Sunday, September 30, 2012

College student loan default rate at all time high

The overall default rate for college students has increased to more than 9%, a new record according to this story from USA Today. This article from the Chronicle of Higher Ed pegs the 3 year default rate at more than 13%. (query whether this will further shrink the law school applicant pool on top of the well-publicized concerns about the value of a law degree that are already causing students to stay away in record numbers).  Unlike previous years where many of those who defaulted were graduates of dubious for-profit schools, the Department of Education is reporting that many of those included in the new figure are graduates of more traditional, private and non-profit colleges. Also keep in mind that DOE only reports the default rate for two, and for the first time with this report, three years after the borrower has graduated  which might understate the true depth of the problem. From USA Today:

College students defaulting at record rate

Student loan defaults have risen for the fifth straight year, as students from traditional non-profit universities have an increasingly difficult time paying off their college debt.

Numbers released by the Department of Education Friday show that of the 4.1 million borrowers who began making payments in late 2009 and early 2010, 9.1% defaulted within two years, up from 8.8% the year before.

"Student loan defaults still continue to plague too many borrowers," said Debbie Cochrane, research director for the Institute for College Access & Success. "The numbers are distressing, and they needn't be so high."

Experts credited the combination of skyrocketing student debt, the poor economy and a lack of borrower education for the increase. Unlike previous years, when default rates rose because borrowers at for-profit universities were having trouble paying off their loans, this year's rise was attributed to borrowers who attended more traditional non-profit public and private universities. Public school borrowers defaulted at a rate of 8.3%, up from 5.9% just four years ago.

For the first time in four years, the two-year for-profit school default rate dropped from the previous year, to 12.9% from 15%. Mark Kantrowitz, publisher of, a financial aid website, said the drop indicated that new reforms had worked.

Politicians and finance advocates have long been critical of for-profit schools, saying they lure in unqualified students and didn't disclose enough about employment or debt rates. In the past few years, they've implemented new regulations on student recruitment and advertising, and made some changes to financial aid.

"This is a sign those rules are somewhat successful," Kantrowitz said. "All the criticism has lead to these colleges trying to clean up their house."

He added that he expects default rates have hit their peak, and expects them to drop next year based on reforms, a reduction in interest rates and an improving economy.

The two-year default figures released Friday count borrowers who began their repayment in fiscal year 2010 -- meaning they are mostly graduates of the 2009 class -- and measures the percentage who fell a year behind in their payments by September 2011. The data don't measure borrowers who default later in the life of the loan.

The Department of Education for the first time also released an official three-year default rate, which showed that given another year of payments, last year's 8.8% default rate ballooned to 13.4%. The department is in the process of changing its standard to look only at the three-year rate, which critics say gives a more accurate picture of the scope of loan defaults.

The three-year default data showed that nearly half the borrowers in default had attended for-profit colleges, despite comprising only 28% of the total borrowing pool, and 13% of enrolled college students.

Continue reading here.


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Planning to apply for a college grant is always a better choice than planning to avail student loan.

Posted by: student loans and grants for college | Oct 4, 2012 1:01:03 AM

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