Education Department Report Shows More Borrowers Defaulting on Student Loans

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The percentage of borrowers who defaulted on federal education loans within the first three years of payments rose to an average of 13.4 percent last year -- 22.7 percent for those who attended for-profit colleges -- according to statistics released on Friday by the Department of Education.

With tuition rising steadily, and family income falling, the number of borrowers with federally guaranteed student loans has increased by about a third in the last five years, to more than 37 million. The number of borrowers in default has risen to about 5.9 million, and together they owe a total of $76 billion on loans.

"We continue to be concerned about default rates and want to ensure that all borrowers have the tools to manage their debt," said Education Secretary Arne Duncan. "In addition to helping borrowers, we will also hold schools accountable for ensuring their students are not saddled with unmanageable student loan debt."

The rate of students defaulting on federal loans within two years, also released on Friday, increased to 9.1 percent, the highest level in more than a decade.

This year's report is the first in which the Education Department, as instructed by Congress, formally switched to a three-year cohort, rather than only reporting how many borrowers went into default in their first two years of repayment. But even the three-year window does not capture the full extent of student-loan debtors' problems. According to the Education Department, the average time for a troubled borrower to default is four years. And a study last year by the Institute for Higher Education Policy found that for every borrower who defaulted, at least two more were delinquent in their payments.

Over 20 years, the Education Department estimates, the default rate for borrowers who began repayment in 2009 will be 17 percent -- 49 percent for students who attended for-profit colleges.

"The for-profit two-year cohort default rate actually dipped last year, but not because more students were able to repay," said Debbie Cochrane, the research director of the Institute for College Access and Success. "Some of the for-profit companies have admitted that they used tactics like automatic forbearances or deferrals to push defaults outside the window the government looks at."

Ms. Cochrane said it was both puzzling and disturbing that so many student-loan debtors are still going into default, given that the government's income-based repayment program, which allows low-income or unemployed debtors to make lower monthly payments, or even to forgo payment, has been in effect for three years.

"The Department of Education should do more to make people aware of the program, so they wouldn't face the dire consequences of default," she said.

Colleges with consistently high default rates can lose their eligibility for federal financial aid. Under the three-year measure, sanctions can be imposed on colleges with default rates of 30 percent or more for three consecutive years, or 40 percent for a year. Although those sanctions will not go into effect until 2014, the 218 colleges with three-year default rates over 30 percent, and the 37 with a rate of 40 percent, must submit a default-management plan to the Department of Education.

Two colleges, Centro de Estudios Multidisciplinarios in San Juan, Puerto Rico, and Tidewater Tech in Norfolk, Va., face the loss of federal student aid under the sanctions for high two-year default rates.

education

This article originally appeared in The New York Times.


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