Student Loan Defaults Increase, Again

The Department of Education reports that delinquencies on student loans continue to increase. And the stream of defaults is expected to pick up speed as the DOE begins taking in a wider view of the student loan universe:

The draft FY 2008 national student loan cohort default rate is 7.2 percent. The draft rate increased from the national FY 2007 official rate of 6.7 percent and the national FY 2006 official rate of 5.2 percent.

The FY 2008 draft cohort default rates represent the percentage of borrowers in the Federal Family Education Loan and William D. Ford Federal Direct Loan programs who began repaying their loans between Oct. 1, 2007, and Sept. 30, 2008, and who defaulted on or before Sept. 30, 2009.

Starting in 2014, the Department will begin surveying student loan performance based on a three-year rather than a two-year window. This is expected to give a substantial bump to the default figures.

In the June issue of Reason, out on newsstands now, I make the comparison between subsidized student loans and another universe of publicly underwritten debt: real estate. Americans have had an appetite for both education and real estate pretty much since the founding of the republic. There is no reason for taxpayers to fund markets for which there is always strong demand. The results of government involvement are both dire and predictable: skyrocketing tuition, overburdened graduates, really naive overburdened graduates looking for more handouts, bogus political grandstanding, and a higher education bubble that may now be in the process of popping.

The Treasury Department's recent move to direct lending rather than underwriting of privately issued debt will not solve any of these problems. The solution is to get the taxpayers out of the business of subsidizing higher education.