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Texas A&M University as undergraduate students. It will identify important relationships by testing whether the default rates of different groups of borrowers are significantly different from each other. The authors of the study hope that awareness of these important relationships will inform the decisions at Texas A&M University that direct counseling efforts and other resources at borrowers before they enter repayment.

Another possible objective of this study is to lay the groundwork for a predictive statistical model. The model would estimate the likelihoods of borrowers defaulting after they enter repayment. Such predictions would be related to the characteristics of the borrowers and their loans. The characteristics chosen for the model would depend, in part, upon the insights that result from the present study.

Prior Research on the Factors Relating to Student Loan Default

Previous research has provided many, though perhaps not always consistent, insights into the factors related to student loan defaults. The genesis of early studies was the need to comment on the policy of holding schools responsible for borrower defaults. Therefore, many prior studies have concerned themselves with evaluating the relative importance of borrower and institutional characteristics. Several have found that institutional characteristics have little or no association to loan repayment behavior and that borrower variables are much more important predictors of default (Knapp & Seaks, 1990; Volkwein & Szelest, 1995; Volkwein et. al., 1995; Wilms, Moore & Bolus, 1987). Nevertheless, a number of the studies have found either the type of school or the school of attendance to be significantly related to repayment, even after factoring in the influence of borrower characteristics (Dynarksi, 1994; Monteverde, 1999; Meyer, 1998; Podgursky et. al., 2000; Volkwein et. al., 1995; Woo, 2002). However, among this group of studies, only Dynarski and Monteverde claimed more than a moderate effect for institutional characteristics. At the same time, Monteverde suggested researchers might have been posing the wrong question by comparing institutional and borrower characteristics.

In their endeavor to find the factors related to default, researchers have evaluated many borrower characteristics that are relevant to the present study. These factors include demographic descriptors (such as ethnicity or race, gender, age and income), financial aid-related variables (like financial need and expected family contribution) and some high school-related variables (like ACT scores and whether the borrower has a high school diploma). Though not germane to this study, a couple of the prior analyses have also included variables that describe the borrower’s experience after leaving college (Dynarksi, 1994; Volkwein & Szelest, 1995; Volkwein et. al., 1995; Woo, 2002).

The most consistent finding of past studies is that borrowers who graduate (or who earn a degree or who do not withdraw) have a much lower probability of defaulting on their loans, as compared to borrowers who do not graduate (Dynarksi, 1994; Knapp & Seaks, 1990; Meyer, 1998; Podgursky et. al., 2000; Volkwein & Szelest, 1995; Volkwein et. al., 1995; Wilms, Moore & Bolus, 1987; Woo, 2002). The studies found the relationship to be both statistically significant and strongly related to default behavior. In addition, for many of these studies, graduation status was the single most important variable.

Prior studies have attempted to operationalize few other variables that measure the borrower’s performance in college. Volkwein et. al. (1995) found that the borrower’s GPA in college and whether the borrower was a science or technology major produced significant but relatively small


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