WASHINGTON – When it comes to finding ways to better enable students to repay their student loans, making sure students actually earn a degree probably yields the biggest bang for the buck.
That’s one of the main conclusions that a group of higher education experts drew from a new report released Thursday that provides a more detailed look at the problem of delinquency in student loan repayment.
The report titled – Delinquency: The Untold Story of Student Loan Borrowing – was prepared by the Institute for Higher Education Policy, or IHEP, a Washington, D.C.-based organization, which concentrates on issues that impact college access and success for low-income, minority and other under-represented student populations.
The report focuses on a distinct group of student loan borrowers that panelists at the New America Foundation said deserves more attention – those who become delinquent in repaying their student loans but have not yet defaulted.
One of the panelists at the D.C. think tank, Alisa Cunningham, Vice President of Research and Programs at IHEP and author of the report, said that this group of borrowers represents a forgotten middle who are on the verge of becoming defaulters.
“There’s a false dichotomy between default and no-default, when really there’s a lot in the middle,” Cunningham said. “This is a very big group. For every borrower that defaulted, we found two more that were delinquent without default.
She was referring to the 26 percent of students who entered repayment in 2005 that the study found were delinquent in repaying their student loans, compared to the 23 percent who sought deferments or a forbearance, and 15 percent who had actually defaulted.
The IHEP study found, however, that graduation makes a difference in avoidance of delinquency. Specifically, the study found that only 22 percent of borrowers who graduated became delinquent without default, whereas 33 percent of those who left school without a credential became delinquent without default.
Similar patterns played out among actual defaulters: 16 percent of graduates defaulted on their loans, versus 26 percent of those who left school without a credential.
Several panelists said these statistics underscore the importance of graduation as the best way to help students achieve timely repayment of student loans.
“This is not a financial aid office issue. It’s a national issue. It’s an institutional issue,” said Justin Draeger, President and CEO of the National Association of Student Financial Aid Administrators.
“Those students really need a student success and completion program, not necessarily a specific default prevention program,” Draeger continued. “Schools that have comprehensive student success strategies are de facto dealing with delinquency and default prevention.”
Dr. Laura Perna, professor at the University of Pennsylvania Graduate School of Education, noted that there are other factors the impact a student’s ability to repay their student loans.
“It’s not only completion that matters in this,” Perna said. She said the IHEP study shows that show institutional type matters, too.
For instance, the study found that students at public two-year institutions, as well as for-profit two- and four-year institutions consistently became delinquent and/r defaulted on their student loans at higher rates than students at public and private nonprofit four-year institutions.
Perna also suggested that the IHEP study shows the need for policymakers to search for ways to reduce the cost of college and the need to borrow in the first place.
Deanne Loonin, attorney at the National Consumer Law Center, said the IHEP study suggests a need to revisit how loans are distributed.
“Unfortunately, there’s a reality that loans are going to be with us for a while,” said Loonin, who represents student loan borrowers in disputes with collection agencies. “As long as we are so liberal at the front end in giving out these loans, as a reform measure I’d like to see us look more at outcome measurements at the front end” and having loans linked more to what’s known about defaulters.
Dealing with the problem after the fact, she said, is problematic, because the current system is driven by a “collection mentality.”
“You have a lot of loan holders themselves who are in collection, also doing the dispute resolving,” Loonin said. “And it’s really a conflict of interest there at the heart of so much of this.”
Jason Delisle, director of the Federal Education Budget Project at the New America Foundation and moderator of Thursday’s panel discussion, voiced similar concerns. He and other panelists noted that delinquent student loan borrowers deserve more attention because they face various adverse consequences, such as negative marks on their credit reports.
Noting that in 2009 the federal government took over the student loan system and that student loan limits have grown by thousands of dollars in recent years, Delisle said, “If the federal government is going to make it this easy for students to incur this amount of debt, then the federal government has some sort of obligation to make sure students get the help they need to pay their loans back, what the penalties look like or what should assistance look like for students who default or become delinquent.”