Students Defaulting on Loans: What Message Are They Sending?

The latest report was released on the number of college students (either graduates or otherwise) who’ve stopped attending a university—and have decided to default on their loans. The number stands at about one in every eight students who stop making payments. Default rates are based on those who default on at least one loan three years after leaving college. It takes about 9 months of non-payment for a default to show up on one’s student record and credit report. (The default rate has nothing to do with whether borrowers will default later while on repayment plans that can last up to 30 years.)

photo credit: via photopin cc

photo credit: via photopin cc

This is a sticky issue. My guess is, somewhere close to 99% of these former students believe they’re unable to continue making payments. They’re victims of a poor economy. Many are living at home, attempting to pull their post-student life together. They are all grown up… with nowhere to go for real income.

I mourn their current state. Many of these grads are loaded with potential and still have dreams for their future. They’re bright, tech-savvy, confident, social and hopeful—at least until now. When that career job didn’t surface, one in eight just quit paying their student loans. But why? Here’s my guess.

These former students who defaulted on loans…

* Lack work. The ranks of the long-term unemployed have dropped, but many have found temporary or part-time jobs. What’s more, employers have taken what were once full-time positions and converted them to part-time jobs to avoid the need to cover health-care. It was predictable, but recent grads are the victims. Now, they don’t have the income to pay back loans.

* Lack hope. These young adults are full of angst. An increasing number are seeing a counselor as hope has collided with fear. They can’t see how to meet the obligations they have to pay bills AND pay off loans. They are in debt by tens of thousands of dollars, and those college degrees have not guaranteed anything.

* Lack perspective. Many cannot connect the dots between parents who told them they were amazing and gave them awards just for participating or showing up and now don’t have any way to swoop in and rescue them. Up till now, that’s how life worked. It doesn’t work that way anymore.

* Lack responsibility. This sounds harsh, but many young adults cannot (or will not) do what their grandparents did. Certainly not all of them, but many aren’t willing to work three or four jobs to fulfill an obligation. Some lack ambition, some lack work ethic, and some lack a willingness to do “whatever it takes” to keep the commitment.

It’s a New Day…

I spoke to a friend about this issue recently. She smiled and told me that when she went to college in the ‘80s, she had no money at all. She received no scholarships, so it was up to her and her single mother to finance her education. During her senior year, her brother began as a freshman. What did she do? Took on another job. Her mother actually took on a second job too, working seven days a week, eight hours a day, in order to not “default” on their loans. Later, she decided to bake homemade bread and sell it in a specialty grocery store to earn some extra money on top of her full time job so they could make ends meet. It’s just the way people did life decades ago. They did whatever they had to do to fulfill their commitments. Today, some students have actually had adults encourage them to default on their loans or declare bankruptcy. Wow. While I understand the advice, what message does this send?

There is little doubt in my mind that loan defaults are a clear signal that leaving the world of adolescence for the world of adults is hard. Adolescence continues to be a time where parents risk too little, rescue too quickly, rave too easily and reward too frequently. The college loan has become a harsh and brutal reality check on the fact that the college degree has no guarantees that go with it. They may be a barista at a local coffee shop or have some other job that will not allow them to pay a loan back. Now they’re forced to begin their careers years later than they’d planned and start their families years later as well. This has both financial and emotional ramifications on the young professional. The unemployed or under-employed twenty-somethings I’ve met with say they carry with them:

  • A sense of failure—I’m not the “winner” or the smart, beautiful person mom sees.
  • A loss of hope—I feel depressed, and I despair my future plans are now lost.
  • A lack of direction—Where do I go from here? What’s my next step? Am I behind?

What We Need to Do…

I believe we must change the way we coach them. They now see life isn’t easy, nor is it what they expected. Life brings these kinds of challenges, and (to quote one of our Habitudes) they will either be a TOLLBOOTH or a ROADBLOCK. When we face them and take appropriate steps toward a solution (even if it is slow and small) we make them a TOLLBOOTH. We pay the price and keep moving forward. Sadly, for many, these loan defaults will become a ROADBLOCK, causing young professionals to get stuck. Both the tollbooth and the roadblock stop you for a while. One, however, is simply an opportunity to pay the price; the other an obstacle causing them to get stuck. One is a steppingstone. The other, a tombstone for their growth. We must help them navigate this huge transition from adolescence to adulthood. For their sake, for our economy’s sake, we must mentor them into responsible action on:

  1. Expectations: Help them embrace realistic plans; success is often slow.
  2. Experiences: Open doors for them to gain real life experience.
  3. Excuses: Don’t let them make excuses for why they can’t follow through.
  4. Examples: Be sure and model what healthy, responsible leaders look like.

Now is our chance to equip them to become the leaders they can be.

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Students Defaulting on Loans: What Message Are They Sending?