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This allows for a broader perspective that considers all first-time college entrants rather than just borrowers, provides substantially longer follow-up than other data sources, and enables a more detailed analysis of trends over time and heterogeneity across subgroups. 6
The best prior estimates of overall default rates come from Looney and Yannelis (2015), who examine defaults up to five years after entering repayment, and Miller (2017), who uses the new BPS-04 data to examine default rates within 12 years of college entry. These two sources provide similar estimates: about 28 to 29 percent of all borrowers ultimately default.
But even 12 years may not be long enough to get a complete picture of defaults. The new data also allow loan outcomes to be tracked for a full 20 years after initial college entry, though only for the 1996 entry cohort. Still, examining patterns of default over https://getbadcreditloan.com/payday-loans-mo/monett/ a longer period for the 1996 cohort can help us estimate what to expect in the coming years for the more recent cohort.
If we assume that the cumulative defaults grow at the same rate (in percentage terms) for the 2004 cohort as for the earlier cohort, we can project how defaults are likely to increase beyond year 12 for the 2004 cohort. To compute these projections, I first use the 1996 cohort to calculate the cumulative default rates in years 13-20 as a percentage of year 12 cumulative default rates. I then take this percentage for years 13-20 and apply it to the 12-year rate observed for the 2004 cohort. So, for example, since the 20-year rate was 41 percent higher than the 12-year rate for the 1996 cohort, I project the Year 20 cumulative default rate for the 2004 cohort is projected to be 41 percent higher than its 12-year rate.
Figure 1 plots the resulting cumulative rates of default relative to initial entry for borrowers in both cohorts, with the data points after year 12 for the 2003-04 cohort representing projections. Defaults increase by about 40 percent for the 1995-96 cohort between years 12 and 20 (rising from 18 to 26 percent of all borrowers). Even by year 20, the curve does not appear to have leveled off; it seems likely that if we could track outcomes even longer, the default rate would continue to rise.
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For the more recent cohort, default rates had already reached 27 percent of all borrowers by year 12. But based on the patterns observed for the earlier cohort, a simple projection indicates that about 38 percent of all borrowers from the 2003-04 cohort will have experienced a default by 2023.
Of course, it is possible that the trends for the recent cohort e path as the earlier one. The peak unemployment rates of the Great Recession hit in 2009-10, corresponding to Years 6-7 of the recent cohort and Years 14-15 of the earlier cohort. This could lead us to overestimate how many students from the 2003-04 cohort will experience defaults in the coming years. On the other hand, it’s also possible defaults could rise more than expected for the recent cohort: students in the recent cohort are taking longer to default than in the past. This can be seen in Figure 1, in which default rates for the recent cohort are actually slightly lower in Years 2-4 than for the earlier cohort. Among students who defaulted within 12 years, the median length to default once in repayment was 2.1 years for the earlier cohort but 2.8 years for the more recent cohort. 7