Student Loan Default Paper 2.docx

Student Loan Default Paper 2.docx - Student Loan Default...

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Student Loan Default
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Professor Anthropology December 1, 2017 Student Loan Default In the issue of student loan default rate, the stakeholders are the borrowers, the schools, governmental organizations and NGOs, student loan servicers, consumer advocates and student groups, and taxpayers. All these groups understand the urgency and the legitimacy of the issue; they differ only in the degree of power and influence they have over it. The borrowers are the students and their parents who borrow student loans to cover college tuition. These students have to pay back the loans. When enrolling in school and applying for student loan, all students go through entrance interview and sign a promissory note. Borrowers do not have power over the maximum amount they can borrow, over the interest rate, over anything in fact. However, at the time of enrollment, loan is not a real thing for the borrowers, as they do not have to worry about paying it back right away. They face problems when they need help repaying the loans or cannot repay the loans. The repayment period starts after 6 months after graduation (or withdrawal) from college. Then, they have a legitimate and urgent issue to deal with, but still no power. So, the borrowers are moderately salient or expectant stakeholders (Mitchell, Agle, and Wood). They can only choose from the available repayment options or default on their loans. Another group of stakeholders is the schools. Loan servicers monitor when students do not make payments on their loans and go into default and report it to the school and the department of education. At this point, the school tries to reach the students and explain to them existing repayment plans or forbearance options. If a student does not sign the repayment plan or the
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forbearance, the loan is reported on a cohort default rate. (Default cohort consists of loans that go into the repayment during a single federal fiscal year: from Oct 1 to Sept 30. There are 2-year and 3-year default cohort periods). If the reported school default rate gets to 25% in 3 consecutive years or 40% in one year, the college could lose eligibility to participate in the Direct Loan program, and in most cases, the Federal Pell Grant program; thus, losing its revenue. That is why, it is important for the schools to keep their default rates low. The schools “highly salient stakeholders” (Mitchell, Agle, and Wood) as they have very limited power to influence the federal regulations, especially after the final version of Gainful Employment rule was adopted in October 2012. Schools can work with students who are about to default to decrease their default rate; also, they can work with the current students and educate them about loans while the students are in school. To understand why default rates are higher in for-profit colleges, it is essential to understand how for-profit colleges differ from not-for-profit ones and what types of programs they have. Below is a comparison between each sector: Sector Description Public Operated & Funded by State or Local Government
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