How useful are default rates? Borrowers with large balances and student loan repayment

Abstract

We examine the distribution of student loan balances and repayment rates in the United States using administrative student loan data. We show that increases in credit limits and expansions in credit availability resulted in rising borrowing amounts, and that the share of borrowers holding very large balances has surged. For instance, the share of borrowers leaving school with more than $50,000 of federal student debt increased from 2% in 1992 to 17% in 2014. Consequently, a small share of borrowers now owes the majority of loan dollars in the United States. Although these large-balance borrowers have historically had strong labor market outcomes and low rates of default, repayment rates have slowed significantly between 1990 and 2014 reflecting, in part, changes in the characteristics of students, the schools they attended, and the rising amounts borrowed.