Understanding Loan Default Among Community College Students

Objective: The purpose of our study was to identify the factors associated with federal loan default among a nationally-representative sample of community college students. The guiding research question was: For community college students who borrow federal loans, to what extent do demographic, academic, and enrollment characteristics relate to default? Methods: Using data from the Beginning Postsecondary Students Longitudinal Study (BPS:04/09), our analysis focused on loan repayment outcomes six years after enrollment for students who began their postsecondary careers at a community college (i.e., a public, two-year institution) and had not transferred to a four-year institution. The analytic methods included descriptive statistics and multinomial logistic regression. Results: Compared to their peers who did not use federal loans, borrowers were more likely to be female, unmarried, lower-income, a Pell Grant recipient, and enrolled exclusively full-time. Regression results indicated that compared to borrowers still in repayment, defaulters were more likely to be male, first-generation college, lower-income, enrolled in workforce certificate and applied associate degree programs, lateral transfers, and non-completers. Notably, two-thirds of the defaulters had $5,000 or less in outstanding debt. Conclusions: Many of the student groups that have traditionally experienced the lowest rates of success at the community college are also the populations more likely to default on their loans. Relatively low levels of debt can still place severe financial hardship on community college borrowers. We propose several modifications to federal loan policy and institutional practices that could help reduce the number of community college borrowers who default.

Education

This chapter discusses state and federal laws that affect educational opportunity for poor and low-income children and adults. The federal Constitution does not guarantee a right to education. Instead, the provision of public schooling is a state responsibility, and the quality of public education varies considerably based on the wealth of the community in which a public school is located. The U.S. Supreme Court has held that the Equal Protection Clause does not require states to provide equal educational opportunities to students from low-wealth communities that on a par with those in schools with greater resources. The result is an educational system characterized by disparities and inequalities—rather than driving children forward, public schools in some disadvantaged neighborhoods serve as a conduit in a school-to-prison pipeline, with highly racialized impacts. The chapter discusses how the education of poor and low-income children is affected by residency requirements, truancy laws, punitive disciplinary policies, school fees, and the absence of state-funded programs for toddlers too young to attend kindergarten. Congress has enacted programs designed to supplement educational opportunities for students who are poor or from low-income households, and the chapter discusses some of them, starting with preschool through to vocational training opportunities and federal loans and grants to attend college. These programs, although important, are largely indifferent to the democratic benefits of racially integrated schools and do not go far enough in ensuring every child a free, quality education as a strong foundation for development and growth. The chapter also discusses how student debt has become a barrier to social mobility, and some of the protections available for students unable to pay their college loans.

TRENDS OF HIGHER EDUCATION LENDING IN THE USA

Lending to higher education in the world and in Ukraine is gaining in popularity. According to statistics, almost 60% of Ukrainian students study at a contract basis. The increase in tuition fees, the deterioration of the financial situation of families, and the desire of young people to obtain higher education creates contradictions, one of the ways to overcome credit education. In developed countries, mechanisms of educational lending have been developed that provide young people with the opportunity to acquire education. It should be noted that educational loans are effective in countries with high-quality education systems that guarantee a future graduate with a reliable job security and stable salary. The United States relates to the seven countries with the best educational systems. Therefore, it is relevant to look for lending mechanisms for student youth in Ukraine to study the trends of lending education in the leading countries of the world, and in particular, in the United States. The problem of finding out the mechanisms and causes of instability in the provision of educational loans in the United States has yet to be sufficiently highlighted in research by academics. The purpose of the paper is to study the peculiarities and prospects of educational lending in the United States. The cost of education in any country depends on GDP. The analysis shows a stable GDP growth in the United States. Expenditures on education and higher education have a certain degree of stability as a percentage of GDP. Thus, in comparison with 2016 this indicator in 2017 and 2018 increased by 0,1% and amounted to 5,1%. In 2019, expenditures are expected to increase by 0.1%, and in 2020 - by 0.2%. The indicator of expenditure on higher education in relation to GDP also does not have a sharply pronounced tendency to increase. In 2016, total expenditure on higher education as a percentage of GDP amounted to 1.7%, and in 2017 and 2018, this figure dropped to 1.6%. In 2019 and 2020, higher education expenditure relative to GDP is projected at 2016 (ie 1,7%). Such a state of education financing leads to an increase in tuition fees and updates the issue of education lending. The main reason for the increase in tuition fees economists consider inflation processes, which are an integral part of a market economy. The average tuition fee in 2018 increased by $ 250 (by 2.5%, respectively, the inflation rate is 2.9% in 2017). At the same time, the average federal payments per student were reduced. Consequently, you can confidently predict the increase in fees and in subsequent years. In US education lending programs, you can select 3 types: federal, private, parent. The greatest demand is federal loans. The most popular types of education loans today are Stafford Federal Student Joan and Federal Perkins Loans For College Students. The average loan amount is 21 thousand dollars. The most important advantage of these products is the possibility of repayment after the university graduate begins to work. Compared with loans for education in Ukraine, the lending rate for American students is much lower and ranges from 5-7%, and the maturity of the loan may reach 30 years. The peculiarity of these loans is that they are issued not only to the student's education, but also to his life. Stafford's federal educational loan is more widespread. Its advantages are low interest rate and flexible repayment system. However, the maximum amount of a loan can only be provided if the requirements of this program: success, full-time education, the borrower must be a US citizen. Experts believe that a significant percentage of students do not receive federal loans owing to insufficient information support for federal educational credit programs and formalities for their registration. A simplified procedure for private student loans facilitates their active dissemination. Private lenders work directly with borrowers and are personally interested in distributing this type of banking product. The reasons for reducing educational loans should be considered as problems in debt repayment. As of March 2018, 52% of the outstanding debt on federal education loans amounted to 14% of borrowers worth $ 60,000 or more; 56% of borrowers with outstanding debt owed less than $ 20,000. Student loan arrears rank second in the structure of Americans' loan debts and exceed $ 1.4 trillion, which negatively affects the US economy. Consequently, the United States has the most advanced system of educational lending, which is a powerful incentive for higher education, and ensures its availability to the wages of people with different levels of income. For students, three types of educational loans are offered: federal, private, and parenting. The lowest interest rates may be obtained through a federal educational loan. The last 3 years are characterized by a decrease in educational loans The reasons that led to a decrease in the use of federal loans were the lack of awareness of students about this kind of lending, strengthening control over the implementation of loan agreement conditions. The provision of educational loans in the United States is associated with a sharp increase in their arrears, which may lead to a financial crisis. Therefore, the development of mechanisms for their return becomes an economic problem that requires urgent resolution. We consider the prospects for further research with the study of debt relief programs in the United States.

The Impact of Pell Grant Eligibility on Community College Students’ Financial Aid Packages, Labor Supply, and Academic Outcomes

In this article, we examine the effects of receiving a modest Pell Grant on financial aid packages, labor supply while in school, and academic outcomes for community college students. Using administrative data from one state, we compare students just above and below the expected family contribution cutoff for receiving a Pell Grant. We find that other financial aid adjusts in ways that vary by institution: Students at schools that offer federal loans borrowed more if they just missed the Pell eligibility threshold, but at other schools, students were instead compensated with higher state grants. Focusing on the loan-offering schools, we find suggestive evidence that receiving a modest Pell Grant leads students to reduce labor supply and increase enrollment intensity. We also provide indirect evidence that students’ initial enrollment choices are influenced by an offer of Pell Grants versus loans.

Navigating the Financial Aid Process: Borrowing Outcomes among First-Generation and Non-First-Generation Students

A growing number and proportion of students rely on student loans to assist with the costs of postsecondary education. Yet little is known about how first-generation students use federal loans to finance their education. In this article, we examine each of the decisions that culminate in student indebtedness: the decision to apply for aid, whether to borrow, and how much to borrow. We find significant differences by generational status at each step of the student borrowing process. First-generation students are more likely to apply for financial aid, borrow, and take out larger loans than their peers, after controlling for a rich set of covariates for costs and financial resources. We find that student characteristics cannot fully explain these observed differences in borrowing outcomes across generations.

Debt Burdens Among BSW Graduates: A National Cross-Sectional Study

Cross-sectional data reveal a dire financial picture for 2009 BSW graduates that can be attributed in part to loan decisions (n=300). More than 10.1% have accrued a minimum of $55,000 in educational debt at graduation. Following private educational loans, credit cards are the second most reported private loans to finance respondents' BSW education (27.1%). Among those who used credit cards to fund their BSW education, 42% indicate that the availability of credit cards was "very" or "extremely" important to cover their educational expenses, and 11.1% have more than $10,000 in credit card debt. An ordinal regression model identifies predictors of high educational loan borrowers: the number of federal loans, perceived non-educational debt burden, importance of educational loan availability to attend a higher education institution, use of private educational loans, annual tuition, and total credit card debt. Individual, discipline-specific, and public interventions are presented to promote the financial well-being of these individuals.