Student loan default rates hit all-time low

Lacey Crisp

Default rates on student loans have hit an all-time low, the U.S. Department of Education reported last week.

The department released the information for 2002 and said default rates on federal student loans dropped for the third consecutive year. The federal default rate is the percentage of students who do not pay back their loans on time. Borrowers reached a peak rate in 1990, when nearly 22 percent of them defaulted on their loans.

Phil Lewenstein, director of communications at the Minnesota Higher Education Services Office, said the decreasing rate will not affect students but will minimize the loss for the government and other lenders.

Although Minnesota is generally below the national rate, default rates went up slightly in the state this year. Those numbers are being recalculated because they might have been miscalculated, Lewenstein said.

Minnesota’s default rate was 4.1 percent, which is up 0.7 percent from 2001. The national average was 5.2 percent, down 0.2 percent from 2001.

“There has been a lot of effort in the past few years to work with schools to help people understand the importance of paying back their loans and the responsibilities,” Lewenstein said.

He said students might be paying their loans back on time because interest rates are decreasing.

“Interest rates have been very low, which helps moderate the burden of how much you have to pay back,” Lewenstein said.

The decrease can be attributed to many things, said Amy Lund Swalley, a senior associate director in the office of Student Finance.

“The education of the students on their loans, their employment rates – there are a lot of factors that can contribute to the decrease,” Lund Swalley said.

She said it is important for students to pay back their loans, not only for their benefit, but also for their school’s benefit.

“Some schools have default rates so high that they are dropped from (loan) programs,” Lund Swalley said.