National student loan default rates rise, while WWU's stays low

5/16/2012 Mary Ann Beahon
FOR IMMEDIATE RELEASE (573) 592-1127

 

                                       By Erin Crooks '12

William Woods University students are paying their loans. While the national student loan default rate is close to 9 percent, WWU's is only 1.6 percent.

Maria Nozzi is one of the students keeping WWU's rate low. Every month, when her paycheck is deposited, she tallies up her finances and decides how much she can afford to pay on her outstanding loan balance. The amount is usually around $400 and, while it limits her spending cash, she thinks it will be worth it in the long run.
 
I m paying them off as soon as I can because I hate being in debt. It controls you, and it s terrifying, said Nozzi, who graduated in 2011 with a degree in equine administration. She now works at GKC Hidden Springs in Unionville, Pa.
 
The national student loan default rates have been steadily increasing since 2003. Those rates rose from 7 percent in 2008 to 8.8 percent in 2009, while Missouri s overall rate increased from 5.8 percent to 7.6 percent. By comparison, William Woods University s student loan default rate is 1.6 percent.
 
All of these percentage rates are based on borrowers whose first payments came due between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2010.
 
One obvious reason for the increase in student loan default rates is lack of employment, specifically for those graduating from college with loans to repay.
 
According to a study done by the John J. Heldrich Center for Workforce Development in 2011, only 53 percent of college graduates are employed full time. Furthermore, the study also found that the mean average salary for college graduates entering the workforce in 2009 - 2010 was only $27,000.
                                                           
With no money coming in and the cost of living on the rise, it must seem to new graduates that they have no option but to default on their student loans. However, there are numerous options for these students.
 
One of the most beneficial is the Income Based Repayment plan, known as an IBR, which allows borrowers to pay back a percentage of their disposable income. The borrower s payments are calculated by their loan services and factors in such things as marital status, dependents, income and cost of living in their area to come up with an amount that the borrower should be able to pay.
 
There are several other advantages to using an IBR, as well as other repayment plan options. Check them out at studentaid.ed.gov.  
 
Deana Ready, director of student financial services at WWU, suggests that the best way to keep from defaulting is to be knowledgeable about your loans and be aware of how much you are borrowing.
 
Complete the Entrance Counseling and pay attention to the Master Promissory Note process when taking out your initial loans. Establish some familiarity with the National Student Loan Data System (NSLDS), she said.  
 
This system tracks all the federal loans you receive and provides contact information for any lender that you have used as a student. Lastly, complete the Exit Counseling when you leave school. It walks you through your loan repayment opportunities and obligations.
 
Erika Campbell, a May 2012 graduate already has a plan for paying off her loans.
 
I would like to pay off my loans in about five to seven years. It isn t the worst situation I could be in for student loans or debt in general, but it is rather troublesome considering how little I make per month, she explained.
 
The default rate on student loans doesn t affect just students, either. Higher education institutions whose default rates exceed 40 percent in one year, or 25 percent for three consecutive years will lose their eligibility for federal student aid programs.
 
One recommended route is for students to begin paying on their loans (or at least the interest they accrue) while they re still in school. Students can set aside a small monthly amount that they can pay toward their student loans or, instead of spending a tuition reimbursement check on a shopping spree, they can put that money toward paying off their principle balance.
 
It may be tempting to borrow more loan money than you need for your expenses. Refund checks may seem like a good thing when you receive them, but you must remember that you are borrowing money and that you will be required to pay it back, explained Ready.
 
Marilyn Landrum, supervisor of default prevention and financial literacy with the Missouri Department of Higher Education (MDHE) offers this advice to students:
 
Request a one-on-one meeting with your financial aid officer for your exit counseling session to go over the repayment plans and find out what to do if you find you re having trouble making your payments.
 
Until July 1, 2010, the MDHE acted as a guaranty agency that insured student loans against default. If a borrower defaults, a guaranty agency will reimburse the lender and attempt to recover funds from the borrower. The default rates for loans guaranteed by MDHE have been steadily decreasing, due in large part to their aggressive stance on default prevention.
 
The MDHE offers free financial counseling to borrowers and has had a Default Prevention Grant program in place since SFY2002.  The default prevention grants are awarded to Missouri colleges and universities to help set up programs for students that encourage financial fluency and smart borrowing.
 
As we work with the schools, we tell them to encourage students to create a spending plan and live within their means. Some schools have peer financial counselors, or use games to teach financial literacy, Landrum said.
 
Some schools will even contact borrowers when they become delinquent and assist them with getting in touch with their loan holder and getting back on track.
 
The efforts of the MDHE and higher education institutions seem to be working.
 
Even though schools have seen a continuing rise in the amount of loans they process, the schools we work with haven t seen an increase in the amount per borrower. Students are not accepting the full loan amounts on their award letters if they don t need it, and some students return their loan refunds if it turns out they borrowed more than they need, Landrum said.  
 
At WWU, teaching students about financial responsibility is a community effort. The university utilizes its innovative LEAD (Leading, Educating, Achieving and Developing) program, combined with the efforts of the student financial services office, the student life office, and the residential life office to teach students about their finances, encourage budgeting and increase student responsibility.
 
When you put financial knowledge with personal responsibility you create a win-win situation for everyone. Students have the knowledge that as a responsible citizen, it is their responsibility to pay back what they borrowed and they do," said Ready.
 
Many borrowers fail to realize the life-altering consequences of defaulting on their student loans. Defaulting more often than not leads to having their federal or state tax returns seized, or having their wages garnished.
 
It also affects any other type of loan they try to get, resulting in higher interest rates and denial of a loan in some cases. Defaulting on a loan can also mean not getting approved for a home mortgage or apartment lease, and difficulty finding a job.
 
I m trying not to think about my student loans until they come to me, said Heather McCasky, a May equestrian general studies graduate. When I have to start paying them back, I m going to try to get them rolled into one loan to lower the minimum payment each month.