career and social choices , and beyond the career decisions in America 's education Syatem


Career and Social Choices Survey data from American Student Assistance (2013) finds that 30 percent of respondents say that student debt played a role in their career choice. In line with the survey data, Rothstein and Rouse (2011) find evidence that student loan debt drives graduates away from low-paying and public-sector jobs (also see, Minicozzi, 2005). Similarly, Field (2009) finds that the rate of placements in public-interest law are roughly a third higher when law students are given tuition waivers instead of loan repayment assistance. 

Taken together, what these findings suggest is that borrowers may see their career opportunities differently than non-borrowers, in ways that distort their postcollege planning. Given the widespread reliance on student loans across this cohort of college students, these selection pressures may have significant repercussions in the broader economy. 

Beyond career decisions, student loans also appear to provide people with an embedded thought process that conveys the message that they should wait to start their social lives. For example, Gicheva (2011) finds that students with outstanding student debt have a lower probability of marriage than students without outstanding debt, among people younger than 37 (also see, Baum and O’Malley, 2003). If they marry, graduates with student debt express less satisfaction with their marriage than students with no debt (Dew, 2008). Moreover, when asked, survey data indicate that 43 percent of student loan borrowers say they have delayed having children (American Student Assistance, 2013; also see, Baum and O’Malley, 2003). 

Financial Stress Not surprisingly then, Fry (2014) discovers that 18- to 39-year-olds with two- or four-year degrees who have outstanding student debt are less satisfied overall with their financial situations than similarly-situated young adults without outstanding student debt (70 percent versus 84 percent, respectively). Further, he finds that 18- to 39-yearolds with two- or four-year degrees who have outstanding student debt are less likely to perceive an immediate payoff from having gone to college than similarly-situated young adults without outstanding student debt (63 percent versus 81 percent, respectively). Compounding the problem of financial stress associated with repaying student loans may be the evidence of abusive debt collection practices and the lack of enforcement collection agencies face for these excesses (Burd, 2014). 

Student borrowers face large penalties if they are late or fail to pay 13 back their debt on time, and they may be frustrated in their efforts to better manage their debts by onerous restrictions, many of which are peculiar to this type of consumer borrowing (CFPB, 2013). While media attention and cohort effects may increase the perception of distress among student borrowers, it must be emphasized that the strains felt by many student borrowers today are, indeed, grounded in the economic realities they face.

 Delinquency and Default Considerable popular attention, and significant financial resources, have been dedicated to the problem of student loan delinquency and default. Student loans become delinquent when payment is 60 to 120 days late. In 2011 the U.S. Department of Education spent $1.4 billion to pay collection agencies to track down students whose loans are delinquent or in default (Martin, 2012). While all types of consumer debt have some experiences of repayment difficulty, there is evidence that something about the student loan product, or the context in which it is situated

, makes it particularly difficult to service successfully. According to Brown, Haughwout, Lee, Scally, and van der Klaauw (2014), the measured student debt delinquency rate is currently the highest of any consumer debt product. Cunningham and Kienzl (2011) find that 26 percent of borrowers who began repayment in 2005 were delinquent on their loans at some point but did not default. By 2012, Brown, Haughwout, Lee,

 Scally, and van der Klaauw (2014) report that just over 30 percent of borrowers who began repayment were delinquent at some point. And some of the practices utilized by borrowers and lenders to cope with repayment difficulties may have the perverse effects of deepening loans’ negative implications for student borrowers. About 21 percent of borrowers avoid delinquency by using deferment (temporary suspension of loan payments) or forbearance (temporary postponement or reduction of payments for a period of time because of financial difficulty) to temporarily alleviate the problem (Cunningham and Kienzl, 2011). 

While this may allow borrowers to stay out of official ‘trouble’ with their loans, by stretching out the period of total indebtedness, these practices may further retard capital development. In total, Cunningham and Kienzl (2011) find that nearly 41 percent of borrowers have been delinquent or defaulted on their loans. Again, these trends have effects far beyond the cohort of young adults most plagued by student loan difficulties. Accompanying the increase in student loan indebtedness, delinquency is also a growing problem among older adults. Among student loans held by Americans aged 60 or older, 9.5 percent were at least 90 days delinquent, up about 7.4 percent from 2007 (Greene, 2012). Defaults are also on the rise. According to the U.S. Department of Education (2012), the national 2-year student loan default rate was 9.1 percent in 2010 and the 3-year default rate was 13.4 percent. Not surprisingly, defaults occur unevenly. Students from lower-income households are more likely to default (Woo, 2002), along with students of color (Herr & Burt, 2005). With fewer familial resources to cushion the payment strain prompted by student loan obligations and greater likelihood of inadequate income upon leaving college (Woo 2002; Lochner & MongeNaranjo, 2004), 

these borrowers may have to confront the failed economics of student loans very shortly after exiting higher education. Given rising rates of delinquency and default some researchers have suggested making loan eligibility determinations on an individual basis, taking into consideration all of the circumstances faced as well as the outlook for future ability to repay (see Akers, 2014). This concept, 

predicated as it is on the availability of nearly unattainable information, seems born of a desperate attempt to justify the continued existence of the student loan program, while mitigating its most visibly negative effects. That is, there are too many ways in which the student loan program fails (individuals and society), so we try to patch solutions together when the reality is that only reducing the prominence of student borrowing as a part of the financial aid system will address the roots of the problems. In sharp contrast, these patchwork solutions are likely to exacerbate inequality, perpetuating the survival of a program that will continue to fail whole cohorts of aspiring college students, while diverting massive resources that could be deployed toward more promising approaches.

 Overall Debt Since recent college graduates’ annual earnings are usually much lower than they will be during later, prime earning years, most young adults with student loan debt are forced to rely on credit as a key mechanism for purchasing wealth-building items like a home (Keister, 2000; Oliver & Shapiro, 2006). However, delinquent and defaulted accounts may be reflected in students’ credit scores. For many students, this reveals another way in which student 14 loans may haunt them as they embark on financial independence. Research by Brown and Caldwell (2013) indicates that students with student loans have credit scores that are 24 points lower than students without student loans. Contrary to idea that student loan borrowers face credit constraints,

 however, research using data from 2010 or earlier finds that there was a positive correlation between having outstanding student debt and other debt (such as mortgage, vehicle, or credit card), when comparing graduates with and without debt. For instance, Fry (2014) uses 2010 Survey of Consumer Finance data and finds that 43 percent of households headed by a college graduate with student debt have vehicle debt and 60 percent have credit card debt. However, using 2012 data, Brown et al. (2013) find that households with student debt have lower overall debt than households without student debt. They speculate that borrowers post-Great Recession have become less sure about the labor market, causing a drop in the demand for credit. Additionally, lenders may have become more reserved about supplying loans to high-balance student borrowers in the tighter credit markets that followed the financial collapse.

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