US student loan default rate continues to rise

When no-preference freshman Alyssa Fein decided to attend MSU, she knew she would need financial assistance to pay for tuition.

Fein is one of the thousands of MSU students who have taken out a student loan to help offset rising tuition costs. But according to the Department of Education, the number of students defaulting on those loans is on the rise.

The 2009 national student loan cohort default rate released Monday showed the number of students who defaulted on their loans in 2009 rose to 8.8 percent, up from 7 percent in 2008, making this year’s rates the highest they have been in 12 years.

The trend on loan defaults extended to MSU with university students’ default rate rising from 1.7 percent in 2007 and 2008 to 3 percent in 2009.

Still, the number is below the statewide average of 8.2 percent and the national average.

Students who can’t make a loan payment because of a lack of income can apply for forbearance, allowing them to forego payment for a one-year term. The forbearance process can be renewed for up to three total years, said Val Meyers, associate director of the Office of Financial Aid.

A new federal program created in July 2010 sets students’ loan repayment rate to 10 percent of their income, enabling them to make payments and avoid default even if they’re struggling financially, she said.

The lower default rate for MSU students shows the university is doing a good job to help make college available to more students, Meyers said.

“That means we’re doing pretty well to help students prepare for repayment,” she said. “If we’re able to understand what their responsibilities are when they leave school — so most of them are able to repay their loans — then that’s an excellent thing.”

Fein said she likely will be able to pay off her loan, but the stress to afford college is always there.
“It’s definitely very hard,” she said. “(I) have a friend who has to pay full tuition, and I feel really badly for her because I know I wouldn’t want to be paying that.”

The struggling economy has been a significant factor in the rising default rate, Department of Education Deputy Under Secretary James Kvaal said in a conference call Monday.

“We do see a strong relationship between borrower rates and unemployment rates,” Kvaal said. “We are working very hard to make sure college is affordable, and we continue to believe college can be one of the best investments in a (person’s) lifetime.”

Economics professor Mark Skidmore said the tough economic climate should give students pause when deciding to spend money.

Although some might want greater government assistance, Skidmore said the increasing national debt makes it difficult for the government to do much more to help, even though research shows students who aren’t able to secure a job after graduation often suffer long-term effects.

“I’m not sure how the federal government can do more when they don’t have the funds to do so,” Skidmore said. “There’s a lot of evidence out there that people that come out of college and don’t get into the labor market early, their careers lag behind for a long time.”

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