The National Consumer Law Center recently published a report on student loan defaults. What those investigative efforts uncovered provides significant insight into various choices, lifestyles and peripheral dynamics that affect a borrower’s willingness or ability to repay his student loans.
Because there are few reports that delve into the mindset of borrowers, this particular effort has many revelations concerning these specifics. Citing a lack of adequate research and too many “unproven theories”, the researchers effort took an entirely different approach when conducting this survey. Because of that, they uncovered new truths.
Defaulting on student loans can significantly affect a student well into his post-college years. The researchers, understanding consequences include a “government that has nearly boundless powers to collect student loans, far beyond those of most unsecured creditors”, went into the study with the goal of uncovering why so many went into default and if there were any who truly understood the process when they took out these loans. The research efforts began in May 2011 and concluded nearly a year later.
Of those surveyed who were in default with their student loans, 80% were currently unemployed and 85% received at least one type of public assistance. More than half attended for profit institutions while the remaining 45% attended non profit colleges. Slightly less than half – exactly 47% – actually graduated college and 70% had one or both parents who never attended college.
Another 55% were parents and 15% hadn’t graduated high school and instead secured a GED prior to applying for college and student loans or other aid. But there were other findings, as well that were especially interesting. The survey revealed many of the participants did not understand what default on loans means, the enormous late fees and other credit mishaps or how that might follow them into their adulthood.
This overall lack of knowledge is surprising, especially considering one quarter of the participants say they were unaware there were even in default. That said, the majority say they also routinely ignore phone calls and toss into the trash statements and other correspondence from the lenders without ever reading it. When asked if they remembered the details about the contract, and specifically any verbiage about defaults, many said they didn’t.
The primary reasons for going to into default were not surprising – many reported not being able to secure a job following graduation and many were in the classification the government no longer counts into the unemployment rate.
Nearly half say they don’t feel like they should have to repay the loans and most – nearly 90% – justified their positions by saying the education they received wasn’t worth the time and financial sacrifices, therefore they felt as though that diminished their responsibilities to repay the funds. They also say they know because of the lack of payments on their student loans, they know they don’t currently qualify for other financial products such as mortgages, personal loans and credit cards. Those defaults, along with the inability to secure employment, continues to limit their options sometimes years after taking out the student loans. The question is why some understand the importance of on time payments while others refuse to even speak to collectors when they call. The psychological angle is interesting and deserves further investigation.
The findings were enlightening. If you’re interested in learning more about the survey, visit NCLC.org.