Borrowers who took out loans for college appear to be having a harder time paying back the money, with the U.S. Department of Education reporting the student loan default rate rose to 8.8 percent in fiscal 2009, the last year for which there is data.
That's a 1.8 percent increase from the seven percent default rate in fiscal 2008.
“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.”
More pressure on schools
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.
Duncan says that in recent months several institutions – notably for-profit schools – have taken action to ensure that current and future students are well served when it comes to financial aid. 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.
For-profit default rate the highest
Still, the default rate among for-profit school students was more than twice the 7.2 percent rate for those at public colleges and three times the 4.6 percent rate at private nonprofit institutions, according to the report
Duncan also says the Obama Administration has expanded flexible loan repayment options for borrowers through the income-based repayment plan. This plan makes loan payments more affordable by capping the monthly payment at an amount based on income and family size.
