America's surging student loan debt — which now totals more than $1 trillion — has been driven by older, low-income students at for-profit schools and two-year community colleges who enrolled in droves during the recession, according to a report released today by the Brookings Institution.
Many anecdotes suggest that the student debt crisis, and rising rate of student loan defaults, has been built by skyrocketing tuition costs and $100,000 loan tabs at America's priciest four-year universities. But the report shows that the crisis is largely the result of a sharp rise in enrollment at for-profit colleges and community colleges, and that it is built by much smaller balances — many of just $8,000 or $15,000.
More troublingly, the report found, for-profit and community college students are defaulting in higher numbers — since 2011, more than a fifth defaulted within two years, more than double the number for borrowers at four-year universities. Many such borrowers, unable to make any payments, have only seen their loan balances swell since they left school.
The report marks a dramatic shift from fifteen years ago, when borrowing was dominated by graduate students and young people at four-year universities, mostly large public schools. In 1999, 70% of new borrowers were students at nonprofit four-year schools. But between 2009 and 2011, students at for-profit schools and community colleges made up almost half of all borrowers, some 45%.
That change is reflected starkly in the list of schools whose students owed the most federal loans. In 2000, just one of the top 20 schools was a for-profit, the University of Phoenix; 16 were public universities. In 2014, 13 schools were for-profits, including 8 of the country's top 10 schools with the highest loan balances, and just seven were public universities.
The amount owed by students at the University of Phoenix grew 1500%, from $2.1 billion to $35.5 billion.
The borrowers at for-profit schools and community colleges are older, poorer, and more high-risk: more likely to drop out without finishing their degrees and poorly insulated from unemployment. They are the students who, the report found, are defaulting on their loans in increasing numbers.
Those borrowers, the report said, are "mired in a system where they are unlikely to have the resources to repay their loans in full, and yet generally have no way to have those loans discharged."
As the economy strengthens, the report said, there has been a sharp decrease in students enrolling in both for-profit and community colleges, which is likely to eventually improve loan default rates.
But the Brookings report also highlights a growing "gray area" among borrowers: students at a small cluster of non-selective, "unconventional" four year schools that "share many of the characteristics of for-profit institutions." Those schools have high borrowing rates and poor employment outcomes, the report said — and have only seen their enrollments increase since 2011.