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Why Students Default on Their Loans

Aug 18, 2012

A recent survey by the Project on Student Debt revealed in 2010 the average college student graduated with $25,025 in student loan debt. At this level of debt and higher students did not realize the difficulty they would have paying back their loans. They were concerned that by continuing with college in graduate degrees would only put them in a worse position for paying back their loans.

When taking on student loan debt the last thing on a students mind is how they would be able to pay back the money they borrowed. The National Consumer Law Center has pinpointed several factors that can lead to a student loan default.

Who defaults on student loans and why

According to the report, the major reason for default is the student has not completed their field of study and has stopped attending school. The survey revealed that the students that were in default, only 47% had finished and graduate. his showed that 53% of the student in loan default never finished their degrees.

Students that attended for profit colleges have the highest two-year default rates. Of students that defaulted, 65 % of the were from public colleges.

A lack of knowledge concerning loans and defaulting.

In general, the center found that many individuals who defaulted on their loans did not fully understand the state of their finances. About 24% of individuals said they did not know they were in default when they sought legal assistance, while 65% said they did not remember being contacted before they defaulted.

Additionally, the survey found that about 47% of students believed they should not have to repay their student loan debt, usually because of problems they had with their schools. About 90% of these individuals attended a for-profit institution. For this reason, the center believes colleges should be held accountable for poor student outcomes, while degree seekers should be given better, clearer information before applying for loans.

Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.comWant to be heard? Leave a reader comment below.

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