Collector - February 2016 - 40


STUDENTLOANS

to keep their talk-time down, but you can't
do that in the student loan world."

FOR-PROFIT SCHOOL
CHALLENGES
A Brookings Institution paper released last
fall concluded that most of the increase
in federal student loan default rates is
associated with "the rise in the number of
borrowers at for-profit schools."
Authors Adam Looney of the U.S. Treasury
Department and Constantine Yannelis from
Stanford University reported that in 2011,
borrowers at for-profit and two-year colleges
represented almost 50 percent of those leaving
school and starting to repay their loans, and
70 percent of student loan defaults.
"These students borrowed substantial
amounts to attend institutions with low
completion rates and, after enrollment,

experienced poor labor market outcomes that
made their debt burdens difficult to sustain,"
they wrote.
Looney and Yannelis concluded that
the type of college students select matters
tremendously and is more relative to their
success in the labor market and paying
their loans.
Students at most four-year public and
private nonprofit colleges have lower default
rates, despite higher loan balances, because
they also have higher earnings, lower rates of
unemployment and greater family resources
to help them avoid loan repayment issues
even during times of hardship, according to
the researchers.
However, they also noted that loan
delinquency is likely to decline in the future,
thanks to the steep drop in the number of
new borrowers at for-profit and two-year

institutions and as oversight of for-profit
institutions has been strengthened.
Regardless of the college students
pick, how much responsibility does the
government have to illuminate the oftenmurky student loan repayment process?
Huffman said that in extending loans with
no credit check, he believes the government
has a "moral obligation" to provide sufficient
financial literacy to students.
Cox said that above all, financial literacy on
all fronts is vital to helping students understand
their student loan debt and avoid default.
"The whole world of finance is painfully
difficult for young adults to understand,"
he said. "We need to be thinking about
how we can help make that easier and
better for them."
Anne Rosso May is editor of Collector.

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