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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