As student loan default rates climb nationwide, in Minnesota those numbers are dropping âÄî despite studentsâÄô high borrowing habits.
In 2008, 3.7 percent of Minnesota students defaulted, or failed to pay, their loans, compared to 7 percent nationally, according to data released Wednesday by the Minnesota Office of Higher Education.
The University of MinnesotaâÄôs default rate is even lower âÄî 1.4 percent, a slight decrease from 2007.
Student borrowing at the University has been steadily increasing in past years, according to Kris Wright, director of student finance. University students took out more than $100 million in federal loans in 2009.
Sixty-four percent of University graduates in 2008 had debt âÄî averaging $23,811 âÄî according to The Project on Student Debt, an initiative by the California nonprofit Institute for College Access and Success.
Wright suggests two main reasons for the schoolâÄôs low default rate. The University makes students complete online entrance and exiting counseling in order to help them understand their financial obligations that come with the loan.
Wright said thereâÄôs also the âÄúvalue of the degree,âÄù meaning students who graduate are more likely to find jobs and be able to repay their debt.
Public universities tend to have lower default rates than their community or technical college counterparts. In Minnesota, 53 percent of students who defaulted attended those schools, while only 14 percent attended a public university.
âÄúBigger and more selective schools have lower default rates,âÄù Wright said.
ThereâÄôs no direct evidence of why MinnesotaâÄôs default rates are so low, said Tricia Grimes, a policy analyst at the Minnesota Office of Higher Education. But she said the stateâÄôs comparatively high employment rate may contribute to studentâÄôs ability to pay off loans.
Consequences for failing to pay loans could include penalty fees and a damaged credit history.
For students who default, about 45 percent later restarted payment. âÄúWhen a loan is counted as default, thatâÄôs not necessarily the end of the story,âÄù Grimes said.
The newly released numbers are a snapshot representing borrowers whose first payment was due between Oct. 1, 2007 and Sept. 20, 2008.
High default rates and the general rise in student debt is being addressed nationally, as the Obama administration is looking to create a plan that lowers default rates at for-profit schools in the next year.