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Student Loan Default Rate Rises

By CityTownInfo.com Staff
September 17, 2009

The Department of Education reported this week that student loan defaults rose to 6.7 percent this year, up from 5.2 percent last year. The new figure is for students who started loan repayment by September 2007 but were considered to be in default by September 2008.

"The economic downturn likely had a significant impact on the borrowers captured in these rates," said Secretary of Education Arne Duncan in a press release. "The Department is reaching out to make sure current and prospective student borrowers are aware of the many flexible repayment options designed to assist them with their financial obligations, such as the new Income-Based Repayment Plan."

Rates rose by about the same amounts across sectors, although for-profit institutions had the biggest default rate of 11 percent. Two-year public college students followed at 9.9 percent.

Experts said that the findings were not a surprise. "It's a reflection of the economy," said Mark Kantrowitz, publisher of FinAid.org, in an interview with Diverse: Issues in Higher Education. "It's what we were expecting."

Jake Stillwell, communications director for the United States Student Association, told Diverse that the findings underscore the need for Congress to approve the Student Aid and Fiscal Responsibility Act, which would save the government about $80 billion that could be used for more financial aid for needy students.

"This trend [of high default rates] will start to slow down if Congress acts," he told Diverse.

While defaults have fallen a great deal since peaking in 1990 at 22.4 percent, this is the first time they have climbed above 6 percent since 1998.

The default rate was higher for borrowers at colleges in the Federal Family Education Loan Program than at those in the Direct Loan Program: FFEL defaults rose from 5.3 percent in 2006 to 7.2 percent in 2007--a 36 percent increase. But the department explained that this was likely because the FFEL program "has a larger percentage of proprietary schools, which have higher default rates, and a lower percentage of public and private 4-year schools, which have lower default rates."

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