NEW YORK (MainStreet) -- Making a decision on which college to attend is loaded with variables, but one important and often-overlooked one is imperative in making sure you don't waste $20,000 on a college you haven't fully vetted yet: student loan delinquency rate.
In fact, loan delinquencies may be one of the most accurate measures of a college's effectiveness -- and they are on the rise.
According to a March 2011 study from the Washington, D.C.-based Institute for Higher Education Policy, a full 41% of college students surveyed by the IHEP were either delinquent or in default on their college loans (the survey covered a four-year period from 2005 to 2009).
Another study from the Federal Reserve Bank of New York showed that 11.2% of student loans were more than 90 days late. Only credit card delinquency rates were higher (at 12.2%).
“These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms and protecting the maximum Pell grant is more important than ever,” notes Secretary of Education Arne Duncan. “We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace.”
Now there’s a school of thought developing that student loan delinquency rates are tied to student dissatisfaction with their colleges and universities. A study by Russ Choma of Arizona State University’s Reynolds Center looks at why delinquencies are a “key figure” in determining the quality of a school.
Choma’s line of reasoning is this: defaults occur when students are dissatisfied with the quality of education while still at school, or else when they have graduated and can’t land a decent job. That’s a sign that the school underperformed expectations, writes Choma.
He advises checking out the Department of Education’s statistical database of student loan default rates to get a grip on the value of colleges and universities in your area.
So here’s the takeaway: If a college has unusually high delinquency and/or default rates, then potential students shouldn’t necessarily discount the school, but should at least factor that into their decision. On the flip side, if a school has low delinquency rates, that should be viewed as a significant plus among potential students, Choma says.
Either way, loan delinquency rates are a useful tool in any college prospecting tour. Ignore them at your own peril.
Are you currently hunting for your future alma mater? Check out MainStreet’s look at 20 Colleges Worth the Investment to help you decide!