Is it possible to predict which individuals with student loans will be the ones who end up defaulting? A research report, which includes an analysis of thousands of student loans, draws some conclusions, including those who already have a debt in collections on their credit report — specifically utility debt or medical debt — are far more likely to default than those without those blemishes on their credit reports.
A copy of the report — published by the Urban Institute — is available by clicking here.
About 60% of individuals with a debt in collections ultimately defaulted on their student loans, compared with 24% of those who did not have a debt in collections but did go into default on their student loans, according to the research.
Those who go into default are also more likely to live in lower-income neighborhoods and had a drop of 50 to 90 points in their credit score in the year leading up to default. Interestingly, individuals with less than $5,000 of student loan debt were more likely to default than those with higher amounts of student loan debt.
The report calls for further investigation of the effects of having debts in collection on student loan default and repayment rates.
“These data show that student loan defaulters are likely to be financially vulnerable, but my results should encourage policymakers to do more to help borrowers manage their debts, rather than to limit access to loans,” wrote Kristin Blagg, the report’s author. “Student loans are a key part of broadening access to higher education, and students take on a great deal of risk when they sign their promissory note for a student loan. It is up to policymakers to ensure that borrowers have access to a solid and fair safety net when life gets in the way of repayment.”