This week the U.S. Department of Education announced the Student Default rates for borrowers who were to begin repayment after October 1, 2008 and had defaulted by September 30, 2010 and the numbers were dismal.
Of the approximately 3.6 million borrowers in the 2009 cohort, 320,000 had defaulted for an over-all Default rate of 8.8%. This rate was an increase from last year’s 7%, representing a 26% increase in one year. This continues a troubling trend that has seen overall default almost double in only four years (2005 4.6% DR).
As you can see from the graph below, the increase has occurred in all three sectors of higher education with a 24% one year increase in not-for-profits, a 22% one year increase in publics and a 36% one year increase in for-profits.
The other group, which is not counted in these numbers, is those who are delinquent but not yet in default. This means that there is another large number of borrowers who are having trouble paying back their loans and probably receiving a negative credit history as a result.
There is no doubt that much of the problem can be attributed to the lack of job opportunities and the difficult financial times. In fact, young college graduates, those under 25, are venturing into the worst employment market since the Labor Department started tracking their cohort in 1985.
From April 2010 to March 2011, the unemployment rate for young college graduates was 9.7%. This is significantly higher for this group at the same time during the last two recessions, 6.4 summer 2003 and 6.9% summer 1992.
The unemployment numbers are even more pronounced for Hispanic and Black graduates.
According to the Economic Policy Institute’s Report “The Class of 2011”, this group of graduates will be trying to start their careers in the highest unemployment rate for them since the onset of the Great Recession.
And those who are fortunate to find jobs are making 10% less than new graduates did 3 years ago.
New York city Mayor, Michael Bloomberg just today cautioned of the possibility of riots in the streets if the federal government is unable to generate jobs. Bloomberg stated in his weekly radio show, “We have a lot of kids graduating college, can’t find jobs…That’s what happened in Cairo. That’s what happened in Madrid. You don’t want those kinds of riots here.”
So with such a bleak labor market can anything be done?
The answer is a resounding YES.
First, student loan literacy must be increased. It’s not just a piece of paper or a few words at the application or disbursement stage. Institutions must put in place a comprehensive program to continue to remind and educate student borrowers and their families about their responsibilities, the consequences and most importantly their help options throughout their loan term.
Many borrowers are unaware of their help options.
For example, in the recent New York Times editorial, “Help Needed for Student Debtors”, it is noted that the Income Based Repayment plan (IBR), which can lower a borrower’s monthly payment by re-determining it in relation to his or her income and family size, goes unknown and unused by many borrowers in distress.
Also, colleges and universities must make Retention, Persistence and Graduation a separate program that is given the money, the resources, and the planning to help students to degree or certificate completion. After all, even in this economy and job market, those with a college degree or certificate are faring much better finding and keeping a job at a better salary than those without one.