Defaulting College Tuition Debt

3381 Words Jul 16th, 2018 14 Pages
Along with scholarships, fellowships, and grants, student loans are an important method of financing post-secondary education. With tuition costs rising, more students are borrowing to pay for college education today. However, not all students realize the burden of paying back their student loans. Many are defaulting.
Moreover, individual borrowers are not the only ones who face the consequences of the loan default. The federal government recovers around 80% of the total defaulted amount of student loans, losing billions of dollars each year. The latest data from the U.S. Department of Education indicates that student loan default rates have been rising. Official 2011 default rate is 10%. ("Comparison of FY 2011 2-Year
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Borrowers do not have power over the maximum amount they can borrow, over the interest rate, over anything in fact. However, at the time of enrollment, loan is not a real thing for the borrowers, as they do not have to worry about paying it back right away. They face problems when they need help repaying the loans or cannot repay the loans. Then, they have a legitimate and urgent issue to deal with, but still no power. So the borrowers are moderately salient or expectant stakeholders (Mitchell, Agle, and Wood 853-86). They can only choose from the available repayment options or default on their loans.
Another group of stakeholders is the schools. Loan servicers monitor when students do not make payments on their loans and go into default and report it to the school and the department of education. At this point, the school tries to reach the student and explain to them existing repayment plans or forbearance options. If the student does not sign the repayment plan or the forbearance, the loan is reported on a cohort default rate. (Default cohort consists of loans that go into the repayment during a single federal fiscal year (from Oct 1 to Sept 30). There are 2-year and 3-year default cohort periods). If the reported school default rate gets to 25% in 3 consecutive years or 40% in one year, the college could lose eligibility to participate in the Direct Loan program, and in most cases, the Federal Pell Grant program. That is
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