For years, how college students have fared in repaying their federal loans has been measured by the loan-default rate. U.S. Secretary of Education Arne Duncan made headlines last September with the announcement that the default rate had risen to 7.0 percent for the 2008 national cohort, compared to 6.7 for the previous year — a sign that students are struggling to pay for higher education in tough economic times.
But a new study reveals a more complex picture. For every student who defaults on his or her loan, another two students are delinquent, the Institute for Higher Education Policy has found.
It doesn’t take much to become delinquent on a loan — you just have to miss one or more scheduled payments. If you don’t pay for two months, your delinquency is reported. Defaulting happens once you’ve been delinquent for 270 days.
But, as “Delinquency: The Untold Story of Student Loan Borrowing” highlights, those borrowers have to deal with many of the same consequences as those who default, including poor credit ratings and trouble borrowing in the future.
In all, only 37 percent of borrowers managed to repay their loans on time and without incident. An additional 23 percent used repayment options — deferment or forbearance — to postpone payments.
About 15 percent of students who had taken out federal loans defaulted on them, while another 26 percent became delinquent at some point.
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at 9:16 am
This is largely a comment I put up on a post at University Diaries a few days ago. When I saw your post, I thought it was responsive here, too.
A lot of inappropriate loans are being made, I think – where you can predict that they will end in tears. And the people who make the loans are often guys who have figured out how to game government subsidies. That they get them through blighting the hopes and dreams of the folks who take their classes is merely a side effect.
Much of the problem seems to me to stem from the inability to go bankrupt on student loans. I Googled around and found that lawyer Russell Demott has the following up on a bankruptcy site: “Student loans were dischargeable throughout most of the 20th century. In 1976 Congress enacted the Education Amendments, and in section 439A of that Act made student loans non-dischargeable if the first payment came due within five years of bankruptcy unless the debtor could prove “undue hardship.” In 1978, Congress repealed the Bankruptcy Act of 1898 and replaced it with the Bankruptcy Reform Act of 1978—the “Bankruptcy Act” then became the “Bankruptcy Code.” The bankruptcy Code adopted the Education Amendment provision in original section 523(a)(8): no discharge unless the first payment became due more than five years prior to the bankruptcy filing or the debtor could demonstrate undue hardship.
The call for the non-dischargeability provision in the Education Amendment dated back to the early 1970s. The perceived need for a non-dischargeability provision stemmed from a few extreme cases of doctors, lawyers, and other professionals discharging student loans prior to beginning lucrative careers. The idea was that if the remedy of a bankruptcy discharge was disallowed for five years, those students would become established in their careers and be able to repay their student loans.
Prior to the passage of the Bankruptcy Reform Act in 1978, the House and Senate disagreed strongly about the dischargeability of student loans. The House favored the pre-1976 Education Amendment standard of treating student loans like any other unsecured debt, while the Senate supported the Education Amendment provisions limiting discharge. In the end, however, the Senate won out, and Congress adopted the non-dischargeability provision of the Education Amendment.”
Where I am going with this is, the vampires now making loans to students who will obviously have no prospects of repayment (and let me bring in the sob stories of the students from not-for-profit universities who graduate with degrees called ‘…Studies’ and $100K in debt, too) will stop doing it if bankruptcy discharge becomes possible again. Yes, this will mean that if we want to have LPNs graduate in large numbers we have to pay for public community college programs to get them, but it will cut the bloodsuckers out of the picture and loans will get made only to the people with good prospects for repayment.