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Federal Student Loan Default Rate Climbs to 8.8 Percent

September 20, 2011

The share of federal student loan borrowers who defaulted on their loan repayments jumped to 8.8 percent in fiscal year 2009, the most recent year for which data is available, according to the Department of Education (ED). The FY09 rates represent the fourth consecutive year loan defaults have increased, reflecting the difficult economic conditions faced by many student loan recipients as they leave their postsecondary institutions. While defaults vary by institutional type, private for-profit (proprietary) institutions have the highest rates

The FY09 default rates are based on a cohort of federal student loan recipients whose loans came due for repayment sometime between October 1, 2008 and September 30, 2009, and who defaulted before September 30, 2010. During this time span, approximately 3.6 million borrowers entered repayment, and more than 320,000 defaulted on their loans.

Loan defaults have now increased for four consecutive years, according to ED’s data. In FY05 just 4.6 percent of borrowers defaulted. The number of loan repayers entering default status also rose sharply in the FY09 group, from just under 239,000 in the FY08 cohort to over 320,000. The recent large jumps in defaults most likely reflect the recent economic recession and difficulties that the American economy has faced since 2007, which has led to bleak job prospects for recent college graduates. According to the New York Times, just 56 percent of those who received a bachelor’s degree in spring 2010 had held at least one job by spring 2011, compared with 90 percent of graduates from the classes of 2006 and 2007.

Defaults for Proprietary Schools Are Especially High

ED’s data also show that default rates by institutional type have increased at all institutional types. Over the past year, the average default rate from borrowers who left four-year public colleges and universities climbed from 4.4 percent to 5.2 percent, and the rate for those from four-year private non-profit institutions rose from 3.8 percent to 4.5 percent.

However, borrowers from private for-profit institutions account for a very large portion of the defaulters. The average rate for all proprietary schools increased from 11.6 percent to 15 percent. Proprietary schools accounted for 28 percent of the total borrowers who entered repayment during the cohort time span, but represented 48 percent of the total number of defaulters among the FY09 cohort. And over the past three years, the number of proprietary school defaults rose 65 percent, compared with a 42 percent overall increase.

More information on the national student loan default rate, as well as rates for individual schools, states, types of postsecondary institutions, and other sectors of the federal loan industry are available on ED’s Web site.

Contact

Ken Redd
Director, Research and Policy Analysis
202.861.2527
E-mail