ECONOMIC REPORT OF THE PRESIDENT

The evidence suggests that, on average, student loans continue to
facilitate very high returns for college graduates, and most borrowers are
able to make progress paying back their loans (CEA 2016d). In addition,
though there has been an increase in the typical amount of debt that borrowers
accumulate, most students accumulate only modest amounts of debt.
Fifty-nine percent of borrowers owed less than $20,000 in debt in 2015, with
undergraduate borrowers holding an average debt of $17,900. Large-volume
debt remains more prevalent among graduate loans, for which loan limits
are much higher, and among borrowers who completed their undergraduate
degrees. Consistent with their greater educational attainment, borrowers
with greater debt tend to have larger earnings and therefore tend to be wellequipped
to pay back that debt (Figure 5-10; Looney and Yannelis 2015).
However, borrowers who attend low-quality schools or fail to complete
their degrees face real challenges with repayment. In fact, the highest
rates of student loan default occur among students with the smallest
amounts of debt because these students are much less likely to have completed,
having left school before paying for the full cost of a degree, as shown
in Figure 5-11.10
The Great Recession also created some acute challenges for student
loan borrowers. During the recession, many borrowers went back to school
to shelter from the collapsing labor market, but a disproportionate number
of these students attended schools that had relatively low graduation rates
and did not provide affordable pathways to good jobs. Along with this
change in the quality of schools they attended, changes in the demographics
of borrowers entering repayment and the challenges they faced when entering
the labor market during a deep recession contributed to rising default
rates during the recession and in the period that followed. Over the last few
years, the number of students attending low-quality schools has declined,
labor market conditions have improved, and default rates, as measured by
the official three-year Cohort Default Rate, have gone down (Figure 5-12).
In response to rising default rates, the Administration has worked
to ensure that students attend high-quality schools and that borrowers who
have left school and entered repayment have affordable loan payments. The
following section focuses on this Administration’s efforts to expand flexible
repayment plans, while later sections describe efforts to improve the quality
of schools that borrowers attend. In addition, the Administration has
focused on strengthening loan servicing to support Americans struggling
with student loan debt. In 2015, the Administration released a Student Aid
10 Loans of less than $10,000 accounted for nearly two-thirds of all defaults for the 2011 cohort
three years after entering repayment. Loans of less than $5,000 accounted for 35 percent of all
defaults.
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