Smart Borrower Blog

New Statistics Show High Federal Student Loan Default Rates

Dec 7th, 2009 @ 2:28 PM by Debbie Dragon

The Education Department recently released data on Federal student loan default rates gathered from over 5000 colleges and universities across the country. The data showed shocking high rates of recent grads who had defaulted on their college loans within the first three years of repayment. The stats covered those students who were scheduled to begin payments in 2007 and by the end of fiscal year 2009 had defaulted on their loan.

The figures further showed that the highest percentage of default rates was from those students who attended for profit schools. In fact, default rates at these institutions were three times higher than those who attended public and nonprofit colleges and universities. On average almost one in five students who had attended a for profit institution had defaulted on their loans within the first three years of payment. Experts say the number could actually be higher since to be in default individuals must have not made a payment over the last 270 days, nearly a year.

As an answer to high numbers of defaults, the Education Department is setting up new regulations that will determine funding for Colleges and Universities beginning in 2014. Schools whose default rates come in above 30% for three years in a row, or whose rates are 40% or above for just one year, will be affected. They will face sanctions and possibly lose federal funding altogether. If this new plan was to go in place today 220 higher education institutions would possibly lose aid and be faced with the likelihood of going out of business.

Critics were quick to respond claiming that the numbers were biased against schools that serve lower income populations. Harris N. Miller, president of Career College Association was quoted as saying,

The only thing that explains default rate is the socioeconomic background. By using that as a metric of quality, you will always be discrimination against low-income students.

Schools do have time before the new regulations go into effect. New federal loan payment plans, based on economic means will hopefully help to alleviate some default rates. If the economy begins to improve so that recent grads have a better chance of becoming employed, that should help as well. In the meantime, those schools facing high default numbers will need to find ways to assist students in paying back their loans to prepare for the new guidelines.

About Debbie Dragon
Debbie Dragon is a full time freelance writer and the co-owner of

2 Responses to “New Statistics Show High Federal Student Loan Default Rates”

  1. helpless in South Dakota says:

    I have about $36k in private student loans (2 seperate lenders) and $50k+ in federal student loans. I’m paying on my smallest private loan, about $3500 so $36/mo payment while my other private loan (Sallie Mae) is delinquent because I’ve used up all my deferment/forebearance and my federal loan is in deferment. What can I do? My private loan is very close to defaulting and I don’t want that to happen. My payment per month is $321 which I cannot afford but they have told me about a workout program that will be $197 a month but I still cannot afford that either. I’m married with 2 small children and living off of 1 income. I cannot find a job for the life of me that will keep us afloat after our daycare expenses.

    I’m so helpless and ready to try to file for bankruptcy, knowing that it probably won’t help either.

  2. Matt says:

    Beware of also the bill collectors for student loans. I just fell prey to. He called me and threatened to garnish my wages. I then asked how much to settle the debt and just pay it off. He said $1,200 to settle it in full. He even called the dept of educ. to get approval. Months later, I go another bill for $400. Seems that it wasn’t a done deal. The bill collectors lied and just took the $1,200 as a payment. Beware. Get it in writing and don’t use a credit card nor a debit card to pay them.

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