Conclusion In sum, the empirical evidence suggests that default rates are not good vehicles
for assessing the quality of institutions or of various types of loans. Nor is it a
simple matter to identify which students are likely to default so that they could
simply be declared ineligible for student loans. The causes of loan default are
rooted more deeply in the ever-present tensions around federal financial aid
policy. Since 1965 the federal government has made access to postsecondary
education for all students, regardless of income, a cornerstone of federal higher
education policy. Over the years, because of fiscal constraints, Congress has
moved from grants to loans as the primary vehicle for ensuring such access. It is
axiomatic that there is greater risk of default in providing loans to low- and
moderate-income students—who often come from families with weak credit
histories and who may be at greater risk of not graduating or of ending up in
jobs with lower incomes. Absent greater federal emphasis on grants, it is hard
to imagine a scenario in which access to postsecondary education via loans will
not also result in higher default rates among some student populations than
policy makers would like. One alternative is to stop admitting or providing
loans to students who are at greater risk of defaulting. This, of course, would
turn a blind eye to the tens of thousands of students who triumph over their
circumstances, repay their loans, and go on to lead responsible, productive
lives—and would undercut the very purposes of the student loan program.
Studying the effects of financial aid policy has always meant aiming at a
moving target. As federal, state, and institutional policies have changed around
both pricing and financial aid, the impact of financial assistance, including
student loans, has also changed. Given this shifting context, we are struck by
the relative dearth of recent research on student loan default using large
national data sets and rigorous statistical methods. While other areas of
financial aid policy such as student debt or the impact of financial aid on
persistence have received substantial research attention, a series of studies on
student loan default has not been undertaken for more than a decade. The time
has come to fill the gap.
References
Baum, S., & O’Malley, M. (2003a). College on credit: How borrowers perceive
their education debt. Journal of Student Financial Aid, 33(3), 7-19.
Baum, S., & O’Malley, M. (2003b). College on credit: How borrowers perceive their
education debt. Results of the 2002 National Loan Survey. Braintree, MA: Nellie
Mae Corporation.
Boyd, L. A. (1997). Discrimination in mortgage lending: The impact on
minority defaults in the Stafford Loan program. The Quarterly Review of
Economics and Finance, 37(1), 23-37.
California Postsecondary Education Commission. (2006). Developing a statewide
higher education affordability policy (Commission Report 06-10). Sacramento, CA:
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Choy, S. P., & Li, X. (2006). Dealing with debt: 1992–93 bachelor’s degree recipients 10
years later (NCES 2006-156). Washington, DC: US Department of Education,
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Christman, D. E. (2000). Multiple realities: Characteristics of loan defaulters at
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National Association of Student Financial Aid Administrators 27
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