Hundreds of US Colleges Have High Student Loan Default Rates, Burdening Taxpayers

At least 500 colleges and universities across the United States have student loan nonpayment rates exceeding 40%, a situation that results in significant costs for taxpayers, according to a recent report. For some of these institutions, the nonpayment rates climb as high as 70-80%, as detailed in an analysis by NPR.

These schools, often private, for-profit vocational institutions, rely heavily on federal student loans, which constitute more than two-thirds of their revenue streams. For example, Diversified Vocational College in Los Angeles reported that 73% of its students defaulted on federal loans in the 2024-2025 academic year. In that same year, $3.5 million in federal loans accounted for nearly 90% of the school's revenue.

Of the approximately 500 institutions with nonpayment rates over 40%, 424 were identified as private, for-profit schools. Public schools comprised only 15 of these institutions, with 61 being private non-profits. In contrast, the nationwide average federal loan non-repayment rate is approximately 15%.

The types of programs offered at many of these schools are a contributing factor to the high default rates. The majority of these institutions specialize in trades such as barbering, hairstyling, construction, and healthcare support roles, which often lead to industries with lower earning potential. Experts question the government's continued allocation of federal loans to students attending these programs, given the high likelihood of non-repayment.

"If a private lender were looking at a school that has a 40%, 50% delinquency rate on past loans, they would probably say, ‘We’re not going to lend to that school,'" Preston Cooper, who studies higher education finance at the American Enterprise Institute, told NPR. "Why does it make sense for the federal government and for taxpayers?"

Recent years have seen further complications in the student loan landscape due to pandemic-era payment suspensions and widespread loan forgiveness initiatives. However, experts emphasize that accountability extends beyond student repayment to stricter oversight of the institutions themselves.

Eileen Connor, executive director of the Project on Predatory Student Lending, stated, "If the federal student loan program did not exist, these schools would not exist." She described the practice of providing student loans for attendance at such institutions as "the definition of predatory lending."

The Department of Education has acknowledged the issue, with initiatives aimed at restricting federal funding for schools that cannot demonstrate their students earn comparable wages to those in their industry without a degree. "Institutions cannot benefit from taxpayer dollars while ignoring the fact that a significant share of their students are not well-prepared to repay their loans," a department statement read. "It’s time for institutions to step up or risk losing access to federal student aid."