Defaults on student loans rising

Every year, tens of thousands of college students and graduates stop making payments on their student loans.

For more than a decade, that loan-default rate was in decline because the federal government toughened penalties for schools with high shares of defaults. Now, the rate is increasing again and not just because of the economy.

Steep hikes in tuition are forcing student debt levels to all-time highs. Lenders have been generous with money. And many borrowers have discovered too late that their jobs don’t pay enough to easily cover loan payments or that one personal crisis can force them to renege on the debt. That debt rarely gets wiped out, even in bankruptcy.

The problem is particularly acute in Arizona, which has the nation’s highest overall default rate on federal student loans: 9.8 percent in fiscal year 2007, the latest figures available.

Driving that default rate are students who borrow money to attend community colleges and for-profit schools. Arizona has a larger share of students at those types of colleges than the nation as a whole.

But more than default rates, it is the high levels of debt that are provoking alarm among consumer advocates. That has heightened scrutiny of for-profit schools.

Tuition at for-profit schools can easily top $10,000 a year. The average loans for a student who earned a bachelor’s degree totaled $32,650 in the 2007-08 school year, compared with $17,700 at public universities. At community colleges, the average for two-year degrees was $7,125.

At least nine out of 10 students who earn degrees or certificates at for-profit schools borrow money to attend, a higher ratio than four years earlier and more than at universities or community colleges.

Nationally, for-profit schools had the highest share of defaults in the United States in 2007: 11 percent. Community colleges had a nearly 10 percent rate, and private, non-profit universities had the lowest rates, at 3.7 percent, according to the U.S. Department of Education.

The U.S. Department of Education is considering stricter rules to protect students. Rising debt loads is one reason. Another is allegations that some for-profit schools are manipulating students into costly programs that don’t benefit them. Among other things, the department is looking at requiring all colleges to disclose more information to prospective students and prohibit schools from paying recruiters based even partly on the number of people they enroll. Incentive pay can lead to overly aggressive marketing, consumer watchdog groups say.

Read more at APP

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