Credit scoring models play a crucial role in identification, determination and quantifying risk measures for all financial institutions, particularly credit risk at both counterparty and transaction levels, for example, corporations, small businesses and private individuals (Sabato, 2010).
The shift in education policies by most countries has evolved over time from grants and scholarships provided to limited, well-achieving students to more opportunities for all in the form of student loans (Woodhall, 1998). Granting student loans is a huge task for financial institutions as they are more diverse than normal retail loans such as credit cards, personal loans and mortgages. Starting with the determinants for granting loans to the reasons for defaults, student loans could be more complex to understand and analyze for these financial institutions such as banks.
Research on the ultimate credit scoring model for student loans has yielded limited results with seemingly outdated statistics as compared to other retail credits. This research paper strives to understand the concepts of credit scoring models, analyze the link of student loans to credit scoring and to critically analyze what can be done in the future with regard to credit scoring models for student loans, particularly focusing on the variables that should be included in the credit scoring models for student loans. The report will evaluate the past journal papers, text books and other researches previously conducted on these topics and will then identify and explore the research gap and define the scope of how credit scoring models should be different for student loans in terms of variables used in the models, then a brief explanation of research methodology and...
... middle of paper ...
...s, moral suasion and baring access to further credits were suggested to be used as methods to prevent default. But they are not employed in practise. In fact, it has come to be regarded as a norm and socially acceptable in developing countries to default on student loans. It is even more difficult to track students in developing countries, which augments administrative costs even further. For instance, the default rates are higher in developing countries like Philippines than in more developed countries like Japan (Shen and Ziderman, 2009). In addition, Woodhall stated that there is lack of accurate data and the issue of ‘extended family’ which makes determination factors less reliable (Woodhall, 1988). This is particularly disturbing for the financial industry and retail credit industry because default rates cripple the whole industry and thereby, the whole economy.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- The discussion of student loan defaults started in 1986 and since then became a priority for education ministries to look over in order to adjust and broaden eligibility for subsidized loan and increase loan limits (Shen and Ziderman, 2009). It was found that the factors that contributed to student loans default were much more complicated than a typical retail credit product as the factors are much more specific (Gross et al, 2009). Credit scoring models for student loans – Important considerations In order to create a good credit scoring model for student loans, one needs to understand what has been done in the past and in this case, the best way to understand who to grant a loan to, one n... [tags: Debt, Loan, Student loan default, Credit]
1640 words (4.7 pages)
- Student loans are a cancer. Once diagnosed, they have the ability to consume your entire life. Sure, there is a “cure”, however it comes with a long list of unavoidable sacrifices and if not acted upon, it’ll be crippling. It will spread to every part of your being, taking your freedoms and abilities away only making it more impossible to make ends meet. Although Cancer is not fair, nor forgiving, there are differences between it and student loans, cancer kills, student loans leave you suffering.... [tags: Debt, University, Student, College]
1019 words (2.9 pages)
- 2012 saw the foundation of the “Make” School startup in San Francisco, California. Designed in response to the high price of student loans, the school aims to “creat[e] an education relevant to today’s industry where students gradually transition into the professional world”. The implications of this startup are much more impactful than its 500 graduates to date. Education in the United States is in a compromising position in contemporary society. Although public education has consistently encouraged students to take their studies to the next level, the absurd debt ceiling caused by student loans has limited the value of higher education.... [tags: Education in the United States, Education]
1531 words (4.4 pages)
- Introduction The current student loan issue is a complex crisis with multiple culprits as well as victims. For one, academic institutions in and of itself cannot deny their responsibility for instigating the crisis. For example, when was the last time, at least in recent years, that anyone heard of a university actually lowering their tuition fees. In reality, year after year the trend has been for universities to increase rates. In fact, according to Larry Abramson of NPR, “tuition and other costs have been going up faster than inflation, and family incomes can’t keep up" (2012).... [tags: Student Loan Issues, College, Education]
1692 words (4.8 pages)
- There is so much information on the web about student loans. In particular, there are certain myths out there that just aren’t true when it comes to your student loans. Here are eight student loan myths that may surprise you. You don’t need to worry about your student loans while you’re in school. The biggest mistake you can make is to blindly take out student loans without considering your major, future career, or finding ways to minimize your debt while in school. If you live like a professional while you’re in school, then you could be living like a student when you’re a professional.... [tags: Debt, Money, Loan, Interest]
984 words (2.8 pages)
- Student debt is more and more popular with nowadays. Education becomes necessary, so it is the reason why more students have to take out the loans to helping for their education. The article " Forgive students loans" by Richard Vedder was written to oppose the current student loan program for college students, and he argues for legislation proposed to forgive loans. He thinks that the impact on student loans debt to the economy of America is seriously, and it can be a big trouble for finance of America.... [tags: Debt, Education finance, Student loan]
720 words (2.1 pages)
- Postsecondary education has become an almost expected aspect of a young adults life. People think that if they are to get any kind of job with a decent amount of pay, they have to have some sort of postsecondary education. The thing is the cost of attending any sort of postsecondary education is increasing rapidly. Many students cannot afford to pay upfront which forces them to obtain student loans. After all the credit hours build up from taking all the classes necessary to finally receive their degree, the students realize how much their student loans have totaled up to be.... [tags: High school, University, Debt, College]
1109 words (3.2 pages)
- “Student loans can turn what should be a blessing—an education—into a burden” (Dave Ramsey). Student loans can cause many graduating students to feel lost and helpless because they have so much debt after graduating. Because of student loans, college students think they can just get through college and pay the loans off easily after they graduate since they will be making money. However, sometimes it isn’t that easy. You can graduate college without taking out one single loan. All it takes is determination and hard work.... [tags: Debt, Money, Loan, Default]
745 words (2.1 pages)
- Most of the students are always eager to go to the last stage of their educational program and attain the highest degree. This is also very important for their professional lives too. The students need to make sure that they have attained the good results or, good marks in their examinations. But, these are always like dream for the students having less financial abilities as the higher education needs you to have some money for managing the academic expenses. This becomes really impossible to carry out the personal expenses even if a student manages the academic expenses.... [tags: Finance]
583 words (1.7 pages)
- Student Loans The federal government has the power to cutback the funding of student loans. There are several different ways the government can go about doing this. One way is to keep the amount of each loan the same and reduce the number of loans granted. Another option the government has is to reduce the amount of each loan and issue the same number as in the past. Either way, students that belong to a low-income family will be greatly affected. Cutbacks in the funding of student loans have several effects.... [tags: Papers]
463 words (1.3 pages)