Long term student loan default rates

Predicting the future of student loan default rates is a very tricky business, particularly in light of the current financial meltdown. If the economy truly does tank, we’re in for higher loan default rates, ipso facto. If the economy rebounds, I don’t expect anywhere near the rates shown in this study to become realities. Let’s remember, the ONLY way people cannot escape these federal debts is through permanent disablity or death! Those are pretty stringent standards not placed on any other type of debt in America.

Now, if the feds let the private lenders continue to flourish and charge predatory interest rates and user fees, well, then, for sure, defaults will skyrocket regardless of what happens in the economy.

feudi pandola, at 10:40 am EST on January 21, 2008

Here we go again.

Do our honorable elected morons recall what happened during the original default-rate hysteria?

Community colleges got out of the loan programs in droves, so that their default-prone students could no longer get student loans.

Proprietary schools abandoned low-end programs, such as nursing assistant training, because such programs attracted too many students of lower socioeconimic status who were prone to default. Many had to go out of business. And God help anybody who ends up in a nursing home, because the nursing assistants who do the bulk of the work there have 40 hours of training now, rather than 400 hours.

Inner-city schools fled to the suburbs, to make it more difficult for default-prone inner-city minorities to enroll.

Most schools that had previously allowed non-high school graduates a shot at postsecondary training under the ability-to-benefit provision abandoned the practice — too many potential defaulters.

I wonder how many schools will close this time, and how many taxpayer dollars will be wasted on forgiving student loans for students who will not be able to finish their programs. How many students will not be able to borrow to cover part of their living expenses, and so, not be able to afford to go to school to better themselves? Brilliant public policy, if the goal is to punish people of lower socioeconimic status and the schools that try to serve them.

Glenn Bogart, at 11:05 am EST on January 21, 2008

For MB

I think the point here, MB, is not so much that an institution hand-hold students for a lifetime (by the way, ten years is hardly a lifetime or an unreasonable time during which to study outcomes), but that the school learns from student outcomes in order to improve service. Institutions SHOULD KNOW and track what happens to their alum; if alum default, why? In a ten year span, what changed? Did they have an undiagnosed learning disability? Were they unable to find employment in their field of training? Did they have to relocate to find employment?

Not only can institutions improve service from this kind of information, they can better advise students taking out loans. For example, if the ten year default rate for teachers is 10% but the default rate for software programmers is 5%, an FA rep should urge potential teachers not to take out so many loans and help them to find other financial alternatives. While we can’t assume default equals institutional quality, certainly those numbers DO say about the ability of a grad to weather financial storms.

I DO believe a single institution with a high default rate indicates a systemic problem. In the case of the Community Colleges, I am sure it’s about students having no other financial resources than loans. These are some of the same students who are the LEAST capable of paying them off! This is just another argument for an extension of our academic system from K-12 to K-14. It’s also an argument for cutting college costs and increasing state and federal funding.

Institutions that study their grads improve their service, reduce their own default levels, and, upon knowing why a student defaults, can have more leverage in trying to influence the loan system. If an institution can prove grads’ financial disaster can’t be linked to lack of academic quality, then we KNOW the problem is in the lending system....and the lenders, FSA, etc. are left with no place to hide!

Academic institutions are places of study and knowledge. USE that knowledge to do better for students academically and financially! I don’t think that is asking too much.

kgotthardt, at 12:35 pm EST on January 21, 2008

“Student borrowers default on loans because they are unable, or perhaps in some cases, unwilling to meet their obligations.”

Too many student borrowers default on their loans because they were lied to about their programs: what they would receive in terms of education and job placement, how much they could earn in their field, and/or how the supposed reputation of their chosen school would help them progress throughout their careers!

Furthermore, knowing about grants and loans has nothing to do with “smarts.” Have you seen how many Internet scams there are, offering supposedly “free money” for college? How about the books being sold that tell how to apply for a scholarship? It takes six months to apply for a scholarship with the slim chance of an award less than $1000.00. And how about good ole’ Sallie Mae taking her bus tour to offer the “under-served” a real “chance” to get an education....which might include a small scholarship but inevitably includes a hefty loan?

So please, people, stop putting down students, potential students, and borrowers.

And don’t believe every FA officer in the country has the best interest of the student at heart—especially if the FA department is being controlled by the accounts receivable personnel.

kgotthardt, at 6:25 pm EST on January 21, 2008

Eternal childhood

Kgotthardt- the point DS would make (the one you keep missing) is that these students are adults. They should investigate the college they choose, the job market, etc. before the sign a loan form. Lots of people want their money. Credit card companies, used car salesmen, hookers, colleges. People must learn to function in a predatory world.

We are infantilizing a whole generation of our children. They get it now: it’s somebody else’s fault when life goes sideways. They’re victims.

Their mantra: “Who was supposed to be watching out for me?”

E. Moran, at 5:45 am EST on January 22, 2008

No Hand Holding Here

E. Moran, when students “do their homework” about an institution, are referred there by counselors or teachers, know the school is accredited either regionally or nationally, are told their credits will transfer, get the grand tour, look at the curriculum, learn about the services supposedly offered, and read testimonies from grads, and receive an estimated financial aid package, in my estimation, they needn’t do more homework.

Even if said students relied ONLY on the accreditation status of the school, that in itself should vouch for the integrity of the institution.

In case you have not read my comments before, I will repeat myself: accreditation doesn’t mean anything anymore. Neither does government oversight of schools or lenders.

Ask us to do as much “homework” as you would like. This isn’t about hand-holding. It’s about institutional and government responsibility to students who have made the effort and have still come out on the losing end. Katherine Mercurio Gotthardtwww.luxuriouschoices.net

E. Moran, when students “do their homework” about an institution, are referred there by counselors or teachers, know the school is accredited either regionally or nationally, are told their credits will transfer, get the grand tour, look at the curriculum, learn about the services supposedly offered, read testimonies from grads, and receive an estimated financial aid package, they should not be required to do more homework.

Even if said students relied ONLY on the accreditation status of the school, that in itself should vouch for the integrity of the institution. But it doesn’t.

In case you have not read my comments before, I will repeat myself: accreditation doesn’t mean anything anymore. Neither does government approval of schools or lenders.

What are the alternatives for ripped-off students? Lawsuits, IF they can afford a lawyer, which typically, students cannot. And if students can find an attorney? The results are still sick.

Students, institutions and their departments, accreditors, lenders, and government are part of a team. When part of the team fails hard working students, these students must have recourse. Too many times, they do not, and this is unacceptable. This is why lawsuits occur, and as we all know, lawsuits like these are nasty, expensive, damaging things. Lawsuits suck the life from the student aid system, schools, students, alum, faculty and staff whenever one part of the team has disavowed responsibility for student success.

Ask us to do as much “homework” as you would like E. Moran. This isn’t about hand-holding. It’s about institutional and government responsibility to hard working students who have made years of effort and still have come out on the losing end.

kgotthardt, at 9:50 am EST on January 22, 2008

Defaulted Loan Rates

Tracking default rates by institution maintains accountability and prompts colleges to provide financial education in addition to the academic education. Many of our students come through our doors with no knowledge of balancing a bank account, budgeting, or filing a tax return. Financial workshops are offered throughout their time here. I favor continuing to track default rates, but would like to eliminate the penalty to a college if the graduate does not heed our advice. Unfortunately, we have had students that ignore our advice to borrow a conservative loan amount and insist on taking out the maximum amount allowed every year, thinking only about now and not planning for the future. We give them the financial education tools, but it is up to them to use them.

Kim Smith, Financial Aid Advisor at Tacoma Community College, at 3:25 pm EST on January 22, 2008

Wait Just One Minute

There are people in this country that have to choose between feeding their kids and paying a student loan. I have read where people are on a diet of mac and cheeze for years so they can pay Sallie Mae. I see a major problem with this. With the interest and principle payments seeming to never end. These people went to school to better their position in live. I get soooo tired of hearing how college grads make at least 1 million dollars more during their lifetime over someone who doesn’t go to college. Well, I guess alot to people have heard this story and fell into it also.

There are soooo many college grads out there because I’m STILL looking for that job that would pay me 1 million dollars over my lifetime. It has been made sooooo easy to go to college and there are soooo many college grads now the wages just can’t keep up with it. My degree has less value to a employeer than ever before. Why is that you may be asking, well, its simple. Supply and demand plays a major part in it. Prospective employers know the numbers also. They know that if they can get someone fresh out of college for 20% to 50% less today than they could yesterday they are going to do it.

And I’m a scandrel for wanting to do nothing more than live and be able to feed my kids. Give me a break.

Jim Bryant, at 12:30 pm EST on January 23, 2008

Default penalties

I tend to agree with DS and Kim that punishing schools for defaults is probably not a great way to go.

After all, defaulted loans can be big money makers for the student loan industry- just look at Sallie Mae or Nelnets “fee income"- they have exploded due to collections on defaulted debt. Clearly, the finger should point more at the lenders/servicers than the schools.

Student Loans should be treated like every other loan instrument in our nation’s history. it should be afforded all of the same standard consumer protections that other loans have, such as bankruptcy protections, refinancing rights, and the like.

The schools should agree with this sentiment, if only they weren’t so disturbingly friendly with the lenders, who use this unique lack of bankruptcy protections to extort billions from the students and their families in unearned wealth over and above the original debt, and ruin the lives of millions along the way.

Alan Collinge, Founder at Studentloanjustice.org, at 6:10 am EST on January 24, 2008

What If?

Let me ask. What if you are in the middle of your acidemic carrier and a doctor, I’m talking about a Medical Doctor informs you that if you DON’T quit school you are going to suffer a stroke. What are you going to do? Your in more than $100,000.00 of debt due to the persuit of your education, and your informed that you WILL end up having a stroke and may die if you DON’T get out of school.

Are you going to say to hell with it the doctor doesn’t know what he is talking about or are you going to take his advise and leave school? Well, I left school. I HAD to. I was left with no choice in the matter. What are you going to do then? I had to get a job, a house for my children and I. I had little choice in the amount of pay I was to recieve and in the end, I’m STILL expected to give Sallie Mae her due.

Had I been allowed to complete my educatin I believe I would have had no trouble paying back my loans, but, with a limited income there is little to NO prospect of being able to pay my student loans and afford a home and every of thing that goes with taking for children.

Do I need some kind of safety net or should I be allowed to fall? Should I spend the rest of my life filling Sallie Maes coffers or should I be allowed to get on with my life? These are the kind of questions I have. Anyone care to comment? Should I still be held responsable or should I be allowed to expect some type of protection?

Jim, at 12:35 pm EST on February 5, 2008