New Report Analyzes Why Students Default On Their Loans

Whether students are considering online master's programs or campus-based associate's programs, many are hesitant to go back to school, fearing they will be unable to handle their loans after graduation. According to the Project on Student Debt, the average 2010 college graduate left school with $25,250 in student loan debt. Therefore, for some individuals, defaulting seems like a very real possibility.

However, individuals may be able to avoid defaulting on their loans by understanding the factors that put them at risk for financial difficulties. Recently, the National Consumer Law Center released a report that analyzes why students default on their loans to teach other individuals how they can avoid it.

Risk Factors for Student Loan Default
According to the report, one of the biggest factors that puts students at risk for loan default is not completing their education. When surveying individuals who had defaulted on their loans, the center found that only 47% had completed their studies, meaning a majority of defaulters dropped out of college. In fact, the report states that only 3.7% of students who completed a college degree ended up defaulting on their loans.

The report shows that attending a for-profit college could also put students at risk for loan default. Of those defaulters surveyed by the center, about 65% attended one or more for-profit schools. According to the center, individuals who enrolled in these types of institutions consistently have the highest two-year default rates.

On top of these risk factors, the center reports that further studies suggest students' age, gender and ethnicity can affect their likelihood of defaulting on loan repayments.

General Lack of Knowledge About Student Loans and Defaulting
In general, the center found that many individuals who defaulted on their loans did not fully understand the state of their finances. About 24% of individuals said they did not know they were in default when they sought legal assistance, while 65% said they did not remember being contacted before they defaulted.

Additionally, the survey found that about 47% of students believed they should not have to repay their student loan debt, usually because of problems they had with their schools. About 90% of these individuals attended a for-profit institution. For this reason, the center believes colleges should be held accountable for poor student outcomes, while degree seekers should be given better, clearer information before applying for loans.


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