The national two-year default rate rose to 8.8 percent last year.

The number of borrowers defaulting on federal student loans has risen sharply.  That number is an 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 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 last 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.

In Colorado, there were 9,158 borrowers in default as of July 31, out of 78,179 borrowers who started repayments in fiscal 2009 on their federal student loans. That equates to an 11.7 percent default rate.

After years of steady declines, the federal default rate has now risen four straight years to its highest rate since 1997 and is nearly double its trough of 4.6 percent in 2005.

Administration officials took pains to praise the for-profit sector for recent reforms but also said those schools — along with the weak economy — are largely to blame for the current increases.

The department said 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.

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Via Denver Post