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Hard Economic Times Cause Increase in Default on Student Loans

September 12, 2011 – Although student loans can help finance a college education for many students who need the extra help, studies released today from the U.S. Department of Education show that student loans are increasingly throwing students in over their heads in debt.

“These hard economic times have made it even more difficult for student borrowers to repay their loans,” U.S. Secretary of Education Arne Duncan said in a press release.

The department’s data shows that the default rate for student loans rose substantially between the fiscal years 2008 and 2009. The overall national student loan cohort default rate rose from seven percent to 8.8 percent. Broken down by department, the data indicates that the rate rose from six percent to 7.2 percent for public institutions, from four percent to 4.6 percent for private institutions and from 11.6 percent to 15 percent at for-profit schools.

These rates account for students whose first loan payment was due between Oct. 1, 2008 and Sept. 30, 2009 and who defaulted before Sept. 30, 2010. There are 320,000 students that fall in this category, out of 3.6 million who took out loans at 5,900 different schools.

The increase in students that are unable to pay off their student loans will not only affect the students, but may also cause schools with the highest rates to face federal consequences, such as losing eligibility for federal aid programs.

Based on the data released today, five schools face possible penalties; these schools are those that had a default rate above 25 percent for three consecutive years, a rate that was more than 40 percent in the most recent fiscal year or both. The institutions are: Tidewater Technical, Norfolk, Va.; Trend Barber College, Houston, Texas; Missouri School of Barbering & Hairstyling, St. Louis, Mo.; Sebring Career School, Houston, Texas; and Human Resource Development & Employment – Stanley Technical Institute, Clarksburg, W.Va.

In response to this increase in student default, the U.S. Department of Education has taken new measures to ensure that schools are accurately and extensively informing students about their financial decisions. These protective measures include a college affordability and transparency list, which shows “schools with the lowest and highest tuition and fees, their average net price and those institutions whose prices are rising at a particularly fast rate, and they allow students to compare costs at similar types of institutions,” the press release stated.

In addition to these changes, the department announced that it will begin measuring default statistics based on a three-year period, rather than the two-year one it has employed previously.


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