Students with loans face financial barriers to earning a degree

Every year, students and their families face a series of decisions about how to pay for post-secondary education, but this is no ordinary year. If you have student loans, repayments are expected to resume in January 2023. 3 year suspension caused by the COVID-19 pandemic, Increased financial hardship For millions of American households.

Now, even before taking out a college loan, students in debt face financial concerns that can hinder their ability to complete their degree program as planned, according to new research from The Pew Charitable Trusts. shown to be more likely than peers who did not. And those academic delays can make it difficult to repay later.

The findings come from a spring 2021 survey of 2,806 respondents conducted by polling and market research firm SSRS on Pew, which found that students with student loans Emphasizes the experiences of non-use students. sample cannot be analyzed, additional factor Despite being related to student financial safety and repayment outcomes, the survey found that student borrowers faced Identifies key challenges facing

Among students enrolled in higher education programs at the time of the survey, those with loans were more likely to report being financially insecure than their peers without debt (41% and 26%, respectively). ), have experienced adverse financial events. —For example, you couldn’t afford to pay your housing bills in the previous year or overborrowed your account (65% and 45%, respectively).

Borrowers also often said they were unable to successfully complete the study program due to financial difficulties. More than one in four (28%) said she was unsure of having the financial resources to complete the program, compared to only 7% of students without loans. Incomplete It is closely related to the negative consequences of student loan repayment. DefaultThis is because borrowers often remain saddled with academic debt, but lack the income associated with higher qualifications, a scenario that disproportionately harms borrowers who are already at risk of financial insecurity. That’s why.

Even borrowers who complete the program may find it takes longer to complete than they thought when they first enrolled. A survey found that 41% of students who have loans and are confident they will be able to complete a program of study scheduled to finish later than originally planned, compared with 41% of students without loans who are confident of graduating. 27% found. Additionally, 65% of borrowers thought it was very likely they would have to take out additional loans for the upcoming semester.

Similarly, previous Pew research found that borrowers who can’t complete a degree may want to do so in the future, but are hesitant because re-enrolling will either borrow more or accrue additional interest on an existing loan. I’m here.and although recently analysis A study by the St. Louis Federal Reserve Bank found that many young borrowers with an associate’s or bachelor’s degree said the benefits of college outweigh the costs when students needed more time to complete their course of study. I found it reported. As a result, additional debt can cause further problems, such as increasing your balance, if you find it difficult to pay off your debt.

Pew’s findings highlight the importance of a repayment system that specifically addresses the financial security of borrowers. People at highest risk of delinquencies and defaults And those who have not completed the course of study — and effectively connect borrowers with available resources. Borrowers go into student loan default after 270 days in arrears, and when they default, they face a variety of consequences, including wage garnishment, income tax refunds and foreclosure from Social Security benefits.

Earlier this year, the Ministry of Education announced reform To a student loan service system aimed at reducing delinquencies and defaults. We are also working on loan cancellations and launching new income-driven repayment (IDR) plans to make monthly payments more affordable and reduce balance growth.

As the sector moves forward on these initiatives, policymakers across government should:

  • Continue targeted outreach to at-risk borrowers. Pew’s research into borrower repayment patterns found that several indicators, such as delinquency, financial distress, and repeated nonpayment, help identify borrowers at risk of loan default. new student loan service systemand as part of that work should continue to target these borrowers and inform them of repayment options.
  • Implement an improved IDR plan. August 2022, President Joe Biden announced The creation of new IDR plans that will significantly improve the affordability of payments and reduce balance growth is a priority that Pew also highlighted. The proposal reduces the amount of discretionary income used to calculate eligible borrower payments and provides incentives for borrowers to pay on time. After the rulemaking process this fall, the department should make this new plan available to borrowers as soon as possible.
  • Makes IDR plan enrollment more seamless. The Undergraduate Talent Development by Unlocking Educational Resources (FUTURE) Act of 2019 directed the Internal Revenue Service and the Department of Education to securely share borrower data to automate recertification of IDR earnings. . This is a process that has historically caused problems for many borrowers. As departments work towards implementing data sharing, Summer 2023, should allow borrowers to choose to share data early in or before the repayment process begins. His past Pew research has found that borrowers who struggle early in their repayments are 2.5 times more likely to eventually default. Early involvement and registration in IDR plans can help borrowers avoid such pitfalls.

The survey was conducted for The Pew Charitable Trust by SSRS through an online SSRS Opinion Panel. Interviews were conducted from May 10, 2021 to he June 16, 2021 to a representative sample of a total of 2,806 respondents. The margin of error for the survey considering design effects for all respondents is plus or minus 3 percentage points at the 95% confidence level.

Lexi West is a Principal Associate and Brian Denten is the Student Borrower Success Project Board Member for The Pew Charitable Trusts.

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