Student Loan Default Patterns: What Different Paths through Default Can Tell Us about Equitably Supporting Borrowers. Research Report

Racial inequities in higher education and the labor market have led to disparate outcomes in student loan borrowing and repayment by race, with Black borrowers holding more student debt and being more likely to default on it compared with white borrowers. Student loan default, which helps perpetuate the racial wealth gap by disproportionately hindering Black borrowers' access to credit, follows different pathways for different borrowers. Some exit default quickly while others remain in default for years or default multiple times. Examining the characteristics and circumstances of these different types of defaulters is critical to supporting borrowers most at risk of default and helping them recover when they enter default. This report uses 2010-21 data from one of the three major credit bureaus to describe student loan default patterns, the associations between these patterns and other financial circumstances, and context for how circumstances differ by race. Findings show that borrowers who default multiple times are substantially more likely to hold utility and medical collections debt than other defaulters, have lower credit scores on average, and struggle to recover financially after entering default. Findings also reveal that medical and utility collections debt are stronger predictors of a borrower's default pattern in predominantly white neighborhoods than in predominantly Black neighborhoods. These findings provide evidence of the long-lasting financial hardships long-term and persistent defaulters experience.