Student loan default rates reach highest levels in 20 years

Banks should expect potential borrowers of all ages and from varied backgrounds. An individual’s credit history is likely a strong indicator of how he or she can handle new financial obligations, like a new loan. With the right credit risk management software in place, organizations can ensure they have the necessary tools to find creditworthy borrowers.

Being aware of financial news is also important, as this could dictate how numerous customers are being affected by events. For example, according to a recent report from the Department of Education, younger borrowers could be a greater risk. The latest figures made public earlier this week show that student loan defaults have skyrocketed to their highest levels in two decades.

“The growing number of students who have defaulted on their federal student loans is troubling,” Education Secretary Arne Duncan said in a company press release, adding that the department will “build a shared partnership with states, local governments, institutions, and students—as well as the business, labor, and philanthropic leaders—to improve college affordability for millions of students and families.”

Specifically, one in 10 recent borrowers defaulted on their federal student loans within the first two years, which is the highest default rate since 1995.

Rory O’Sullivan, policy director at Young Invincibles, told the Huffington Post that not enough student borrowers know about their options, and that programs are available that could help them find payment plans that better fit their financial needs.

Regardless of a potential borrower’s age, financial institutions should ensure that current credit application software is used to determine their risk factor. That way, the bank and borrower can work toward finding options that satisfy both parties.

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