Separation Anxiety: Keeping Separated Students out of Delinquency

As one semester closes and another is about to begin, financial aid professionals face a stark truth: Some students will not be coming back this semester, despite not having finished their degrees. And these "separated" students will be at a particularly high risk for delinquency and default.

The reasons why students leave school are as varied as the students themselves. They may be having trouble handling the cost of tuition and living expenses. Some are overwhelmed by the academic challenges they have encountered. Others will be facing personal, family, or health crises that need their full attention. And still others will simply be feeling uncertain about whether higher education fits in with their goals.

In the meantime, while these students try to figure out the next step in their personal and professional lives, time ticks on for their loans. I can't help but wonder: Did these students notify the registrar, the financial aid office, and their lenders that they were leaving school? Do they know their grace periods before repayment are finite and non-renewable? Are they prepared for the start of the impending repayment period? And do they know about the options -- both for repayment and deferments or forbearances -- available to help them?

Fortunately, there's a lot we in the financial aid industry can do to help. An experimental program at ASA called Transitions shows that separated students who received customized guidance on loan repayment were 27% less likely to become delinquent on their loans. That's not a bad start, but there's still room to ponder what these students need from us to stay on a healthy financial track.

It seems to me that there are four big questions to consider about this population:

Question 1: Are these students even thinking about their loans? Probably not. That's definitely an area in which our intervention can help - and possibly nudge them to call their financial aid office or an ASA specialist for some individualized counseling.

Question 2: Do these students have a plan for reentering school or beginning repayment? And does that plan take into consideration the six-month grace period for most federal loans? For instance, a student who starts a temporary separation from school right now, at the conclusion of the fall semester, would reach the end of his or her grace period before the next fall semester begins in approximately eight months. To avoid getting surprised by a loan bill he or she can't pay, this student may need to request a deferment or forbearance unless planning to enroll for summer classes at more than half-time status.

Question 3: Do they realize the long-term financial consequences of leaving school without a degree? According to the U.S. Bureau of Labor Statistics, 3.9% of students who attended some college without achieving a degree are currently unemployed, and their median weekly earnings come to $674. In contrast, only 2.3% of people who finish their bachelor's degree are currently unemployed, and their median weekly earnings rise to $962 - a difference of about $1,200 a month! When students understand that they're still responsible for repaying their loans, even if they didn't finish a degree, they may give higher education a second look. After all, an average of $1,200 more in earnings each month may make the task of repaying their loans much less daunting.

Question 4: Do they know how to get back on track? Whether these students are reentering school or beginning a repayment plan, they need to follow all the right steps to avoid loan trouble. That's where programs like Transitions can help, providing this population with checklists based on their choice to return to or permanently leave school. And this is an area where we all can and should get actively involved, so that no one trying to handle their education loans in good faith gets bedeviled by the details into delinquency or default.

As always, I wish we had better insight into these separating students and what factors put them at higher risk for delinquency and default. What have your experiences taught you about these students? Do you have innovative ideas for keeping them on track? We want to hear your thoughts.

Posted by Michael Ryan on January 03, 2008 at 03:07 PM EST

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