Rising Student Loan Nonpayment Rates: Challenges Faced by U.S. Colleges

An analysis by Investopedia of federal student aid data reveals that over 440 U.S. colleges have student loan nonpayment rates exceeding 40 percent. Many of these institutions are for-profit schools, which face significant challenges. Experts suggest a growing trend where colleges leave students burdened with debt they cannot repay. This issue is highlighted by the Department of Education’s renewed efforts to resume payments after disruptions caused by the pandemic. Michael Ryan, finance expert and founder of MichaelRyanMoney.com, emphasizes the impact of education costs, stating, The price of college isn’t the tuition bill. It’s the debt compared with what that education actually helps you earn.

Why It Matters

Since federal collections resumed and credit reporting protections ended, student loan delinquency has become a pressing concern. Borrowers who fall behind on payments risk damaging their credit scores and may face wage garnishment. Repayment outcomes vary dramatically by institution. A high nonpayment rate can indicate graduates are not earning enough to manage their debt burdens, or that loans were taken without yielding the economic benefits from their education.

What To Know

Investopedia’s report studied federal student loan borrowers who entered repayment since January 2020 and were over 90 days delinquent. The Department of Education categorizes borrowers according to the institutions attended, enabling repayment outcomes comparison across colleges. Florida Career College topped the nonpayment rates for schools with at least 5,000 borrowers, having around 28,000 borrowers with 61 percent delinquent beyond 90 days. Financial literacy instructor Alex Beene from the University of Tennessee at Martin commented on the situation, noting, While not all for-profit colleges are equal in terms of students struggling with loan payments, their presence on the list affects their reputation as not addressing students’ long-term financial needs.

Other institutions on the list include:

• UEI College-Fresno (California): 56%
• United Education Institute-Huntington Park (California): 54%
• Tulsa Welding School (Oklahoma): 54%
• UEI College-Gardena (California): 54%
• All-State Career (Maryland): 54%
• Vista College (Texas): 51%
• Miller-Motte College (Tennessee): 50%
• Southern Careers Institute (Texas): 50%
• New England Tractor Trailer Training School of Connecticut: 49%

Investopedia found nearly 1,200 colleges with nonpayment rates above 30 percent, and over 440 institutions above 40 percent. According to Beene, as inflation pressures continue, student loan repayments have become increasingly difficult to manage. This challenge not only affects students but can impact higher education as a whole. Stories of repayment failures can deter college enrollment due to concerns regarding future repayment difficulties.

Why Are For-Profit Schools Overrepresented?

For-profit colleges are prevalent in the rankings due to high borrowing levels and default risks associated with them. Students at these institutions often struggle because their degrees do not offer the expected financial benefits. Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, explained that Colleges now defunct or unaccredited leave students with substantial debt and degrees lacking value. A New York Federal Reserve Bank study supports these claims, indicating for-profit college enrollment leads to higher borrowing and default risks alongside weaker labor-market outcomes. Recent Department of Education changes in payment plans and debt collection add further economic challenges for borrowers.

Thompson highlighted the difficulties faced by students, saying, Many are stuck between administrations, struggling to understand the forgivability of loans due to court injunctions and changes.

What Happens Next

The Department of Education, particularly during the Trump administration, has stressed accountability for schools related to student outcomes. Lawmakers are likely to continue examining institutions with poor repayment records. This repayment data serves as an essential indicator of a school’s long-term value for prospective students. High nonpayment rates suggest former students struggle to convert their education into financial stability. Thompson warned of potential consequences, stating, Some will face prolonged debt repayments alongside low credit scores and restricted access to capital, which may lead to lower birth rates, marriage rates, consumption, and young adults living at home longer.

If you wish to learn more about this story, contact Newsweek editors Jason Lemon and Edward T. Cummins.