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Students Struggle to Repay Loans

New figures out on students' loan-default rates show many borrowers continue to struggle to meet their payment obligations.

Within three years of their loans becoming due, 13.4 percent of students were unable to make payments in the fiscal 2009 cohort, compared with 13.8 percent defaulting in the 2008 cohort, according to the latest Cohort Default Rate report released by the U.S. Department of Education Friday.

For-profit institutions led with the highest average three-year default rate of 22.7 percent; students from public institutions defaulted at a rate of 11 percent and those at private nonprofit institutions at 7.5 percent.

The national two-year default rate rose to 9.1 percent for the fiscal 2010 cohort, up from the 8.8 percent in fiscal 2009.

For the first time, the U.S. Department of Education looked at a three-year window to capture a more accurate picture of how many students ultimately default on their loans. The fiscal 2009 three-year rates just announced capture the cohort of borrowers who had to start repaying their loans between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2011. This represents more than 3.6 million borrowers from more than 5,900 schools, of which 489,000 defaulted.

The Higher Education Opportunity Act of 2008 requires the federal government to switch from a two-year cohort default rate to a three-year measurement.

"As economic recovery limps along and the job market slowly bounces back, it's no surprise that default rates continue to stagnate or increase," said Justin Draeger, president of the National Association of Student Financial Aid Administrators, in a statement.

NASFAA convened a task force to consider what schools and the federal government can do to help students make wise borrowing decisions and avoid loan default. "Although schools cannot control many of the elements that lead to default, we know that colleges can have a positive impact on student-loan repayment rates and keeping overall indebtedness down," Draeger said.

The Institute for College Access & Success noted that 47 percent of defaulters attended for-profit colleges, which enroll only 13 percent of students. "These data underscore the need for more oversight and stronger standards at schools where poor student outcomes are the norm, and for intensified efforts to help borrowers enroll in affordable repayment plans before they default," according to an institute statement.


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