This chart might surprise you (from NY Federal Reserve):

First some background information on the chart before we think about takeaways:

• The 2009 cohort in the title of the chart refers to the set of borrowers who entered repayment in FY 2009 (October 1, 2008 to September 30, 2009).
• You are considered to be in default on your student loan obligations if you have not made a payment in 270 days (per Dept. of Education website)
• School-leaving balance refers to the amount of student loan debt owed upon leaving school (upon graduation or leaving school early)

So, what are the takeaways from this chart?

• The students with the lowest loan balances ($1,000 – $5,000) have the highest propensity to default (over 1 in 3 have defaulted on their loans).
• There is an inverse relationship between student debt amount and propensity to default.
• Most students leave school (72%) with less than $25,000 in debt.
  • 21% under $5,000
  • 22% from $5,000 to $10,000
  • 29% from $10,000 to $25,000

Bonus question:  What is the overall default rate for this sample of data (what percentage of borrowers overall have been in default)?

Answer:  Between 25-26%.  Here is the spreadsheet I used to calculate it:  StudentLoanDefaults

The chart provides data on the percentage of borrowers in a given student loan debt range and the default rate for the borrowers in that debt range.  For example, borrowers with student loan debts between $1,000 and $5,000 constitute 21% of all borrowers and default at a rate of almost 35%.  By multiplying these two numbers for each student loan debt range and then adding them up, you get the default rate for the overall data set.

Here are some resources that provide additional commentary on this data set:

• Why are borrowers with less student debt more likely to default (The Consumerist)?
• The least student loan debt, yet the most likely to default (Washington Post)

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.