What Matters in Student Loan Default:
A Review of the Research Literature
by Jacob P. K. Gross, Osman Cekic, Don Hossler, and Nick Hillman
Jacob P. K. Gross is Associate
Federal higher education policy has shifted over the past few decades from grants to
Director for Research for the
loans as the primary means for providing access to postsecondary education for low-
Indiana University Project
and moderate-income families. With this shift, policy makers have begun tracking
on Academic Success.
student loan default rates as a key indicator of the efficacy of student loan programs.
This effort requires a closer examination of how to define default and what default
Osman Cekic is a post-
signifies: What is an acceptable rate of default? What factors contribute to default?
doctoral researcher at
Should default rates be used as indicators of institutional quality or loan program
Purdue University.
efficacy. These questions lead to further investigation of factors influencing default, such
Don Hossler is Executive
as whether default is a function of the characteristics of students or of the institutions
Associate Dean for the
they attend, and whether the types of loans borrowed influence the probabilities of
School of Education at
default. To help answer these and related questions, this study reviewed the literature of
Indiana University
research on student loan default conducted between 1978 and 2007, and identified 41 of
Bloomington.
the higher quality studies, the findings of which are summarized here.
Nick Hillman is a doctoral
student at the Indiana
University School of
Education.
A
s early as the mid-1970s, the emphasis in federal higher education policy
began to shift from grants to loans as the means for providing financial
assistance to low- and moderate-income families for postsecondary
education. The shift continued with the fiscal policies of the Reagan
administration and the 1980 reauthorization of the Higher Education Act (HEA),
which introduced Parent Loans for Undergraduate Students (PLUS) loans and a
shift in emphasis from grants to loans as the primary vehicle for providing access
to postsecondary education for middle- and low-income families. With so
significant a shift, it was inevitable that policy makers would begin to measure the
efficacy of student loan programs by rates of default on student loans.
Student loan default, as well as institutional and federal loan practices, was a
key discussion topic during the 1986 HEA reauthorization process, and three
years later Congress passed the first federal legislation imposing penalties on
institutions with high default rates. Then, in 1992, the HEA reauthorization
broadened eligibility for subsidized loans, increased loan limits, and opened the
unsubsidized loan program to all students. Concerns about student loan default
grew, however. Discussions for the 1998 reauthorization noted a possible link
between default rates and the quality of higher education institutions—a link
suggested in high student loan default rates at some community colleges,
historically Black colleges and universities, proprietary institutions, and urban
institutions. The 1998 HEA reauthorization altered the cohort default rate
calculation by extending—from 180 to 270 days—the period of payment
delinquency after which the federal government would deem a borrower to be
in default. This along with other changes in the student loan default policies in
the 1998 reauthorization is widely regarded as having affected the financial aid
practices of many nonprofit and for-profit postsecondary institutions.
Congress’ 2008 reauthorization of the HEA revisited the question of loan
default when Representatives Timothy Bishop (D-NY) and Raul Grijalva (D-
AZ) introduced an amendment to extend the default calculation window to
three years, prompting a federal study of default rates and focusing the
National Association of Student Financial Aid Administrators 19
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