Blame Universities for High Student Default Rates

Many Americans wait anxiously to hear whether President Biden’s loan-forgiveness policy will pass muster with the Supreme Court. Regardless of what the Court decides, universities and state legislators should be thinking about how to keep schools from saddling another generation of students with significant loan debt. 

State policymakers oversee state university systems to ensure that they are preparing students for the workforce. The Wisconsin Institute for Law & Liberty (WILL) recently published a study highlighting actions that the University of Wisconsin system, and state university systems across the country, can take to inform students of the debt they will incur and help direct them toward successful careers.  

Between 2010 and 2020, the cost of college has grown by over 30%. Since the 1960s, the cost of college has increased by an astounding 747%, even when adjusted for inflation. At the same time, far more Americans go to college today than in past eras: only 7.7% of the population had graduated from college in 1960, while 37.9% of the population had done so by 2020. When adjusted for inflation, the average graduate carried $7,458 in student debt in 1970; in 2021, the average graduate had $31,100 in student debt.  

Many students are also graduating with degrees that won’t make them much money. Our report looks at how well Wisconsin schools are setting students up for success by examining default rates on student loans and net return on investment (ROI) for various majors from colleges throughout the state. Using a national dataset on college ROI from the Foundation for Research on Equal Opportunity, we found huge differences in life outcomes based on the selection of majors. For example, the major with the worst ROI at UW-Milwaukee was Dance, with an ROI of -$248,123. This means that a student who chooses this major can expect to earn $248,123 less than they would have had they not gone to college at all. Other majors with negative ROIs at UW-Milwaukee include Germanic Languages and Film/Photographic Arts. The major with the highest ROI at UW-Milwaukee was computer engineering, with an ROI of $463,929. (The majors with the top five net ROIs are all in engineering.)

We also examine the default rate on student debt by major, drawing on data available from the Department of Education. We find that of the schools with the top 10 default rates in Wisconsin, six of them are beauty schools, with the highest default rate being 28.5%. When we exclude beauty schools, nine of the 10 schools with the highest default rates were tech schools, with the highest default rate being 14.3%. And when solely examining four-year colleges, the highest default rate was 6.2% at UW-Milwaukee.

Despite the ever-increasing debt burden, it is important to consider that there is still a substantial income benefit that comes with college graduation. It is also true that technical college degrees can be more valuable than many four-year degrees. If students choose the right majors at technical colleges, they can lead to higher lifetime ROIs than some degrees from UW-system schools—which, according to a new college earnings and debt database released by the Texas Public Policy Foundation, is true for some tech colleges in other states as well.  

Thanks to a tuition freeze that Wisconsin put into effect in 2013, the state ranks relatively low on the amount of student debt per borrower. Under the freeze, the UW system is allowed to increase only student fees. Other states should consider a freeze when trying to lower their overall student debt burden.  

Still, with so many of the four-year colleges with the highest default rates being part of the UW and tech-college systems, Wisconsin state legislators really do have a say in how to make things better. By creating procedures that inform students, depending on their major, what kind of financial scenario they face post-graduation, state schools can not only direct students toward more positive outcomes but also reduce the overall debt burden.  

Many educational institutions these days are striving to be top-tier research universities. But why shouldn’t Wisconsin and other states also compete to have the top student ROI and lowest default rates? If states really do want to prepare students for success and lower the debt burden, they will put pressure on state university systems to shift their gaze from research to student outcomes.