Student loan default rates climb
Kara Perkins / Sun Star Reporter
Oct. 4, 2011
The goal of graduation is achievement and celebration for students, but graduation might be more of a drag for those with mounds of student loans if they aren’t aware of their options.
While the economy continues to struggle, worry over unemployment and loan default is a growing concern as new college graduates are eager to enter the workforce. Future graduates must have a plan.
It might not seem that laws and changes to federal financial aid apply to the life of a busy student, but the real world is right around the corner.
The national student loan default rate rose 1.8 percent between fiscal year 2008 and fiscal year 2009, according to the Department of Education’s Sept. 12 press release. This figure translates to 320,000 students who defaulted within the first two years that their loans became due.
“We have an array of loan repayment options to help borrowers so they don’t have to default – income contingent repayment plans, graduated plans, etc., ” said Jane Glickman, the U.S. Department of Education’s press officer. “And there are options for students to go into deferment or forbearance,” she added.
The Health Care and Education Reconciliation Act, signed into law March 2010, introduced lower interest rates, flexible repayment options and new loan forgiveness programs.
But “students are not at all aware of changes,” UAF Financial Aid Advisor Ashley Munro said. “Student debt is a huge problem in Alaska,” she added. More than half of all UAF graduates acquire student loan debt, averaging $29,485 per borrower in 2009, according to The Project on Student Debt website.
UAF’s Financial Aid Office conducts financial aid workshops every Thursday for students covering various topics from personal finance to scholarship research. Students can find additional information online and through the Financial Aid Office.
College graduates have resources to prepare them for paying back the loans they have borrowed, but they should also be careful about the amounts they are borrowing. “We have heard that some students take out the maximum they are allowed to have more spending money available,” Glickman said. “Interest adds up when it’s time to pay back the loans, so I’d recommend people borrow just what they really need,” she added.
Students who qualify for a subsidized Stafford loan can borrow at a rate of 3.4 percent as of July 2011. That is a decrease from 5.6 percent in 2009, according to the U.S. Department of Education. Unqualified students with an unsubsidized Stafford loan continue borrowing at a 6.8 percent rate.
Jon Bergeson, 27, who describes himself as “somewhere between a sophomore and junior,” was not aware of the rate changes, but he didn’t think the current rates affected his subsidized loan, he said.
The new act also forbids private banks from profiting from federal loans. Instead, funding will come directly from the federal government.
While shifting from private bank lending to the federally funded Direct Loan Program is a smoother process, “it might annoy some students,” Munro said.
“Before, there was some competition so a student could choose based on customer service, for example,” Munro said.
Interest rates have decreased for those who qualify for loans. Additionally, income-based repayment plans now cap monthly payments at an amount that is based on the income and size of a borrower’s family.
For students entering certain career fields, loan forgiveness is offered under regulated guidelines. The weakened economy makes finding such a job a widespread concern. Statistics show that college graduates have the upper hand when it comes to finding work.
The unemployment rate for graduates with at least a bachelor’s degree was four percent, according to the U.S. Department of Labor in August 2011. High school graduates with no college education have a nine percent unemployment rate and there is a more than 13 percent unemployment rate for those with less than a high school diploma.
College graduates are in a favorable position when it comes to competing in the job market alongside those without college degrees. Student loan borrowers now have new options and flexibility within loan repayment guidelines. If students and graduates educate themselves about the changes, they may have a better chance at avoiding loan default.