jersey 6.2%
39 Wisconsin 6.0%
40 Illinois 5.9%
41 Idaho 5.8%
41 Washington 5.8%
43 California 5.6%
43 Minnesota 5.6%
45 Alaska 5.5%
45 Rhode Island 5.5%
47 North Dakota 5.3%
48 Massachusetts 4.5%
49 Vermont 4.4%
50 Nebraska 4.0%
51 Utah 3.9%
Source: Student Loan Hero analysis of U.S. Department of Education data. Note: Includes borrowers who started their student loan repayments between October 2017 and September 2018 (fiscal year 2018) and defaulted by October 2020.

Private, for-profit schools are the most likely type to have defaults

In the same time frame as the state-level data, Student Loan Hero researchers found that those who attended private, for-profit schools were the most likely to default after entering repayment in fiscal year 2018, at 11.2%.

Meanwhile, borrowers with degrees from public schools had a default rate of 7.0% — the second most common.

Percentage of student borrowers who entered repayment in fiscal year 2018, attended schools at these institutions and defaulted within 3 years (by school type)
School type Percentage who defaulted within 3 years
Private, for-profit 11.2%
Public 7.0%
Private 5.2%
Foreign 2.5%
Source: Student Loan Hero analysis of U.S. Department of Education data. Note: Includes federal borrowers who started their student loan repayments between October 2017 and September 2018 (fiscal year 2018) and defaulted by October 2020.

These national-level statistics include schools in U.S. states and territories and may be depressed (similar to the state data) because the moratorium prevented people from going into default after March 2020. Previously, the default rate was around 10% for fiscal years 2017 and 2016.

This data may not be surprising as private, for-profit schools are among the most costly for students who attend postsecondary schools. According to our student loan debt statistics, those who graduate from for-profit colleges borrow an average of $39,900 — $11,500 more than the average student loan borrower ($28,400).

What student loan defaults look like over time

From 2017 through 2019, an average of 1.6% of borrowers defaulted on their student loans each quarter. This equates to about 283,883 people.

However, some of these borrowers may have been repeats as people can default on separate loans.

If you’re struggling to meet your student loan payments and believe you might be at risk of default, here are some steps you can take:

Published in Research