The credit default crisis for borrowers with children

Going to college as a parent can be daunting: finding enough hours a day for work, family, and school can be difficult. Many institutions do not offer childcare and classes may only take place at inconvenient times. For many student parents, these burdens are too much to deal with; only a third of undergraduate parents graduate within six years of enrollment.

Now, new data shows another challenge facing student parents: repaying their federal loans. The analyzes presented here show that nearly half of student parents who entered college in the 2003-04 school year and took out a federal loan for their basic education defaulted within 12 years of enrollment. That’s twice as much as borrowers without children.

Worse still, 70 percent of the delinquent student parents were single. For African Americans, single parents made up 90 percent of delinquent student parents. As a result, 1 in 10 undergraduate borrowers were single parents, but those students represented 2 in 5 delinquent elementary school students. For these borrowers, who are often the sole breadwinners of the family, default can keep them in their current financial situation and improve theirs Make living conditions difficult.

Student-parents are not a small subset of college enrollment. There are approximately 4.8 million students who are parents, 2.7 million of whom take out loans to cover school expenses. Students with children are disproportionately colored women, and most are enrolled in community and for-profit colleges. When these students take out loans and default, they get into a financial situation that is difficult to resolve.

Combined with low graduation rates, these numbers show how difficult our higher education system is to support those in need of additional support. If student parents do not have access to comprehensive support systems, they suffer both during enrollment and afterwards. The federal government, states and institutions must find ways to better meet the needs of student parents when it comes to enabling them and their families to have a better future.

The consequences of default

Borrowers who default on their loans see their credit scores drop, making it harder to take on additional debt, rent or buy a home, or even find a job. The federal government can seize the wages and tax returns of defaulting borrowers, even if they are low-income. In addition, defaulting borrowers lose access to additional government assistance, which can affect their ability to retrain. This is a major problem for delinquent student parents, 54 percent of whom have failed to graduate. These consequences can affect the ability of student parents, particularly single parents, to provide adequate resources and opportunities to their families.

Lower failure rates would allow more student parents to experience the potential socio-economic rewards of higher education. Fewer defaults would also benefit the nation as a whole. Taxpayers money could be diverted to student work instead of being spent trying to collect defaulted loans. Americans can also trust that our student loan system is designed to help students even when faced with difficult conditions.

Almost half of the student parents default on their loans

Nearly half of the students with children who entered college in 2004 – 46 percent – defaulted on their federal loans within 12 years. That’s 1.5 times that of all freshmen and almost twice that of borrowers without children. As a result, students with children made up only 17 percent of undergraduate borrowers, but accounted for 27 percent of all undergraduate loan defaults

Although 20 percent of all undergraduate borrowers were enrolled in for-profit colleges, 60 percent of defaulting student parents enrolled in these institutions. In fact, 44 percent of for-profit defaulting parents were parents, the highest proportion of any sector. That is twice the proportion of community colleges and 10 times the proportion of public, four-year institutions. These data are in line with other research showing that first-time students enrolling in for-profit colleges have higher dropout rates than other types of colleges. However, the default rates for student parents at for-profit companies are disproportionately high compared to the default rates for all borrowers, which could indicate that these colleges are not providing the resources student parents need to succeed.

For parents of young children, the failure rates are even worse

Parents of young children in particular struggled to repay their loans. Fifty-three percent of students with children aged 3 years or younger missed it, compared with 31 percent of parents with teenagers. Perhaps this is because students with older children have fewer care costs and obligations, which allows them to devote more time and resources to school.

Again, students who enrolled in for-profit colleges had the worst results. At these colleges, 64 percent of student parents with young children defaulted on their loans within 12 years of enrollment. As a result, a quarter of all defaulting students at for-profit companies had children aged 3 years or younger.

The plight of single parents

Perhaps most troubling is how many defaulting borrowers were single parents. Single parents make up two thirds of student parents who default and account for 18 percent of all school failures.

High failure rates have important implications for these families. When students who have a partner fail, they can often rely on the other parent’s credit and finances to make ends meet as the former student corrects the failure. However, for single parents, there may not be another adult to support the family. This can keep single parents in dire economic straits for a much longer period if they can ever get out.

60 percent of defaulting single parents are African American and Latinos

Colored students are more likely to have children than their white counterparts, and the data shows they also have a greater proportion of student parents who default. African Americans and Latinos made up 52 percent of all student parents (and 60 percent of all single parents) who defaulted within 12 years of enrollment.

The standard problem is particularly acute for single African American student parents. Nearly 90 percent of delinquent African American students with children were single. This proportion was 64 percent for Latin American school parents, 10 percentage points higher than for white school parents.

These data provide further evidence that single parents, especially parents of color, should be a primary care group. CAP recently showed the difficulty of African American borrowers paying back their student loans, and the analysis presented here provides further evidence that underrepresented students get particularly poor results. To address these issues, the Department of Education needs to collect data on the race of borrowers in order to better understand these issues and develop effective solutions.

What Can You Do To Help Borrowers With Children?

Parents who go to school and want a better life for themselves and their children deserve better chances than a coin toss that they will default on their loans. The data shows that student loan balances with children are not the problem. But on the contrary. Across all college types, student parents who failed had smaller balances than those who did not. This applies to both single parents and students who are raising children with a partner.

Why are student parents insolvent at such high rates? This is difficult to say without additional data, but the federal government, states, and institutions can take several steps to enhance these students’ educational experiences that can help them graduate from college and improve their repayment results.

On the repayment side, the federal government should consider whether student parents can benefit from plans that link monthly payments to borrowers’ incomes. Unfortunately, the students included in this data had been enrolled for six years * before the income-based repayment became available, which could partially explain these negative results. However, more than 1 million borrowers default each year, which begs the question of whether students who would benefit from income-oriented repayment options would take advantage of these plans. If it doesn’t, the federal government should conduct additional research on failure and put together focus groups and other consumer tests to find out why borrowers are not taking advantage of these plans.

Politicians can also do more to prevent students with children from getting into debt in the first place. The federal government and states should expand public assistance programs such as Temporary Assistance for Families in Need (TANF) and the Special Complementary Nutrition Program for Women, Infants, and Children (WIC) to more college-enrolled adults to help cover the costs of student Parents. States should provide more support for these students by guaranteeing them government grants and by extending promising – often referred to as free college – initiatives beyond recent high school graduates. On the institutional side, free or subsidized childcare, flexible course schedules, and the ability to acquire credit by assessing students ‘current knowledge and skills can help reduce student parents’ costs and the time they spend enrolling .

If the goal of the American higher education system is to escape poverty and promote the prosperity of the historically marginalized, then ensuring that student parents can successfully repay their debts is a must. Student-parents should get more of our higher education system, and policy makers have the power to improve their results.

Colleen Campbell is the associate director of post-secondary education at the Center for American Progress.

* Author’s Note: Although IBR was approved in 2007, borrowers weren’t able to sign up for the plan until 2009.

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