As the student loan debt tally grows each and every day exceeding $1.3 trillion in debt, government politicians, market analysts, reporters, personal finance bloggers, and students themselves have all been looking for a solution to the glaring student loan problem. Apart from government policies and proposals, college application advice articles, personal finance tips, and political debate, not much has been done to significantly improve the current situation. While improvements take time, one analyst has come up with an interesting theory about student loan trends.
Mark Kantrowitz, a financial aid expert with experience in student loans, has theorized about the underlying causes for student loan delinquency. For those who do not know, delinquency on a loan means that at least one loan payment is past due by 30 days. The data pertains to student loans that are delinquent for at least ninety days, and the data reaches all the way back to before the recession in the 2000s.
Kantrowitz suggests that the issue with delinquency falls on parental difficulties rather than student difficulties. It is hard to prove because the federal government does not distinguish student loans between parents and students (unless it’s a Parent PLUS Loan), but at any rate, the trends may be related to the government policies implemented around 2010.
Parents who took out student loans for their children around 2008-2010 were the first borrowers capable of using the government policy of loan deferment. Over the next few years, this option became popular among students and parents. Fast forward to today, these loans are coming out of their grace period, but delinquency rates have remained constant for the past several years. Kantrowitz’s theory attributes this to parental financial difficulties that have been perpetuating since the recession.
There are other factors that lend support to this theory; for instance, parents are not eligible for helpful student programs such as an income-driven repayment plan. While this is technically supportive of the theory, there is still no significant evidence to indicate that the majority of delinquent student loans fall on the parents. Other critics point out potential reasons as alternatives to this theory.
A skeptical Ben Miller, Center for American Progress Senior Director of Post-Secondary Education, claims that the majority of delinquent student loans can be attributed to college dropouts, not the parents. It has been revealed in studies that many college dropouts lack the degree and capability to pay off their loans, even small balances. Another point of Ben Miller attributes the sustained delinquency to policy-making failures in the government.
At any rate, delinquency and default status accounts for a significant portion of outstanding student loans, both federal and private student loans. While the cause may not be clear, it is still a significant problem in need of a solution.