Comments on: FSA Annual Report: Cohort Default Rates http://www.quickanded.com/2009/11/fsa-annual-report-cohort-default-rates.html The Quick and the Ed is an education blog published by Education Sector, an independent think tank in Washington D.C. The Quick and the Ed offers in-depth analysis on the latest in education policy and research. Mon, 22 Mar 2010 00:43:35 -0400 http://wordpress.org/?v=2.8.1 hourly 1 By: Ben Miller http://www.quickanded.com/2009/11/fsa-annual-report-cohort-default-rates.html/comment-page-1#comment-2515 Ben Miller Wed, 18 Nov 2009 19:18:04 +0000 http://www.quickanded.com/?p=8686#comment-2515 @collegeloanconsultant, I'm going to have to disagree with you on this one. I don't think that loading students up with more payments upfront really makes a ton of sense. Most starting salaries are not going to be enough to support a higher upfront payment so you would be putting students at a much larger risk of default. Your scenario would only make sense for students going into something like investment banking where they make a ton of money right off the bat. For most other students, that's really not the reality. I do understand your point about the decreasing utility of a college degree over time, as work experience becomes the placeholder for ability that a degree is used to indicate for new hires. But I don't think perceived utility is a reason why some debts get repaid while others don't. More likely it's a juggling game for those who are struggling--pay off the utilities now before they get turned off, make the car payment just before repossession, etc. I would argue that nobody wants to default or intentionally does so just because they no longer think it is worthwhile. Instead, it's more a function of cash flow--they don't have the money to make the payment and so they don't. Front-loading payments would only make this worse. @collegeloanconsultant,
I’m going to have to disagree with you on this one. I don’t think that loading students up with more payments upfront really makes a ton of sense. Most starting salaries are not going to be enough to support a higher upfront payment so you would be putting students at a much larger risk of default. Your scenario would only make sense for students going into something like investment banking where they make a ton of money right off the bat. For most other students, that’s really not the reality.

I do understand your point about the decreasing utility of a college degree over time, as work experience becomes the placeholder for ability that a degree is used to indicate for new hires. But I don’t think perceived utility is a reason why some debts get repaid while others don’t. More likely it’s a juggling game for those who are struggling–pay off the utilities now before they get turned off, make the car payment just before repossession, etc. I would argue that nobody wants to default or intentionally does so just because they no longer think it is worthwhile. Instead, it’s more a function of cash flow–they don’t have the money to make the payment and so they don’t. Front-loading payments would only make this worse.

]]> By: collegeloanconsultant http://www.quickanded.com/2009/11/fsa-annual-report-cohort-default-rates.html/comment-page-1#comment-2513 collegeloanconsultant Wed, 18 Nov 2009 18:18:27 +0000 http://www.quickanded.com/?p=8686#comment-2513 It would be appropriate for the Department of Education to use these statistics to structure a http://www.collegeloanconsultant.com/loan-payment-formula.html">loan payment formula</a> which might ensure that more graduates complete their repayment. Instead of a graduated repayment based on the idea that as incomes grow graduates will be better able to afford payments, why not take into account the idea that a college education has diminishing value to a graduate as time goes on. With expenses increasing as one gets farther from graduation (family, health, mortgage, car, etc.) it is easy to see why people faced with a choice about what to pay, will pay off the debts for things they perceive as still useful to them. If a repayment schedule was more front-loaded (with payments lessening as time went on) it would make better financial sense for both graduates and taxpayers. It would be appropriate for the Department of Education to use these statistics to structure a http://www.collegeloanconsulta.....rmula.html“>loan payment formula which might ensure that more graduates complete their repayment. Instead of a graduated repayment based on the idea that as incomes grow graduates will be better able to afford payments, why not take into account the idea that a college education has diminishing value to a graduate as time goes on.

With expenses increasing as one gets farther from graduation (family, health, mortgage, car, etc.) it is easy to see why people faced with a choice about what to pay, will pay off the debts for things they perceive as still useful to them.

If a repayment schedule was more front-loaded (with payments lessening as time went on) it would make better financial sense for both graduates and taxpayers.

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