Default Rates Rise for Federal Student Loans

The U.S. Department of Education today released the official FY 2009 national student loan cohort default rate, which has risen to 8.8 percent, up from 7.0 percent in FY 2008. The cohort default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.

The rates announced today represent a snapshot in time, with the FY 2009 cohort consisting of borrowers whose first loan repayments came due between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2010. More than 3.6 million borrowers from 5,900 schools entered repayment during this window of time, and more than 320,000 defaulted. Those borrowers who defaulted after the two-year period are not counted as defaulters in this data set.

“These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms and protecting the maximum Pell grant is more important than ever,” said U.S. Secretary of Education Arne Duncan. “We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace.”

Schools with excessive default rates may lose eligibility in one or more federal student aid programs. This year, five schools are subject to sanctions for cohort rates that either exceeded 25 percent for three consecutive years, exceeded 40 percent in the latest year, or both. Four are proprietary schools: Tidewater Technical, Norfolk, Va.; Trend Barber College, Houston, Texas; Missouri School of Barbering & Hairstyling, St. Louis, Mo.; and Sebring Career School, Houston, Texas. The fifth school is a private school: Human Resource Development & Employment – Stanley Technical Institute, Clarksburg, W.Va.

Since the time when the borrowers in the FY 2009 cohort enrolled, the Obama Administration has expanded flexible loan repayment options for borrowers through the income-based repayment plan (IBR). This plan makes loan payments more affordable by capping the monthly payment at an amount based on income and family size. The Department is stepping up its outreach efforts to make sure borrowers are aware of the benefits of IBR.

In addition, the Department has taken several proactive steps to protect students and taxpayers from programs that leave borrowers with large amounts of debt and poor employment prospects. Through a series of regulations finalized over the past year, the Department has tightened loopholes to protect students from misleading or overly aggressive recruiting practices; taken action to ensure that institutions are offering high-quality programs; and established rules that require career college programs to better prepare students for gainful employment or risk losing access to federal student aid.

This summer, the Department released several College Affordability and Transparency Lists to provide students and families with easy-to-understand data about college costs to help them make informed decisions about their choice for higher education. The lists highlight schools with the lowest and highest tuition and fees, their average net price and those institutions whose prices are rising at a particularly fast rate, and they allow students to compare costs at similar types of institutions. In the coming months, the Department will be disclosing additional data, such as the gainful employment measures, as part of President Obama’s ongoing commitment to boost college affordability and accessibility and make government programs more open, transparent and accountable to the American people.

Finally, in recent months several institutions – notably for-profit schools – have taken action to ensure that current and future students are well served. Several institutions have closed underperforming programs, upgraded their curriculum, begun offering free trial periods so students can try out a program before enrolling, raised admission standards, and boosted repayment rates through better loan counseling.

Borrowers who need assistance in repaying their federal student loans can visit www.studentloans.gov or can contact the holders of their loans to learn about repayment options. For help locating their loan holders, borrowers may access www.nslds.ed.gov or contact the Federal Student Aid Information Center at 1-800-4-FEDAID (1-800-433-3243).

Information on the national student loan default rate, as well as rates for individual schools, states, types of postsecondary institutions, and other sectors of the federal loan industry are available at: http://federalstudentaid.ed.gov/datacenter/cohort.html