Home > Student Loans > The Recession Isn’t the Only Thing to Blame for Student Defaults

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Indicating that no such study has delved into the reasoning as to why student loan defaults occur, the National Consumer Law Center released a report detailing what contributes to loan repayment issues for current and former students nationwide.

Based on results of comprehensive surveys handed out to 40 consumers with student loans that have been in default for more than a year, the NCLC found that many of these individuals had little knowledge about default, and whether they were even late with payments.

Specifically, nearly one in four respondents stated they did not know they were in default on their student loans when they approached some form of legal services to assist them. Additionally, nearly two-thirds of those surveyed said they had not received any contact from lenders regarding default on their loans.

While many of these consumers appear to not know much about defaulting on loans, nearly half of them indicated they did not think they should be paying student loans in the first place. In addition, the NCLC’s findings show 90 percent of respondents do not feel they should have to repay loans to for-profit schools.

Whatever these respondents may think of student loans, though, the fact remains they all have debts that need to be repaid. Regarding the best viable options these consumers and others nationwide have in repaying defaulted student loans, the Center noted that rehabilitation and consolidation are the two most popular methods. Debt repair options affect your credit differently, and rehabilitation is better than consolidation for this reason.

[Credit Cards: Research and compare student credit cards at Credit.com.]

“Overall, consolidation is much faster than rehabilitation, mainly because a borrower in default does not have to make any preliminary payments to qualify,” the NCLC said in its report. “Further, there is no resale requirement for consolidation as there is for rehabilitation of guaranteed (FFEL) loans. The main advantage of rehabilitation relates to credit reporting. However, this benefit is often oversold.”

Using credit responsibly is generally considered the prime means for students to avoid going into debt with their school loans. A popular option for current undergraduates is to secure a student credit card, which may offer benefits to them, such as discounts for school-related products like textbooks.

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