More than 40% of Student Loans have Payment Problems

Econintersect:  According to the Los Angeles Times, a survey of 1.8 million student loan borrowers found that 15% had defaulted and another 26% were or had been delinquent on payment but had not yet defaulted.  This news comes after previous analysis and opinion articles posted at GEI have discussed problems with the education process and financing.  The LA Times article suggests that some of the problem may be due to poor education of the debtors about the debt management process.

Specifically, Alisa Cunningham, the coauthor of the report on the study by the nonprofit Institute of Higher Education Policy is quoted in the Times article:

Cunningham said lack of knowledge might be a factor in why so many student loan borrowers experience delinquency at some point.

“I was surprised at the fact that a lot of these borrowers actually had never heard of things like forbearance or deference — especially since they’re supposed to go through an educational process during college,” Cunningham said, naming two methods for legally postponing payments.

Part of the task of educating borrowers falls to guaranty agencies. These are groups that once insured student loans, but now focus on education and advocacy. They also work to collect on and rehabilitate defaulted loans.

Following up on the debtor education issue:

“Many borrowers end up becoming delinquent or defaulting because they don’t know all of the options available to them,” said Debra Chromy, vice president of government services at nonprofit guaranty agency American Student Assistance.

For example, she said, there are programs specifically for people who are unemployed and for teachers, as well as repayment programs that are based on the borrower’s income level.

Chromy said educating borrowers works, according to a company study that showed that American Student Assistance was able to cut delinquency rates in half by informing borrowers of the options available to them.

But borrowers also have to be careful in choosing a guaranty agency, she said.  Some for-profit agencies make more money if borrowers default than if borrowers are able to pay off loans over a longer period. That, she said, creates a disincentive for education and assistance.

(Emphasis added.)

Source: The Los Angeles Times

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