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Student Debt Grows and Grows: Default Rate on Student Loans Up

Student Debt Grows and Grows: Default Rate on Student Loans Up
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More students are defaulting on their loans, the Chronicle of Higher Education reports. According to a U.S. Department of Education report released on Monday, the “cohort default rate” on student loans increased to 8.8 percent, up from 7 percent in the previous year. That is, 320,000 out of 3.6 million student-loan borrowers whose first repayment period landed between October 1, 2008 and September 30, 2009 defaulted before September 30, 2010.

The cohort default rate measures the proportion of students who defaulted within two years of entering the repayment period. In 2008, the cohort default rate at for-profit institutions was 11.6 percent; in 2009, it was 15 percent. At public institutions, the default rate increased from 6 percent to 7.2 percent; at private universities, it increased from 4 percent to 4.6 percent. Taken together, these figures indicate an overall faster rise in default rates.

For recent college graduates, the consequences of defaulting could stay with them for years. A default could severely impact their credit rating, making it far more difficult for them to buy a car or house, or even rent an apartment and get a job.

Why the Increase?

James R. Kvaal, deputy under secretary of education, noted two trends. With the unemployment rate at 9.1 percent and no new jobs added in August, the economic outlook for students remains gloomy. Kvaal specifically cited a “strong correlation between student-loan default rates and unemployment rates, as well as credit-delinquency rates.” Second, he pointed out that growth in for-profit colleges has pushed up the default rate overall:

In fact, more than half of the total increase in the number of defaulters from 2008 to 2009 arose from the for-profit sector. There were 81,000 more defaulters in 2009 than in 2008, and 49,000 of them, or about 60 percent, came from the for-profit side.

Debbie Cochrane, a program director at the Institute for College Access & Success, notes that, while it is hard to single out one reason that more students are defaulting on their loans, “allegations of deceptive or fraudulent recruiting practices in the sector, including misrepresenting college graduation rates to potential students to encourage them to enroll and take out loans.”

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21 comments

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12:45AM PDT on Sep 19, 2011

Thanks!

6:10PM PDT on Sep 18, 2011

This is very sad. Most students at my college take out loans, some hold jobs. But if you can only work 15 hrs a week without detriment to your education, how much of it can really finance while you are in school?

4:10PM PDT on Sep 17, 2011

Very sad fact... Any education loan's rate should not be based on daily compound interest...
For example, you took $1000 education loan (@ 5 percent each year). Let me compute.. $1000 x .05 x 5 years = $250. you can pay back $1250 one time Or you make payment $250 each year for 5 years. I know the greedy lenders disagree with me. I don't care what they say.

5:20AM PDT on Sep 17, 2011

And remember, it's not going to get any better since Obama just handed out millions of green cards to illegal aliens.

3:06PM PDT on Sep 15, 2011

I will be $10,000 in debt by thee time I am done with my undergraduate degree, and I attended a community college and live as cheaply as possible. Dorms are way too expensive for low income students, at both schools I attended it's $1000+ per month to live in dormitories. There are no cheap ways to go to school anymore. If you don't have parents to pay for everything, you're screwed because no one will hire a college student and there is no financial aid to be found. I am so disillusioned by the state of education, I am not attending to make money, because I know I'll be in debt the rest of my life from getting a higher education. I just want to do what I love. For a poor girl like myself, apparently that's asking too much from the supposed 'land of opportunity'.

10:23AM PDT on Sep 15, 2011

If we ended the Iraq and Afghanistan wars we could afford to send all the kids to college free for 10 years.

10:21AM PDT on Sep 15, 2011

Big shocking suprise here. No jobs default rate up. I am so shocked.

6:46AM PDT on Sep 15, 2011

I recently saw a cartoon that was an adviser speaking to a potential college student. It said "You need to take out student loans so you can go to college so you can get a job to pay off your student loans" and that pretty much seems what it is. There aren't that many jobs available and the ones that are available do not pay very much unless they are in the math or science. Not everyone is very interested in those topics or does very well in them. It seems in some circumstances its almost not worth it to go to college anymore unless it is technical school/trade school or college program that is low on cost and/or is only a year or 2 long.

5:09AM PDT on Sep 15, 2011

I rent to students and do my best to keep their cost down. Unfortunately, I have had to begin running credit reports to weed out those who don't take their obligations seriously. (Long story!)

I am seeing students with huge credit card defaults. One applicant had $50K written off by creditors. These are the minority, but why is any bank giving out this amount of credit?

I had one student who never missed a payment, but had $80k in student loans. (At a small state university...) She also had a closet of fancy clothes and a new car!

Colleges are building new fancy, often privately owned, dorms that cost almost double what traditional dorms cost. Students are taking out loans to live in these luxury digs.

OK, perhaps I'm a little old fashioned, but when I went to college, most of us were on the extreme austerity plan. Our families were sacrificing to send us to school and that was a great motivation to take our studies seriously. The current model as college as a 4 (5?) year luxury vacation is not a good model.

1:07AM PDT on Sep 15, 2011

Students need to live within their means? what kid making minimum wage could ever afford any university costs? Loans are an inevitable for most looking for higher education. to think otherwise is completely ignorant.

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