Student Loan Default Rates Increase

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Main Digest

The rate announced today is a snapshot in time, representing the cohort of borrowers whose first loan repayments came due between October 1, 2006 and September 30, 2007, and who defaulted before September 30, 2008. Some 3.3 million borrowers entered repayment during this time, and more than 225,300 borrowers went into default. They attended 5,776 participating institutions.

"The economic downturn likely had a significant impact on the borrowers captured in these rates," Duncan said. "The Department is reaching out to make sure current and prospective student borrowers are aware of the many flexible repayment options designed to assist them with their financial obligations, such as the new Income-Based Repayment Plan."

As a historical comparison, in FY 1990, nearly one in four borrowers defaulted on their federal loans when default rates set an all-time high of 22.4 percent. The rate dropped to record low of 4.5 percent in FY 2003.

Schools with excessive default rates may lose eligibility from one or more federal student aid programs. This year, two schools--Healthy Hair Academy of Dallas and Jay's Technical Institute of Houston--are subject to sanctions for current cohort default rates that exceed 40 percent.

In interpreting the rates, it is important to remember that some schools, especially some community colleges, may have rates that seem high but that represent a very low number of students. Sanctions may not apply in these circumstances.

The 2007 cohort default rate for schools participating in the Federal Family Education Loan (FFEL) Program was 7.2 percent, a 36 percent increase over the 2006 rate of 5.3 percent. The 2007 cohort default rate for schools participating in the Direct Loan Program was 4.8 percent, a 2 percent increase over the 2006 rate of 4.7 percent. The FFEL portfolio has a larger percentage of proprietary schools, which have higher default rates, and a lower percentage of public and private 4-year schools, which have lower default rates. Default rates increased for all types of schools-public, private, and proprietary, as well as 4-year and 2-year alike.

Borrowers who need assistance in repaying their student loans can visit www.federalstudentaid.ed.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 may contact the Department's Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).

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