Socioeconomic Contexts
Student loan default occurs across the range of students’ socioeconomic
contexts. The family structure, the parents’ education, the parents’ marital
status, and the family’s eligibility for federal assistance such as Aid to Families
with Dependent Children are all proxies for the social and economic capital
students can “cash in” to attend college and then later to repay loans. We
discuss next the effects of family structure, parental education, and family
income on student loan default as reported in the studies we reviewed.
Family structure. Family structure affects in a number of ways the likelihood of
defaulting on loans. First, the greater the number of dependents claimed by a
student, the greater the likelihood of loan default (Dynarski, 1994; Volkwein &
Szelest, 1995; Woo, 2002). Volkwein and Szelest (1995) found that the
probability of default increased 4.5 percent per dependent child. As common
sense suggests and research has corroborated, more children require a greater
share of one’s finite supply of resources, thereby decreasing the ability of a
student with dependent children to repay loans (Herr & Burt, 2005). Indeed,
having dependent children was found in one study to have a greater effect on
the likelihood of loan default than the type of institution attended, parent’s
income, and even the student’s annual earnings (Volkwein et al., 1998). Being a
single parent was also associated with a greater risk of loan default (Volkwein et
al., 1998). Being separated, divorced, or widowed was found to increase the
probability of defaulting by more than 7 percent (Volkwein & Szelest, 1995).
One final way family can affect loan default is by providing a safety net.
Students who could count on support from their families, including parents,
were less likely to default than those who had no family support (Volkwein et
al., 1998; Woo, 2002a, 2002b).
Parental Education. Not surprisingly—given the positive relationship between
education and socioeconomic status—students whose parents had higher levels
of formal education were less likely to default than first-generation college
students (Choy & Li, 2006; Volkwein et al., 1998; Volkwein & Szelest, 1995).
This is true in relation to the mother’s as well as the father’s level of education
(Steiner & Teszler, 2003, 2005).
Income. As we would expect, students from low-income families tend to incur
more debt during school than their wealthier peers (Herr & Burt, 2005; Steiner
& Teszler, 2005; Volkwein & Szelest, 1995). Low-income students also report
feeling more burdened once their loan repayments begin, and some evidence
suggests this reaction is intensifying (Baum & O’Malley, 2003b). Generally, the
higher the family income the lower the likelihood the student will default
(Knapp & Seaks, 1992; Wilms et al., 1987; Woo, 2002a, 2002b). Families with
more money are able to provide a financial safety net unavailable to students
from lower-income families, who are more likely to need such a resource given
their greater levels of debt. This safety net also helps students to meet their
loan obligations through fluctuations in personal income.
Most students who default do so because their personal income is inadequate
to keep up with their payments (Flint, 1994; Woo 2002a, 2002b). As
postgraduation or departure earnings increase, the likelihood of default
decreases (Boyd, 1997; Choy & Li, 2006; Dynarski, 1994; Lochner & Monge-
Naranjo, 2004; Volkwein et al., 1998; Woo, 2002a, 2002b). Unemployment, in
contrast, increases the likelihood of default, making success in the job market
critical to repaying student loans (California Postsecondary, 2006; Dynarski,
1994; Monteverde, 2000). Illustrating one of several possible explanations for
the greater likelihood of default among racial/ethnic minorities, Lochner and
National Association of Student Financial Aid Administrators 23
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