Delinquents: Student Borrowing Behavior

By John O. Harney

Students who left postsecondary institutions before earning a degree or certificate—and students who attended two-year and for-profit institutions—faced delinquency on their student loans at much higher rates than their peers, according to a new study released by the Washington, D.C.-based Institute for Higher Education Policy (IHEP).

Delinquency: The Untold Story of Student Loan Borrowing, by Alisa F. Cunningham and Gregory S. Kienzl, examines recent patterns in student borrowing behavior, particularly among students who become delinquent on their loan payments, but who do not go into default. Until now, the study authors suggest, the size and experience of this delinquent group have not figured highly in discussions about aid policy and financial literacy.

The study charts the behavior of more than 8.7 million borrowers and focuses on those that entered repayment in 2005.  While 15% of this cohort defaulted on their loans within five years, a full 26% faced delinquency—and its negative consequences—at some point during the same time frame without defaulting. Borrowers who fail to make a loan payment within 60 days of its due date are considered delinquent and may be reported to credit bureaus. Those who slip into delinquency, even when they become current on repayment again, also face higher interest payments on their loans.

Nearly 60% of postsecondary dropouts and more than half of community college and for-profit borrowers from the 2005 cohort were delinquent or had defaulted on their loans.

By way of comparison, 37% of borrowers in the 2005 cohort made successful progress toward repaying their loans, avoided delinquency and default. Additionally, 23% took advantage of loan-deferment or forbearance policies in the course of their repayments, but likewise avoided delinquency.

The authors of the study stress that, as tuition costs and student borrowing increase each year, policymakers should focus on the causes and consequences of delinquency. Higher education stakeholders, in addition to pushing access and persistence agendas, should stress the importance of debt management and financial literacy for student borrowers, especially among those more likely to face delinquency and default. Such a move, they say, would “improve borrowers’ experiences [and save] taxpayers’ money.”


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