Who are the student loan borrowers most likely to default? What are the indicators? How can we better target assistance with student loan repayment? Should these policies focus on the highest-need borrowers?
These are some of the questions that Americans must ask themselves about student loan debt. With more than 44 million borrowers owing more than $1.5 trillion, this national crisis brims over with the countless struggles of millions of overwhelmed individuals.
Of course, to come up with answers that are helpful, we must have useful data. A recent report by the Urban Institute, Underwater on Student Debt, painted a clear portrait of who is having trouble with student loan debt and what their circumstances are. The report looked at a random two percent sample of U.S. consumers from the three national credit bureaus. Beginning in 2012, Urban Institute followed these borrowers through repayment and default.
Crunching these numbers shows the crushing nature of student loan debt on certain groups of borrowers. The highest default rates are for those carrying the least amount of debt, who are also those who have the worst credit scores. They are often already having difficulty keeping up with utilities and medical bills. They are even those who worked hardest outside the classroom while in school. The extra pressure from student loan debt, year after year, becomes increasingly unbearable for these borrowers.
Who, exactly, are these people with lower credit scores, already under financial pressure prior to repaying their student loan debt? The study looked at loans in default by zip code and found that they emanated from neighborhoods with less educated populations and higher concentrations of black and Hispanic residents. These groups are most at risk for poor financial, health, and educational outcomes.
If it remains in the national interest to broaden higher education to populations less likely to go to college, these factors must be considered. Based on these indicators, the report concludes that it is up to policymakers to assess who is most at risk and provide a solid, fair safety net “when life gets in the way of repayment.” This is a good start. Knowledge is power. And we know that those who are most at risk of defaulting already have fragile social and financial standing. Can we encourage better financial literacy for these borrowers? Can we better support their success?
These are just a few of the questions we can ask. Perhaps you have thoughts or questions of your own. At Ameritech Financial, we would love to hear about your experience navigating your own student loan debt, and how any of these factors have, or have not, played into it. Let us know what you are thinking below in the comments section!
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