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

Executive Summary

In an effort to better understand student loan default behavior at Texas A&M University (TAMU), the research staff at Texas Guaranteed (TG), at the request of TAMU, conducted a study of the relationship between loan default, on the one hand, and many student and borrower characteristics, on the other hand. The study examines the default behavior of 12,776 undergraduate borrowers who attended Texas A&M in College Station and who entered repayment on TG-guaranteed Federal Family Education Loan Program loans during federal fiscal years 1997, 1998 & 1999. The study regards a borrower as being in default if the borrower defaulted within the fiscal year the borrower entered repayment or within the following fiscal year. Texas A&M staff supplied information describing high school coursework, SAT scores, college GPA, length of attendance at TAMU, graduation status, amounts of financial aid received, financial need assessment, gender, marital status and many other aspects of students’ backgrounds and college experiences. The study organizes these student and borrower characteristics into the following categories: Preparedness, Attendance Pattern, College Success, Financial Aid, Loan Briefing (Counseling), Demographics and Loan-Related factors.

The study assesses each characteristic’s separate relationship to default by determining whether different groups of borrowers, as defined by the values of the variables, have default rates that are significantly different from each other. In cases in which significant relationships are detected, other statistical measures assess the strength of the associations.

In large part, the results of the study corroborate conventional wisdom. For instance, the study confirms that borrowers who are successful in college are also successful in the repayment of their loans. In other words, borrowers are more likely to repay, and less likely to default, if they have high grade point averages and complete their programs of study. Conversely, borrowers with low GPAs and borrowers who do not graduate from college have higher default rates than other borrowers. While the analytical tools do not prove a cause and effect relationship between college success and default, the findings suggest that anything that can improve college persistence and completion would probably decrease student loan defaults.

The findings do more than confirm our intuitions, though; the results provide new information about the relative importance of different categories of variables. Much prior research in this area has compared the importance of borrower versus institutional characteristics and has concluded that borrower attributes are paramount in their connections to default, while institutional characteristics have little or no association to loan repayment behavior (Knapp & Seaks, 1990; Volkwein & Szelest, 1995; Volkwein et. al., 1995; Wilms, Moore & Bolus, 1987). However, the results of the present study would suggest emphasizing another distinction among borrower characteristics – a distinction between performance (or behavior) characteristics and background characteristics. Performance variables are factors that the borrower has some control over, like whether or not the borrower graduates and what grade point average the borrower obtains. Performance characteristics measure the actions and achievements of students in college. In this study, performance characteristics are found primarily among the College Success and Attendance Pattern groups of variables. Most remaining variables that describe students are


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