Students graduating in recent years are defaulting on student loans at a significantly higher rate than earlier age cohorts, finds Mark J. Warshawsky, a senior research fellow with the Mercatus Center at George Mason University, in a posting on the Mercatus website.
“Some students, particularly from nontraditional backgrounds, seem to have been harmed by the increase in federal funding of student loans,” he says. “They have not seen increases in their incomes as workers, have often not completed their education, are more likely to default on their loans, and miss out on job-related income and training.
Warshawsky does not offer an explanation of why loan default rates are climbing. But the answer is obvious: Uncle Sam has been shoveling out more and more loans without any consideration of credit risk. As the percentage of high school graduates enrolled in two- and four-year institutions of higher education has increased over the years (see chart immediately above), we have seen an increase in the number of students who (a) are not academically prepared for college-level work, (b) lack the family resources to complete college, even with loans, or (c) both.
These college drop-outs and defaulters are disproportionately poor and minorities. The federal government cannot issue loans on the basis of credit quality, for that would mean discriminating against the poor and minorities, a political impossibility. So, instead, Uncle Sam dishes out loans indiscriminately, and the poor and minorities are the ones who wind up defaulting disproportionately on student loans and suffering the adverse consequences of ruined credit scores and debt they cannot discharge.
Thus the price of misguided compassion…
Do you want stronger proof? The percentage of high school graduates attending college has ticked down slightly since 2009, while the total of state and federal grants and loans has dipped since 2010. If I my logic above is correct, and absent an economic downturn and widespread job loss, at some point we should see a reversal of the trend shown in Warshawsky’s chart and a decline in the rate of defaulting students.There are currently no comments highlighted.