Students may be struggling with debt more than we knew, according to a team of five researchers at the Federal Reserve Bank of New York. They explain that borrowers were late on $85 billion in student loans in the third quarter of 2011, which at face value is about 10 percent of the $870 billion in total outstanding student debt. While that rate is more or less in line with other forms of consumer debt like credit cards and mortgages, it is also “understated,” the team says, because not all student loans can be delinquent.The article goes on to talk about hidden ways student loans can be delinquent, but the part that jumped out at me was that the student loans had the same characteristics as other credit. That doesn't make any sense to me. Credit cards used to buy furniture and big screen TVs don't lead to better job offers.
Ahhh. I see. It's related to the folks who take out the loans, but don't finish college.
In the study of Texas A&M borrowers, student Grade Point Average (GPA) had the strongest association to default of any success variable. The default rate of borrowers with a GPA of 2.0 or less is nearly 18%, but for borrowers with a GPA of 2.5 or more the default rate is <2%, and for borrowers with a GPA above 3.0, default is <1% (Steiner and Teszler 2003).So if I was a lender other than the government, I would predicate student loans on good grades. In fact, if it was my bank's money, I would insist on seeing on year's grades before I gave out loans. You'd have to pay your own way for a year and prove you could make the cut before you could start digging a financial hole for yourself.
Of course then it wouldn't be a right any more and we'd get lots and lots of this: