EMERYVILLE, Calif., Jan. 19, 2018 /PRNewswire/ -- As a nation, we are increasingly alarmed by the rising student debt numbers, but the high level of a person's student debt does not necessarily mean they are less likely to pay it back. Recent data from Federal Reserve Bank of New York and Brookings Institution show that default rates are instead more closely linked to students and institutions than to loan balances. American Financial Benefits Center, a document preparation company specializing in federal student loan repayment plans, recognizes that borrowers' life circumstances can affect their ability to pay their student loans more than their balances, and supports all its clients in maintaining a federal repayment plan intended to keep their payments affordable.
High student loan debt balances can be alarming, especially for those who have them. But often, they merely reflect attainment of more education. Students who earned advanced degrees often have much higher student loan balances than those who did not, but they are also less likely to default. That could be because they have greater earnings potentials than those with less education, or it could be part of their plan. Borrowers are increasingly sharing that their decision to attend grad school relied on the availability of federal forgiveness programs that lean on income-driven repayment plans.
"It's easy to assume that people with high balances and high payments will be the least able to keep up with them," said Sara Molina, Manager at AFBC. "But that's not what's actually happening. No matter who is struggling with their payments, no matter what factors in their life might make them more vulnerable to default, there are options for them."
The Brookings Institution report calculated that default rates could increase to 40 percent for those who graduated in 2004. While it's impossible to predict how many people will default in the coming years, data can show who is most likely to default.
According to the New York Fed data, attendees of for-profit schools are more likely to default than attendees of nonprofit schools. In the data set used, which did not include advanced degrees, borrowers with bachelor's degrees are the least likely to default, while students who do not graduate are the most likely to default.
Furthermore, the data suggests that default rates are tied to major, school selectivity, and family financial situation: Art majors, attendees of non-selective schools, and borrowers whose families are less financially advantaged are more likely to default than STEM majors, attendees of selective schools, and borrowers whose families are more advantaged.
When analyzed along lines of race and ethnicity, vulnerability to default is compounded for certain groups. According to the Brookings Institution, black bachelor's degree graduates were five times as likely to default as white dropouts. The reason for this might be tied to lack of family financial support or other factors like racial discrimination in hiring that prevent black graduates from finding well-paying work.
Knowing when and for whom defaults are more likely should empower borrowers falling into those categories to take a close look at their own situation and take action if they need to. The Department of Education offers many repayment plans for federal student loans, and many calculate payments based on individuals' income and family size.
"AFBC clients may fall into the categories describing those most likely to default," said Molina. "But they recognized that they needed to do something to avoid default. We helped them understand and apply for income-driven repayment plans, and we help them stay in those programs and assist them in making adjustments when it's best for their situation. We believe that borrowers should never feel that default is inevitable, even when the data is telling them that it is."
About American Financial Benefits Center
American Financial Benefits Center is a document preparation company that helps clients apply for federal student loan repayment plans that fit their personal financial and student loan situation. They adhere to strict customer service guidelines and strive for the highest levels of honesty and integrity.
AFBC is a member of the Association for Student Loan Relief (AFSLR), and each representative on the phone has received the Certified Student Loan Professional certification through the International Association of Professional Debt Arbitrators (IAPDA).
To learn more about American Financial Benefits Center, please contact:
American Financial Benefits Center
1900 Powell Street #600
Emeryville, CA 94608
SOURCE American Financial Benefits Center