Historically, the Department of Education has only reported the default rates of students three years after graduation, which come out to just over 10 percent. These figures are significant — by comparison, three-year credit card default rates are under one percent — but not surprising.
But when Miller looked at information on students loan borrowers six years after graduation, he found that 15.5 percent were in default, 4.8 percent were more than 90 days late on their payments and 10.2 percent were not making payments on their loans at all. That means more than 30 percent of borrowers were unable to keep up with their payments after just six years.
This 30 percent figure is particularly important. Current Department of Education protocol is to issue sanctions on colleges where the three-year default rate is 30 percent or higher. By not looking at the longer-term figures, the Department of Education and Congress may be turning a blind eye to schools that are not adequately preparing students to pay off the loans they are taking on.
For instance, for-profit colleges report default rates of roughly 15 percent after three years. But after looking at repayment trends five years after graduation, Miller found that almost 25 percent of graduates from for-profit colleges are in default, and 44 percent face some form of loan distress.
Miller credits the disparity between the numbers reported by Department of Educations and his findings to lobbying by lenders in 2008 when Congress changed the measurement window for default rates from two years to three, but raised the threshold that might trigger sanctions from 25 percent to 30 percent.
"Official statistics present a relatively rosy picture of student debt," he tellsCNBC Make It over email. "But looking at outcomes over more time and in greater detail shows that hundreds of thousands more borrowers from each cohort face troubles repaying. That both shows student debt outcomes are worse than we thought, but also that the system created by Congress to hold schools accountable if too many borrowers struggle, is failing."
Like this story? Subscribe to CNBC Make It on YouTube!