Number of students paying of loans increases nationally

by Peter Frost

More students than ever are following through on student loan payments, according to a U.S. Department of Education report released last week.
The national student loan-default rate, the percentage of students who fail to pay their student loans, fell to an all-time low of 8.8 percent. Students who fail to make their first payment within 120 days of being billed are considered to be in default.
This marks the second consecutive year the national rate has been less than 10 percent. Since 1990, the default rate has dropped from 22.4 percent.
The University, which ranks close to other Big Ten schools, had a default rate of 4.6 percent for the 1997 fiscal year — nearly half the national average.
What makes the low default rates more impressive, both at the University and nationwide, is that rates have declined even though federal-loan volume has more than tripled in the past decade.
Students are keeping on top of their loans, partially because costs of a smudged credit record are increasingly serious.
“For students, the consequences of default are major,” said Stephanie Babyak, a Department of Education spokeswoman.
“If they don’t make payment on their loans, their credit rating will suffer,” she said. “If they ever need a loan for a car, the chances of actually getting it are pretty slim.”
Besides fearing bad credit ratings, students might be better at paying off their loans because of the economy’s strength and the education department’s system reforms.
“The Department of Education has been trying to reduce these rates for the past eight years because the money comes from tax dollars,” said Nancy Sinsabaugh, interim director of the Office of Scholarships and Financial Aid.
“Students are essentially loaning money from taxpayers,” she said. “If these loans aren’t paid off, taxpayers take the hit.”
Congress also becomes less willing to fund student-loan programs when they aren’t being repaid.
To make sure schools don’t abuse student loans, federal laws penalize schools with high default rates.
If a university’s default rate is 25 percent or higher for three consecutive years, the school loses eligibility to distribute the loans.
The Department of Education judges each university individually on its loan access.

Peter Frost covers business and welcomes comments at [email protected]