[caption id=”attachment_104984″ align=”aligncenter” width=”630″] (Jacquelyn Martin/AP Photo)
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Federal student loans represent “fundamentally different” relationship between borrowers and their debt than other financial obligations and current federal data doesn’t take that into account, a new study by the New America think tank found.
The report, released Wednesday, took information on student loan debt from several focus groups across the country and analyzed it.
It found that while the federal student loan program was well-intentioned, a lot of its current features that are designed to make it better for borrowers end up making it worse.
For instance, making it easier to delay payments. This is supposed to just be a “fail-safe,” but for many it can become a way to procrastinate and really just put off the inevitable as their balances continue to grow.
Not knowing how much their monthly payments will be from the outset, in part because of the other school aid or needing to take on different amounts each semester, also made it hard to account for the real amount of debt. By the time it all accumulated, a lot of the focus group participants reported experiencing “sticker shock.”
Some borrowers also reported feeling like the “money wasn’t real” when their college distributed federal loans to them, which caused them to not to spend as wisely.
“The solution is not to admonish borrowers for laziness or irresponsibility, but to reexamine what makes federal student loans different, and what processes and incentives can be put in place to correct for those differences,” Jason Delisle and Alexander Holt, the New America researchers behind the report, wrote.
“These run the gamut, and difficult tradeoffs are present. Informing students more about the risk of the loans they take on, for instance, could discourage at-risk students from attending in the first place. Cutting off federal student loans for certain types of under-performing schools could reduce access to higher education.”
But while Delisle and Holt believe this kind of information is vital to crafting better policy, they said that they understand that it won’t fix all of the problems associated with student loan debt.
“These focus groups are the beginning, not the end, to a new type of research of how borrowers interact with the federal student loan system, less based on correlation and more based on behavior and psychology,” they wrote. “All the financial data in the world cannot tell us why a borrower is not repaying. Only the borrower can tell us that.”
