New Research Offers Insight Into Student Loan Borrower Behavior and Attitudes

Quick Takeaways: 

  • Student loans are unlike any other form of credit – and borrowers view taking them out and repaying them differently, as well.
  • Student loan forbearance, delinquency, and default are not viewed as negatively by students as some might think – and therefore student loan repayment may be seen as the lowest priority when students have other types of debt to manage
  • The ease of the federal student loan system is important, but some students report it contributes to overborrowing and taking on greater debt 

By Brittany Hackett, Communications Staff 

The differences between student loans and other forms of credit have a significant influence on how borrowers approach taking on and repaying their debt and are key elements largely absent from discussions in the federal policy community, according to a new paper from New America.

The paper is based on the findings from a series of six focus groups commissioned by New America’s Education Policy Team in an effort to better understand why some students struggle with student loan repayment, an area in which we have “remarkably little information,” the authors state.

The focus groups, which included a total of 59 borrowers, met around the country between June and October 2014. Though the students selected were from diverse backgrounds and institutions, they all indicated that they had struggled to repay their student debt at some point. New America notes in the report that the debt loads ranged from “less than $10,000” to “as much as $30,000 to $60,000,” with most students owing debt in the lower range. 

According to New America, student loans differ from other forms of credit, like auto or home loans, in several key ways. 

First, borrowers, lenders, and schools are largely unable to know what their monthly repayment will be. This is due, in part, to the nature of federal loans and to variables like interest accrual and which repayment plan a borrower enrolls in. 

Students also do not know how much they will earn after school, and therefore have at their disposal to contribute to repayment. Many students told the focus groups that their monthly repayments were higher than they expected.

And finally, failure to pay monthly bills like auto loans or utility bills “results in a loss, whereas paying a student loan might feel like a loss in the sense that the borrower gains nothing from the payment because she has already obtained the service (her education) and it cannot be taken away,” the authors state.

Focus Group Findings: Postponing Repayment, Getting Loans Too Easy

Many students told New America that they opted to postpone their higher-than-expected student loan repayment through forbearance, which is the ‘’easiest and fastest way to bring a delinquent loan current and to suspend payments,” the authors state. However, the relief appears short-lived as many borrowers said forbearance led them further into debt due to interest accrual, increased monthly payments, and extended period of repayment. 

Students in the focus groups also said the following about postponing repayment:

  • The penalties for defaulting on a loan appeared more manageable than making a monthly payment;
  • Late fees, when assessed, were not as severe for student loans as for other types of debt, so letting a loan go into delinquency became a way to manage debt; and
  • Significant consequences, such as wage garnishment or calls from collection agencies, were required to motivate borrowers to take action on loan repayment. 

Despite negative effects, many students were “more reluctant to repay” and “enable[d] … to push student loans down on their list of bills to pay,” the authors state, adding that negative, indifferent, and sometimes hopeless attitudes towards student loans were only made worse by rising balances from forbearance, default, or longer repayment terms.

The focus group participants also had mixed reactions to the federal student loan system, saying that while they support giving broad access to federal student loans to pay for higher education, the process for taking out the loans was too easy and therefore problematic. 

Many students cited tuition refund checks as a prime example of the ease with which they could take out debt they didn’t need, with some saying that the money did not appear to be real.

The typical response from the students when they were asked for solutions to the student debt issue was to provide borrowers with “more information,” including how much a student will owe per month, the possible negative outcomes of borrowing, and better data on graduate earnings and debt levels. 

However, the students also “acknowledged that more or better information may not have prevented them from making the decisions that they did or facing the outcomes they experienced,” the authors state.

“The solution,” the report concludes, “is not to admonish borrowers for laziness or irresponsibility, but to reexamine what makes federal student loans different, and what processes and incentives can be put in place to correct for those differences.”


Publication Date: 3/13/2015

Raymond G | 3/13/2015 2:44:59 PM

James McAndrews, Executive Vice President and Director of Research at The New York Fed, said it best in a recent speech concerning research they did on student loan debt. "...Given the wide heterogeneity of educational outcomes by type of student and type of institution, any loan program should take careful account of the expected quality of the match between the prospective student and the educational institution. This is a type of underwriting that could be employed much more extensively in the federal student loan program, to the benefit of both borrower and lender. In addition, by restricting the availability of loans to those matches that are likely to succeed, the social benefits will be achieved at lower cost….
…There have been reports of some schools in cities with large minority populations and low-income residents who tried to build enrollment by encouraging academically under-qualified students to apply for loans that they would be unlikely to be able to repay, especially if they received a substandard education. These practices undermine our commitment to financing effective higher education matches, and it is important that they be addressed…"

Debra B | 3/13/2015 11:19:13 AM

RE: " the process for taking out the loans was too easy and therefore problematic" And yet the Dept of Ed does not allow schools to place additional requirements on students receiving loans. To date the only educational requirement is a one-time Entrance Counseling. Hmmm.

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