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U.S. student-loan default rates jump sharply

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The number of borrowers defaulting on federal student loans has jumped sharply, the latest indication that rising college tuition costs, low graduation rates and poor job prospects are getting more and more students over their heads in debt.

The national two-year cohort default rate rose to 8.8 percent last year, from 7 percent in fiscal 2008, according to figures released Monday by the Department of Education.

Driving the overall increase was an especially sharp increase among students who borrow from the government to attend for-profit colleges.

Of the approximately 1 million student borrowers at for-profit schools whose first payments came due in the year starting Oct. 1, 2008 — at the peak of the financial crisis — 15 percent were already at least 270 days behind in their payments two years later. That was an increase from 11.6 percent among those whose first payments came due the previous year.

At public institutions, the default rate increased from 6 percent to 7.2 percent and from 4 percent to 4.6 percent among students at private not-for-profit colleges.

"I think the jump over the last year has been pretty astonishing," said Debbi Cochrane, program director for the California-based Institute for College Access & Success.

Overall, 3.6 million borrowers entered repayment in fiscal 2009; more than 320,000 had already defaulted last fall, an increase of 80,000 over the previous year.

The federal default rate remains substantially below its peak of more than 20 percent in the early 1990s, before a series of reforms in government lending. But after years of steady declines it has now risen four straight years to its highest rate since 1997, and is nearly double its trough of 4.6 percent in 2005.

Troubling as the new figures are, they understate how many students will eventually default. Last year's two-year default rate increased to more than 12 percent when the government made preliminary calculations of how many defaulted within three years. Beginning next year, the department will begin using the figure for how many default within three years to determine which institutions will lose eligibility to enroll students receiving government financial aid.

The figures come as a stalled economy is hitting student borrowers from two sides — forcing cash-strapped state institutions to raise tuition, and making it harder for graduates to find jobs. The unemployment rate of 4.3 percent for college graduates remains substantially lower than for those without a degree. But many student borrowers don't finish the degree they borrow to pay for.

The Department of Education has begun an income-based repayment plan that caps federal loan payments at 15 percent of discretionary income. And new regulations the Obama administration has imposed on the for-profit sector have prompted those so-called proprietary colleges to close failing programs and tighten enrollment. Both developments could help lower default rates in the future.

Administration officials took pains to praise the for-profit sector for recent reforms, but also said flatly that those schools — along with the weak economy — are largely to blame for the current increases. Among some of the largest and better-known operators, the default rate at the University of Phoenix chain rose from 12.8 to 18.8 percent and at ITT Technical Institute it jumped from 10.9 percent to 22.6 percent.

"We are disappointed to see increases in the cohort default rates for our students, as well as students in other sectors of higher education," said Brian Moran, interim president and CEO of APSCU, the Association of Private Sector Colleges and Universities, which represents the for-profit sector. He said for-profit schools were taking remedial steps, including debt counseling for students, to bring down the rates.

"We believe that the default rates will go down when the economy improves and the unemployment rate drops," he said.

ITT, owned by Indianapolis-based ITT Educational Services, did not immediately respond to requests for comment.

Chad Christian, a spokesman for Phoenix, owned by Apollo Group, Inc., said colleges throughout the country are seeing increased default rates due to the economy.

"We are committed to helping our students understand and manage financial aid debt levels," Christian said.

The department emphasized that it eventually manages to collect most of the money it's owed, even from defaulters. But that's part of the reason federal student loan defaults are so hard on borrowers — they can't be discharged in bankruptcy. Defaulting can also wreck students' credit and keep them from being able to return to school later with federal aid.

"There are very few avenues for escaping that," Cochrane said. Also, "many employers these days are starting to check credit so it can hurt your job prospects."

According to calculations by TICAS and using the latest available figures, in 2008 average debt for graduating seniors with student loans was $20,200 at public universities, $27,650 at private non-profits and $33,050 at private for-profits.

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  • student loans
    Gov't is so intent on sending people who can't really afford it and others who get a free ride to graduate without
    having the education to get a job that would require a degree, even if there were jobs available.
    Some people need trade schools instead of what colleges offer.
    Stupid to tell everyone they need to go to college, even if the government pays for it.
    As the previous poster said...
    If you are one of the privileged working in Washington, you or some in your family get
    their student loans paid for.
    Isn't it nice of our Congress to have the vote where they can benefit their pockets.
  • Default
    Gee, I can't imagine why student loans are getting paid back - could it be that there are no jobs for these kids that worked so hard to get their degrees? The only way these kids will get out of paying their loans is to die. The government will come after them with a vengence. The ones that have had their loans forgiven (by o)are making $100,000 in D.C. - go figure.
  • Indiana lawmakers say tuition hikes hard on families
    Republican and Democratic budget leaders on the panel bemoaned that in-state tuition jumped from an average of 12 percent of Hoosiers' incomes in 2000 to expectations it will account for 19 percent of average income by 2013.

    "It is much harder to send your kid to school today than it was 20 years ago," said State Budget Committee Chairman Jeff Espich, R- Uniondale.

    http://www.ibj.com/update-indiana-lawmakers-say-tuition-hikes-hard-on-families/PARAMS/article/29408

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  1. Now if he'd just stay there...

  2. Daniel - what about the many US citizens who do NOT follow what the Bible teaches? The Hindus, Jews, Muslims and others who are all American citizens entitled to all rights as Americans?? This issue has NOTHING to do with "What the Bible says..." Keep all Churches separate from State! Pence's ongoing idiocy continues to make Indiana look like a backwards, homophobic state in the eyes of our nation. Can't we move on to bigger issues - like educating our kids?

  3. 1. IBJ should link to the referenced report. We are in the age of electronic media...not sharing information is lazy. Here is a link http://www.in.gov/gov/files/Blue_Ribbon_Panel_Report_July_9_2014.pdf 2. The article should provide more clarity about the make-up of this panel. The commenters are making this item out to be partisan, it does not appear the panel is partisan. Here is a list of the panel which appears to be balanced with different SME to add different perspectives http://www.in.gov/activecalendar/EventList.aspx?view=EventDetails&eventidn=138116?formation_id=189603 3. It suggests a by-pass, I do not see where this report suggests another "loop". 4. Henry, based on your kneejerk reaction, we would be better off if you moved to another state unless your post was meant as sarcasm in which case I say Well Done. 5. The article and report actually indicates need to improve rail and port infrastructure in direct contradiction to Shayla commentary. Specifically, recommendation is to consider passenger rail projects... 6. People have a voice with their elected officials. These are suggestions and do not represent "crony capitalism", etc. The report needs to be analyzed and the legislature can decide on priorities and spending. Don't like it, then vote in a new legislature but quit artificially creating issues where there are none! People need to sift through the politics and provide constructive criticism to the process rather than making uninformed comments in a public forum based on misinformation. IBJ should work harder to correct the record in these forums when blatant errors or misrepresentations are made.

  4. Joe ... Marriage is defined in the Bible ... it is mentioned in the Bible often. Marriage is not mentioned once in the US or Indiana Constitution ...

  5. Daniel - Educate me please: what does the Bible have to do with laws? If the government wasn't in the business of marriage to begin with, then it wouldn't have to "define" marriage at all. Marriage could be left as a personal, religious, or otherwise unregulated action, with no ties to taxes, legal status, etc. Then people could marry whomever they want, and all this silliness would go away. Remember to vote Libertarian in November.

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