Federal loan defaults up at WU, across US

| Enterprise Editor

Three-year default rates on federal student loans rising

Washington University
FY 2006-2008: 36 defaults, 1.1% default rate
FY 2007-2009: 17 defaults, 1.4% default rate
FY 2008-2010: 33 defaults, 2.2% default rate

Northwestern University
FY 2006-2008: 26 defaults, 0.5% default rate
FY 2007-2009: 16 defaults, 0.7% default rate
FY 2008-2010: 36 defaults, 1.5% default rate

Saint Louis University
FY 2006-2008: 90 defaults, 2.1% default rate
FY 2007-2009: 63 defaults, 3.1% default rate
FY 2008-2010: 67 defaults, 3.3% default rate

Washington University students defaulted more often on federal student loans they started repaying in fiscal 2008 than on those they started repaying a year earlier, echoing a nationwide rise in defaults brought on by the economic downturn.

Through fiscal 2010, nearly 2.2 percent of Washington University students defaulted on federal loans they started repaying in 2008, according to data from the U.S. Department of Education. That number was up from 1.4 percent in the three-year period through fiscal 2009 and 1.1 percent in the period through fiscal 2008.

The default rate for Washington University students was far lower than the average default rate for students at other private nonprofit schools, which was 7.6 percent in 2010’s data. But experts said the rise in the default rate, even at schools with relatively affluent student bodies, stems from the struggling economy and weak job market. It may be hitting those who can’t find work especially hard, experts said.

“[Washington University’s rate is] an incredibly low default rate, but I think from students’ perspective, that’s a real increase in the number of students who are defaulting and who are facing serious consequences,” said Debbie Cochrane, program director at the Institute for College Access and Success, a nonprofit, nonpartisan research and advocacy group.

For student-aid advocates, the default rise also underscores a thornier issue—whether rising default rates could discourage students who need loans from applying to more expensive colleges like Washington University. Advocates also say that it reflects an ever-increasing need to educate students about options like deferment for preventing defaults.

Mark Smith, director of the Washington University Career Center, said graduating students have weathered the weak economy well, meaning that for the most part, they are able to repay their loans. Only a small percentage of graduates have failed to find jobs, he said—a number that has remained steady, perhaps even improving somewhat, throughout the recession.

“The employment [percentage] is still very good,” he said. “That’s not to say some students don’t have problems, because they do, especially if they have very specific things they want to do.”

Bill Witbrodt, director of Student Financial Services, was out of town and was unavailable for an interview, according to University spokesmen.

The rise in defaults won’t jeopardize the University’s eligibility for Pell Grants and federal loans, Cochrane said. The default rate here was well below the federal threshold for cutting off the University’s access to federal grants and loans.

Nationwide, however, other institutions of higher learning weren’t nearly as fortunate when it came to their default rates.

The nationwide three-year default rate rose by about one-sixth, from 11.8 to 13.8 percent. Public and for-profit institutions have been hit hardest. The three-year default rate at public schools was 10.8 percent. The default rate at for-profit colleges, meanwhile, was 25 percent. Before this year, the three-year default rates have not been broken down based on institution type.

For-profits were hit especially hard, mainly because far more students at these institutions need loans, Cochrane said.

But Cochrane added: “It raises questions about the quality of the education the students received.”

In 2010, the number of three-year defaults at nonprofit Washington University was 33 out of more than 1,500 who were in repayment.

The federal student-loan overhaul law enacted in 2010 pushed commercial banks out of the federal student loan market. But the law, Cochrane said, didn’t make any changes that would have addressed rising defaults.

“The student-loan overhaul didn’t make any changes that would have impacted students’ ability to get their student loans in a timely way or be able to repay them,” Cochrane said.

At the same time, Cochrane said, federal loans offer benefits that private loans don’t. And, she said, many students who have federal loans don’t take advantage of the benefits.

That may be partially due to lack of knowledge about alternatives, said junior Betel Ezaz, vice president of WU/FUSED, a student advocacy group that aims to improve socioeconomic diversity in the student body. But even for those students who do know their options, cultural factors may make them feel uneasy about discussing the topic or seeking help, she said. “I think it’s about making people feel comfortable about going for help, knowing there are venues for restructuring their loans or repaying them,” Ezaz said.

Alternative options include income-based repayments, which Cochrane said allow students to make payments that are a reasonable size compared to their income.

“It guarantees that students’ loan payments won’t take over their entire paycheck,” she said.

Cochrane also mentioned deferment, which allows students to suspend payments if they’re still in school, facing economic hardship, unemployed, in the military or involved in other forms of national service. There’s also forbearance, which allows some students to postpone or reduce their payments if they have financial problems.

Smith said a large number of students from the University enter deferment on their loans because they go to graduate or medical school.

He added there is always a small percentage of students who will have job-seeking problems, putting them in danger of default.

“If you’re one of those 2 percent of students, it hits you very hard because you’re 100 percent unemployed,” he said.

He advised students needing help to talk to their lenders, as well as to consult the Career Center, which continues to help students post-graduation.

Ezaz said it’s important to reach out not only to current students, but also to prospective students. WU/FUSED has worked with the admissions office to include more information on financial-aid options in admissions material, she said.

“Basically, ‘Where in that process can we put that information?’” she said. “There is a threshold where you’re going to lose students who won’t apply because it’s too expensive.”

Sign up for the email edition

Stay up to date with everything happening at Washington University and beyond.