Student Default Rates Up, Feds Report

In another sign of the recession’s impact on higher education, the federal government Monday said student loan default rates are up significantly as more borrowers report difficulty repaying the money used to pay for college.

The U.S. Education Department’s official default rate for 2007 increased to 6.7 percent, up from 5.2 percent the previous year. The new figure is for students who began loan repayment by September 2007 but were considered in default by September 2008.

Among 3.3 million borrowers entering repayment, more than 225,300 went into default, the department said. Default rates increased for all sectors of higher education, including two- and four-year institutions as well as for-profit proprietary schools.

“The economic downturn likely had a significant impact on the borrowers captured in these rates,” U.S. Education Secretary Arne Duncan said. He said the data showed a need to continue outreach to students about new flexible payment options, including income-based loan repayment.

The federal government also reports data by individual school or college and can sanction institutions with high default rates. Two trade schools in Texas will face sanctions for one-year default rates that exceed 40 percent.

Given the recession and its effects on the job market for recent college graduates, experts said the new findings were not a surprise.

“It’s a reflection of the economy,” said Mark Kantrowitz, publisher of finaid.org, a research organization. He told Diverse, “It’s what we were expecting.”

Student leaders also found the data troubling. “It’s very discouraging,” said Jake Stillwell, communications director for the United States Student Association (USSA). But he said the findings show the need for Congress to approve the Student Aid and Fiscal Responsibility Act (SAFRA), which would end bank-administered federal student loans and re-allocate the money to financial aid for needy students.

“This trend [of high default rates] will start to slow down if Congress acts,” he told Diverse. SAFRA is likely to gain approval from the House of Representatives this week but will face a tougher battle in the Senate, where a strong majority vote is needed to cut off debate. Most Republican leaders—as well student loan organizations—are seeking alternatives to the plan.

The new default data may have some impact on the debate about whether to end the bank-led Federal Family Education Loan (FFEL) program. For 2007, the default rate for colleges in the FFEL program was 7.2 percent, up from 5.3 percent.

By comparison, the 2007 default rate for the government-led Direct Loan program was 4.8 percent, only a small increase from the 4.7 percent rate reported in 2006.

About three-fourths of colleges participated in the FFEL program in 2008, while only about one-fourth were in the Direct Loan program, according to finaid.org. However, the group says, the credit crisis has increased interest in Direct Loans, which reported a 40 percent increase in loan volume in 2008.

For more information about the new default rates, including data for schools and sectors of higher education, visit the Education Department’s web site at http://www.ifap.ed.gov/DefaultManagement/DefaultManagement.html.



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