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Students That are More Likely to Default on Student Loans

Students That are More Likely to Default on Student Loans
Shaton Tucker
Siena Heights University
Introduction to Research
GRS 602
Dr. Loughran
06-26-2014







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Students That are More Likely to Default on Student Loans
Students that are more likely to default on student loans
Statement of the Problem
Student loan default is arising in todays economy nationwide. It is very simple, student
loans are just like any other loan, which needs to be paid back. Student loans are very easy to get,
there is no credit check, the student need to be at least half time at an institution, and not in
default of a previous student loan. Defaulting is mainly affecting community colleges around the
world, and especially my workplace, Southwestern Michigan College. Several schools are at risk
of losing their title VI due to students not paying back their student loans.
Title IV is accessible by the completing the Free Application for Student aid at
www.FAFSA.gov. Title IV funds are the Federal Pell grant, Supplemental Educational
Opportunity Grant (SEOG grant), Work-Study program, Federal Direct Loans (Subsidized and
Unsubsidized), Parent Plus Loans and the Perkins Loans. The government provides billions of
dollars through a variety of different resources. Therefore, if a school lose their funding all aid
will be taken away the government is also entitled to perform a return to title four (R2T4), if a
student not attending their classes, or failed/withdrew from all of their classes. A student has to at
least earn 60% of their aid to avoid the RT24, if the percentage is not earned, the student will
owe the institution a bill.
As it gets hard to find employment, people are gearing more to the educational route. In
the last few years there are more non-traditional going back to college due to the job market. We
are losing jobs due to jobs being shipped overseas. To be admitted in some colleges, the student
only needs a high school diploma or GED. A student can be full time, taking remedial classes
(which doesnt apply to their degree) and borrow maximum loans.
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Students That are More Likely to Default on Student Loans
Since student loans are so easy to get, it is outgrowing other borrowing resources such as
credit cards, auto loans and mortgages. Typically, and depending on your credit an applicant
cannot borrow thousands of dollars with a credit card and a continuation of charges can be easily
declined. Auto loans has a reliability connection with it, a person will try their best to keep with
payments to avoid repossession. Mortgages actually looks at the ratio income and current
outstanding loan debt, people need a roof over their heads. With credit cards, auto loans and
mortgages there is at least a thirty day period an applicant have to make some type of payment.
Student loans a students payment could be years after an applicant could initiate their first
payment. Also, people tends to think if their student loan cover their total school bill and doesnt
receive a disbursement refund check, theyre not responsible for the loan.
Literature Review
Understanding borrowing student loans
When borrowing student loans, applicants have to complete the entrance counseling and
master promissory note, which is required to borrow a Direct Stafford loan. Student loans are
designed to help students pay for their education expenses. However, there are people who are
not going for the right reason and using their loan proceeds to support themselves. Borrowing
thousands of dollars is a huge responsibility. Every dollar of student debt is tragic, the logic
goes, and the extent of the tragedy is proportional to the amount of money owed (Kelly, 2014).
Student loans will never go away, you cannot file bankruptcy on them, and the government can
garnish wages, and file for legal action. The government has the ability and power to retrieve
their funds regardless.
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Students That are More Likely to Default on Student Loans
Student loans are similar to other loans in that you borrow money from a lender and
promise that youll repay it, with interest (Shin, 2012). By signing the master promissory note,
you are agreeing to pay the student loans back. It is also very important to keep track of your
student loan borrowing, which is housed at www.nslds.ed.gov. NSLDS stands for National
Student Loans Data system. Some students are not realizing that they are responsible for full loan
amounts regardless if theyre getting a refund or not. Students tend to think if they dont see,
they dont owe it.
Its easy to have a relaxed attitude toward student loan debt since so many people accrue it. But
today the burden of student loans is reaching such a crisis point that people are questioning
whether we are in a college bubble in which college is overhyped and overvalued, burdening
former students with high debts that offer little return for the investment (Shin, 2012). Today it
is so common and easy to borrow student loans that students are not thinking long term. Student
loans applicants that are planning to enroll for the next four to six years, repayment is the least
thing on their minds. Payments are not need to be made until six credits after a student drop
below half-time (six to eight) credits. There is tons of student awareness and financial literacy
programs that educates students on repayment options. (Passer, 2014).
Research Questions
1. Are non-traditional students are likely to default on student loans, opposed to traditional
students?
2. Will financial literacy/education prevent students from defaulting?


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Students That are More Likely to Default on Student Loans
3. Are student whove completed their degree are likely to default or student who did not
complete?
Traditional students VS non-traditional students
Adult learners appears to be who would be more than likely to default on a student loan.
A non-traditional student is from the age 25 and older. Logically, if you compare an eighteen
year old with a 40 year old, the 40 year old would be responsible. Common sense that a 40 year
has had experience with bills, possibly car note and mortgages.
However, the car notes, bills and mortgage could be a huge factor why an adult learner
would default on a student loan. Most traditional students does not have any bills while theyre
in school. Any means that the traditional student would use the loan proceeds towards
educational expenses only. An eighteen year generally doesnt have a lot of responsibilities
financially. However, there are 18 year olds that blows their refunds on silly items such as
clothes and shoes (Passer, 2014).
Any age can be guilty of using their loans proceeds for non-educational expenses. In
some cases, the borrowers are so-called nontraditional students. ... maxed out their student
loans in order to pay bills such as car loans and credit card bills (Sheehy, 2013). Factors for a
non-traditional student could be child expenses and childcare expenses. Today, the economy is a
little better but jobs are still hard to find. It is so easy for anyone to enroll in college and register
for a couple of classes, and take out student loans (Passer, 2014).
As an independent (non-traditional) student you can borrow 9,500 for the year, and as a
dependent (traditional) student you can borrow 5,500 for the year. As an independent student you
are eligible for a bigger refund. Some independent students borrow the maximum for the year to
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Students That are More Likely to Default on Student Loans
live on and receives four to five thousand dollars refunds. If an independent student borrow the
max for three years, the total loan debt is $28,500. If a dependent student borrow their maximum
eligibility, the total loan debt is $16,500. The person with the bigger bill would be more than
likely to not pay their bill (Passer, 2014).
Completers vs non-completers
Unfortunately, every student that attempts college is not always successful. It also points
to policies that minimize the probability students fall into particular high-risk categories
college drop-outs, for instanceand to then help those that do (Kelly, 2014). A person that who
did not finish college wouldnt have any means to pay their student loans back. They are
thinking that they dont have anything to show for it, so why pay it. It is much different from a
car loan, with a car loan that something you have while paying on it. People are not thinking the
funds is an actual loan because the government has provided it.
. Yet the percentage of community college students that default on their loans (the three-
year cohort default rate) is among the highest across all sectors (Kelly, 2014). Even though
community colleges are usually cheaper than universities; students can be eligible for a get
bigger refund. A students eligibility doesnt change due to if theyre at a university or
community college. Community colleges around the country are enrolling people that get their
refund check and stop attending. These students are considered non-completers due to not
finishing their degree.



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Students That are More Likely to Default on Student Loans
A student that does complete their degree and/or degrees, are more likely to pay back
their student loans. Theyre also more likely to find a decent job after they complete their degree.
If a borrower works for a government or in a job defined as public service, they only have to
pay for 10 years. After that, the remaining balance is forgiven (Dorfman, 2014). Examples of
employment for forgiveness is Nurses, Police officers and Teachers. Also, a person with a
diploma at least feel they accomplished something and has a degree to show for it.
Educational Background
Loan defaulters comes in all religions, race, educational background and genders. Of
course, some more than others. A person is more likely to default on a student loan if theyve
came from a poor background. Also, if their parents didnt finish high school or didnt attend
college. Unfortunately, their parents arent educated income base repayment plans, loan
forgiveness and consequences of not paying back a loan. This also explains people who are
attending college just to receive the refund checks.
A student that comes from a middle class home and parent(s) completed college, is more
likely to pay back their student loans. They can also sometimes cover some of the educational
expenses, if not all the expenses. A successful parent can educate their kids on their personal
experience and other repayment options. Middle class parents also pay their kids student loans
for them. They can have a college funds saving account to prevent less borrowing for the student
as well. Sometimes merit scholarships benefits them as well depending on the students high
school GPA.


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Students That are More Likely to Default on Student Loans
Graph Page

2013 Cohort Rates


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Students That are More Likely to Default on Student Loans
Conclusion
(McElwee, 2014) Student debt is supposedly an equalizer -- a way for students to gain access to
credit in order to get a degree that will give them an equal chance to enter the middle class and
achieve the American Dream (pg 1). Student loans are set up anticipating that the student will
finish their degree and get a decent paying job. Unfortunately, it doesnt always work that way.
Either students complete their degree(s) or they dont. Most people have the impression once
theyre finished with schools theyll be making the big bucks.
There are several situations when a student finish college. They can finish their degree,
find a job right away and make decent money. Or, have a hard time finding a job and is
unemployed or working at their current job. Also, finish their degree and find a job that is not in
their field and not making a lot of money. People need to be educated more on there is no job
guaranteed once a student has graduated and also a student can start a smaller salary, if theyre
lucky. Every student has to compete with other qualified candidates, interview well and at least
have some type of work experience.
A loan defaulter can come from several different backgrounds and several different
reasons. A person can be making 30,000 a year and receive a bill in the mail for $500 month, and
says they cant afford it so they ignore it. Sometimes it doesnt depends on how much a person
makes, their mentality and mind frame is not a fan of extra bills. There needs to be more
information out there to inform students about deferment, consolation, extended repayment plans
and public loan forgiveness. Borrowing less and preventing borrowing can save students who
doesnt need the money or can afford to pay out of pocket expenses.

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Students That are More Likely to Default on Student Loans
Reference Page
Cronin, J. (1987). Student Loans: Risk and Realities. Auburn House Publishing Company
Dorfman, J. (2014). Here Comes The Student Loan Forgiveness. Retrieved August 4, 2014
Kelly, A. (2014, June 30). Who's Struggling To Pay Back Their Student Loans? Retrieved July 1,
2014
Nijuri, E. (2012). Earl Warning Indicators of a Loan Default Crisis.
Passer, C. (2014). Personal Interview.
Sheehy, K. (2013). Undergrad Blow it With Student Loans Refunds. Retrieved July 17, 2014
Shin, L. (2012). Understanding Student Loans 101. Retrieved July 16, 2014