Federal student loan defaults on the rise

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The national percentage of borrowers who have defaulted on federal student loans reached its highest level since 1995, according to U.S. Department of Education figures.

Nationally, the default rate is 14.7 percent for students who began repaying their loans three years ago, in fiscal year 2010. For students who have been repaying their loans for two years, since fiscal year 2011, 10 percent have defaulted. Fiscal years begin Oct. 1 of the previous calendar year and end Sept. 30.

The three-year default rate, a short-term metric used to highlight the most recent trends and compare institutions, shows that loan defaults are increasingly common among former UC Berkeley students as well. Default rates have jumped from 2.6 percent for students who paid back loans from 2009-12 to 3.8 percent for students who repaid loans from 2010-13.

Bernard Gifford, a professor at the UC Berkeley Graduate School of Education, says the heightened numbers are due in part to the 2008 economic recession. Unemployment rates for people aged 20 to 24 have fluctuated between 12.4 percent and 14.2 percent in the last two years — percent higher than for the economy as a whole, according to the U.S. Bureau of Labor Statistics.

“You’re getting more students dropping out — they’re making far less money than ever before,” Gifford said. “When you’re offering (loan) advice to students, you have to be mindful of what the world looks like and what the employment rates are.”

Higher college costs also lead to increased default rates, according to Gifford. The UC tuition rate increased by 75.6 percent in the last five years.

“The rate of increase of fees is unprecedented,” Gifford said. “Every year, on average, they’re going up at double-digit rates. The costs that students are being asked to shoulder is higher than it’s ever been.”

This means students have to make up the extra costs — sometimes with loans.

Of all college and university students, students at for-profit institutions have the highest default rates. Of the for-profit students who began repaying their loans in 2010, 21.8 percent have defaulted.

“Higher education institutions in the for-profit sector essentially take all students, and many of them encourage their students to take out loans,” Gifford said. “Frankly, I hope a number of those institutions are put out of business, because a number of them are immoral.”

During the Obama administration, interest rates on government student loans have fallen significantly, according to Gifford. Still, default rates have climbed.

“The growing number of students who have defaulted on their federal student loans is troubling,” said U.S. Secretary of Education Arne Duncan in a press release. “The Department will continue to work with institutions and borrowers to ensure that student debt is affordable.”

Contact Daniel Tutt at [email protected].