Federal student loan default rates on the rise
The nation’s economic downturn has made a noticeable impact on the number of students loans that have fallen into default, according to new data released by the U.S. Department of Education. The report shows that the default rate for students in the FY 2009 loan repayment cohort was 8.8 percent, up from 7.0 percent from the previous year’s group.
“These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms and protecting the maximum Pell grant is more important than ever,” said U.S. Secretary of Education Arne Duncan. “We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace.”
The new data also showed that default rates rose for all of the varying types of post-secondary schools: For private institutions the rate went up from 4.0 to 4.6 percent, for public institutions the rate went up from 6.0 to 7.2 percent, and for-profits saw their default rates rise from 11.6 to 15 percent.
High default rates can adversely affect an academic institution, leading to ineligibility for some federal student loan and aid programs. This year, five schools are facing sanctions for having default rates over 25 percent for three years in a row, a rate over 40 percent in the last academic year, or both.
Additional repayment options have recently been put in place to assist loan holders. Pushed by the Obama administration, the additional provisions allow borrowers to pay their student loans back based on income. The income-based repayment plan (IBR) “makes loan payments more affordable by capping the monthly payment at an amount based on income and family size,” according to the Department of Education.
