Mental Accounting And Student Loans: How Borrowers Perceive Debt - In a 2019 survey conducted by opinion and market research company SSRS for the Pew Charitable Trusts, 7 in 10 Americans said that taking out student loans is a reasonable choice given the benefits of a college degree, but 89 percent also expressed concerns about it. done Ability to repay these loans. And they have reason to worry: About 20 percent of the nation's 43 million federal student loan borrowers are in default — typically defined as at least 270 days without a payment — and millions more are behind on their payments. are behind
Research has provided insight into the characteristics of borrowers who have the most difficulty repaying their student loans, but less is known about why they struggle and their personal experiences with the repayment process. This knowledge gap makes it difficult for policymakers to get a complete picture of why some people successfully navigate the return system while others fall off track, or to easily identify which existing policies may be on target. What are not working and what reforms are needed to better support borrowers? .
Mental Accounting And Student Loans: How Borrowers Perceive Debt
This report seeks to shed light on these issues by analyzing responses provided during 16 focus groups, conducted by Pew with more than 150 student loan borrowers in eight cities, in late 2018 and early 2019. The researchers sorted the participants into four categories, based on self. Information about their experiences in repayment (see "About the Analysis" and Appendix B for more information): People who were on track to repay their student loans; Those who were not on track to repay, regardless of the size of their balance (normal, off track); those who were off track and had balances of $40,000 or more (high balance, off track); and people who were off track and had a balance of $10,000 or less (low balance, off track). The research team conducted four focus groups with each category of borrower.
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Taken together, these focus groups suggested that many participants found it difficult to navigate the repayment system, experienced many challenges in repaying their loans, and did not receive—or receive— They were not able to get immediate and continuous relief, especially when they were financially strapped. stressed Borrowers in these groups experienced high levels of anxiety and frustration about their balance sheets. For example, they realized that they could not keep up with their payments and were forced to make difficult trade-offs to manage their finances. Those who struggled to access long-term solutions became short-term solutions instead.
With the student loan repayment system under pressure as more borrowers struggle to repay, a focus group on the barriers borrowers face should provide important guidance to federal policymakers as they reform the higher education financing system. try These findings, along with existing quantitative data, suggest four actions that the U.S. Department of Education and Congress can take to facilitate successful returns:
Student loan borrowers in the US face significant challenges, including delinquencies, defaults, and growing balances, as they navigate the complexities of the repayment system. The purpose of this report is to help illuminate the specific points at which borrowers face problems and to identify actions that policymakers can take to promote successful repayment of student loan debt for millions of Americans.
Between December 2018 and January 2019, Pew conducted 16 focus groups with 152 borrowers in eight cities—Alexandria, Virginia; Detroit; Kansas City, Missouri; Memphis, Tennessee; Miami; Phoenix; Portland, Maine; and Seattle. The researchers classified participants into four somewhat overlapping categories based on self-reported information about their withdrawal experiences (see Figure 1 and Appendix B):
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The researchers conducted four focus groups with each category of borrowers. Focus groups with both on-track and general, off-track borrowers aimed to better understand why some people successfully navigate the repayment system but others avoid the track.
And even people who make payments on time sometimes have negative financial consequences, such as increased loan balance payments that don't keep up with the savings and capitalized interest on their loans.
(Although many borrowers experience the financial strain of growing balances, those with high balances often feel it most acutely, even if they avoid default.) Because of this, Pew focuses on those with high and low balances. Organized groups, to improve off-track borrowers. Understand the different realities each of these groups face.
"On-track" and "off-track" are names assigned to different categories by researchers based on borrowers' answers to questions on the screening guide and to easily communicate study results. However, these names do not cover all aspects of the borrower's experience in repayment. For example, some borrowers in the on-track focus groups indicated that they had or had defaulted on their loans and experienced difficulties in repaying them, and many in the off-track groups indicated that some aspects of the repayment system they did not like. They were doing a good job.
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This report highlights borrowers' own words using a selection of borrower references, some of which may indicate a misunderstanding of the repayment process. Further, many focus group participants used the terms "transition" and "endurance" interchangeably, so they are also used in this report. Additional references are available in Appendix A.
Most federal student loans are managed by third-party companies, known as servicers. These companies are expected to perform tasks such as collecting payments and helping borrowers choose a repayment plan and access tools to stop payments in accordance with federal rules, regulations and guidelines.
Borrowers who graduate, drop out of half-time enrollment, or drop out of school before their first payment is due automatically enter a six-month grace period.
Unless they choose another plan, borrowers begin repayment in the standard repayment plan, which has fixed payments over a 10-year period as borrowers pay off their principal and interest in full. Loans are paid in full. the time
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If eligible, borrowers also have the option of enrolling in other plans that lower monthly payments or extend the repayment period, but these plans may increase interest and therefore over the life of the loan. amount paid.
Graduate Plan: This program allows borrowers to initially make lower monthly payments than the standard plan, but the payment increases every two years for 10 years as the borrower pays off the full principal and interest over that period. They will, provided payments are made. Complete and on time.
Extended Plan: Borrowers with balances over $30,000 can enroll in Extended or Extended Graduated plans, modified versions of standard and graduated plans that typically support repayments over 25 years.
Income-based plans: These plans have monthly payments that are calculated based on the borrower's income and family size, which must be verified annually.
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Congress has authorized the Department of Education to forgive outstanding balances after 20 or 25 years of qualifying payments.
A set of tools, known as deferrals and forbearances, are available to help borrowers who need to postpone or suspend their payments. Eligible borrowers include those enrolled in school at least half-time, unemployed, disabled, serving in the military, or experiencing economic hardship, among other reasons.
Forbearance: Borrowers with certain types of loans may be able to stop their payments and avoid receiving interest during the grace period.
Most borrowers use deferment when attending school or for financial hardship, such as unemployment.
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Forbearance: Generally, loans are forbearance using interest deposits. Borrowers may enter into discretionary forbearance—typically during periods of economic hardship—or be placed into mandatory forbearance by their servicers. Servicers can apply for forbearance when they process income-driven repayment and other loan-related requests or when borrowers work to submit required documents. In addition to preventing future payments, forbearance can be used retroactively to make delinquent accounts current so that borrowers can, for example, enroll in income-driven plans.
Borrowers who qualify for deferment or forbearance can typically defer their payments for up to one year at a time (although some borrowers use these tools for shorter periods) and for a maximum of three years per instrument. using
With some types of forbearance and many types of forbearance, when the suspended payment period ends, the unpaid interest on the loan capitalizes—that is, is added to the principal and increases the amount subject to interest charges.
(See "How is Interest Accrued and Capitalized on Federal Student Loans?" for additional information on interest accrual and capitalization
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When borrowers don't make payments, they default on their loans, and when they reach 270 days without a payment, they default.
Student loan payments are usually reported to the national credit bureaus after 90 days of nonpayment. Most loans today remain with the servicer for between 271 and 360 days. The loans are then transferred back to the Department of Education, which usually assigns them to a private collection agency. Borrowers can make payments during the transition period to avoid being sent to collection.
In addition, and unlike other types of loans, federal student loans continue to earn interest during default and are rarely discharged in bankruptcy.
In addition to servicers, various agencies may contact borrowers about their federal student loans while they are in repayment. For example, loans made before 2010 (when the Education Department became
Pdf) What Are Student Loan Borrowers Thinking? Insights From Focus Groups On College Selection And Student Loan Decision Making
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