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The Characteristics Associated with Student Loan Default at Texas A&M University



Loan defaults are an integral part of the federally-subsidized student loan programs. At their core, the programs are intended to assist students, and prospective students, who would otherwise be unable to secure financing from private lenders because of the risk that they would default on their loans. In the Federal Family Education Loan Program (FFELP), the federal guarantee makes it possible for private lenders to provide the needed financing, but the guarantee can not eliminate the underlying risk of default. A certain number of defaults are, in fact, inevitable.

While one purpose of the loan programs is to absorb the inevitable costs of defaults, over time, the loan programs have accepted as another purpose the reduction and minimization of defaults. This fact is evident in the numerous prevention and mitigation efforts that have been implemented since the default crisis of the late 1980s and early 1990s. From the enforcement of default rate sanctions against schools to the establishment of default prevention officers in some college financial aid offices to the increasingly effective application of default aversion initiatives by guarantee agencies and others, industry actors had successfully reduced default rates to very low levels by the end of the 1990s. Over this period of increased focus on default prevention, the national cohort default rate declined from a high of 22.4 percent in fiscal year 1990 to 5.6 percent in 1999.

After more than a decade of focusing on the reduction of default rates, loan program participants have refused to become complacent. As a service to their students and their alumni, some schools remain committed to reducing default rates to their lowest possible levels. Student aid conferences continue to place sessions concerning default prevention on their agendas. Guarantee agencies, schools, lenders and servicers compete, in part, on the basis of their ability to prevent defaults and reduce default rates. Industry alliances have formed to gather best practices and to generate innovations in default aversion. And researchers continue to ponder and test the factors that are associated with student loan defaults, so that they can arm default prevention practitioners with insights that might lead to further innovations.

It is within this context that the present study is offered. Texas A&M University (TAMU) seeks to better understand the causes of default behavior and desires additional means for preventing future defaults. In turn, Texas Guaranteed (TG) wants both to better fulfill its mission as an agent of default aversion and to build upon the body of knowledge concerning the factors related to default behavior.

Study Objective

The purpose of this study is to identify the relationships between borrower characteristics and student loan default behavior. The study will consider only the characteristics and behavior of borrowers who obtained loans through the Federal Family Education Loan Program and attended


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