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Default rates on federal student loans barely budge

| Tuesday, Oct. 2, 2012,

A new report from the U.S. Department of Education shows nearly half a million borrowers — 13.4 percent — of those who began paying on federal student loans in 2009 defaulted on their debts.

The figure, the first official report tracking three-year default rates, is a slight improvement over an unofficial report last year that showed defaults running at 13.8 percent.

“They were actually better than I expected them to be,” said Mark Kantrowitz, who publishes the Fastweb and FinAid student aid sites.

Kantrowitz, who has written extensively on student debt, said the change reflects a slight decline in defaults in the for-profit higher education sector. Schools in the sector are concerned about federal guidelines that would prohibit their students from tapping federal loans if default rates exceed 30 percent on three consecutive reports.

Even so, for-profit schools, which enroll 13 percent of the nation's students, accounted for 47 percent of the defaults, according to the report.

Student loan defaults came under increasing scrutiny this year as student debt passed the $1 trillion mark.

“We continue to be concerned about default rates and want to ensure all borrowers have the tools to manage their debt,” Secretary of Education Arne Duncan said in a statement accompanying the new report.

In Western Pennsylvania, the report shows default rates range from a low of 1.2 percent among borrowers at Carnegie Mellon University, a pricey private nonprofit research university, to 29.6 percent at the Pittsburgh Kaplan Career Institute, a for-profit school that offers two-year associate degrees.

Kaplan, a wholly owned subsidiary of the Washington Post Co., is one of the largest for-profit chains in the nation. Kaplan spokeswoman Andrea Roebker said the chain has begun new financial literacy initiatives for student borrowers and hopes to lower default rates.

“Still, many working adult, nontraditional students in today's economy remain at risk and the Education Department can do more to help them by giving schools discretion in setting loan caps,” Roebker said.

Critics worry some for-profit schools are advising students to apply for payment deferments or forbearance. That keeps borrowers out of default for several years while they postpone payments, even as interest compounds and the debt grows.

“People are taking out debt with the assumption that it's a good investment and that should be measured by borrowers' ability to pay their loans,” said Debbie Cochrane, research director for the Institute for College Access and Success, a nonprofit group that monitors student debt issues.

“The impact to individuals who default is severe and long-lasting to their credit. It makes it almost impossible to buy a home or a car, rent an apartment or even get a job. We need to make sure fewer students are defaulting,” said Cochrane, noting that federal student loan debt cannot be discharged in bankruptcy.

Debra Erdley is a staff writer for Trib Total Media. She can be reached at 412-320-7996 or derdley@tribweb.com.

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