Student Loan Default Rates on the Rise

Updated Statistics published U.S. Department of Education show that student loan defaults rise. According to recent data, the default rate for loans that entered repayment in the government in 2008, 13.8 percent, up 2 percent from the default rate for federal student loans that entered repayment in 2007.

is currently the official national student loan default rate, which stands at 7.0 percent, measures the percentage of borrowers who default on their federal education loans in the first two years of repayment. But when the calculation is extended to take into account the default within the first three years of repayment, the national student loan default rate jumps to13.8 percent.

New College Grad: Unemployed, in debt, and unreliable

Under the new rules implemented by the Law on Higher Education the opportunity in 2008, three years the budget will soon be used as a standard measure of student loan default percentages. Starting in 2014, colleges and universities whose default rates of growth above 30 percent, will lose access to federal financial aid - grants and government funded education loans - for incoming and current students

The current federal regulations, the school cut off eligibility for federal student aid when the school default rate exceeds 25 percent, but that the guidelines used by more than two years to forgive the default rate. Officials at the Department of Education attributes the increase in student loan defaults with a soft labor market and the ballooning number of recent graduates who are themselves unemployed and with a pressing need for debt relief.

Department of Education officials also point to growth in the amount of college loan debt accumulates students, especially in expensive for-profit schools and private nonprofit four years of the university. Among students who leave college with debt from school loans, the average student loan debt load is $ 23,186, according to FinAid.org.

Using a three-year calculation of default rates, default rates for students of private nonprofit colleges and universities was 7.6 percent, compared to 4 percent two years the default rate. Among the public of students, three years the default rate is 10.8 percent, compared to two years in the default rate of 6 percent.

the biggest jump from two years to three years awarded to a student loan is seen by students from private nonprofit schools. Using measures of three years, the default rate among these borrowers is 25 percent, more than double two years the default rate of 11.6 percent.

The new rules before school access to financial aid

According to a study conducted by The Wall Street Journal, nearly 9 percent of institutions of higher education will lose its ability to offer federal student aid, if the new rules of default on college loans in full force today. Under current rules, only 1.6 percent of schools have lost the right to federal grants and loans to college students because of the excessive defaults.

2003 Report of the Inspector General for the Department of Education charged that some for-profit colleges became so concerned about the increase in student loan defaults among its former students that schools are masking their true institutional default rates. Two high-profile cases in 2008 and 2009, charged with two for-profit school with late repayment of student loans in order to avoid a default report, a practice that violates federal financial aid regulations.

In response to these and other defend against the allegations that the termination of the for-profit colleges, the Ministry of Education is considering regulations that would prevent the for-profit from the wrong financial health of their graduates by manipulating student loan default percentages.

In one proposed measure, called "gainful employment rule," Department of Education will not only look into student loan repayment rates, and student debt loads from school loans as a percentage of revenues of those gains after they leave school. By tying for-profit school eligibility for federal student aid for gainful employment after college, the Department of Education is hoping to stop the spiraling levels of student loan debt for-profit colleges, which have historically produced the highest default rates.

student loan default rates garnered new attention from the Education Department not only because the default rate is increasing, but also because the department is under pressure from Congress to create a cost effective process of student loan with less losses from defaulted loans. Department education is expected to issue a finalized gainful employment rule later this spring.