April 15, 2014
American Student Assistance White Paper Calls for Better Data to Measure Number of American Consumers Impacted by Student Loan Repayment Issues
Up to 60% of Student Loan Borrowers Could Have Restricted Purchase Power as Consumers
American Student Assistance®, the nonprofit leader in engaging students and alumni on responsible student loan borrowing and repayment, has released a new white paper that calls for more robust data on the number of American consumers negatively impacted by student loan repayment issues.
“There is a growing body of economic evidence that education debt is having a broad effect, beyond just the individual borrowers and extending to our whole economy,” said ASA® President and CEO Paul Combe. “This is not a problem of a few but an issue for all of us, yet we lack the necessary data to guide our policy choices.”
“Missing Data: Focusing on the Wrong Factors Could Contribute to Student Loan Distress,” presented at a recent research symposium on student loans at Suffolk University in Boston, analyzes several recent studies and the current figures available on student loan outcomes. Although definitive data is limited, ASA estimates that only about 40 percent of borrowers eligible for repayment are making on-time payments. The remaining 60 percent may be seriously past due at least 90 days or postponing payment temporarily, often due to financial distress.
Student loan borrowers who take a longer time to repay the debt, are reported to a credit bureau for delinquency, or have high debt-to-income ratios may have diminished capacity to purchase the homes, cars and consumer goods that drive the U.S. economy. Current data published by the U.S. Department of Education, however, only focuses on borrowers who default in a very narrow timeframe and does not capture the much larger population of borrowers who struggle with repayment. As a result, policymakers can’t quantify the impact of the debt on the borrower as a consumer and the economy at large.
To fill the data gap and help alleviate student debt’s negative financial impacts on borrowers, “Missing Data” recommends:
• Establishing a concise and consistent definition of student loan “repayment” as a borrower who is making payments toward either principal or interest, and is not past due more than 90 days.
• Continuously tracking and publishing annually the student loan repayment rate.
• Disaggregating seriously past due loans (90-270 days past due) from loans in active repayment, as reported by the U.S. Department of Education.
• Expanding the federal Cohort Default Rate to track individual borrowers over the life of the loan rather than just the first three years out of school.
• Better counseling and proactive education for borrowers to prevent delinquency.
• Shifting the overall structure of administering the federal student loan program to incent delinquency prevention over collection.
“Data spurs policy change,” said Combe. “Just as 30 years ago the release of information on the effects of secondhand smoke revealed the harmful impact of smoking to a wider population and played an important role in policies and perceptions of smoking, so too will better data around the ‘secondhand’ effects of student loan delinquency on our broader economy spark a more informed policy discussion.”
About American Student Assistance
American Student Assistance is a nonprofit organization with 50+ years’ experience helping people make better decisions about financing their education and repaying student loans. ASA provides SALT™, a free educational resource that provides simple, smart, personalized ways for college students and recent graduates to take control of their student debt and manage their finances. Visit www.asa.org or call 617.728.4631 for more information.