Student loan default rate creeps higher

chart_student_default.top.gif By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- College isn't paying off for everyone: An increasing number of graduates are defaulting on their student loans -- with the worst offenders coming out of for-profit schools.

The overall default rate on federal student loans climbed to 7% in fiscal 2008 from 6.7% a year earlier, the Department of Education said on Monday. That's the highest since 1997, when the rate stood at 8.8%.

Of the 3.4 million students that were due to make their first loan repayments between Oct. 1, 2007 and Sept. 30, 2008, more than 238,000 defaulted before Sept. 30, 2009.

Graduates of public colleges defaulted at a rate of 6%, up from 5.9% a year earlier. Students coming from private schools had a 4% default rate, up from 3.7%. The default rate for borrowers at for-profit schools, however, rose to 11.6% from 11% a year earlier.

"This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times," said U.S. Education Secretary Arne Duncan in a statement.

During a recession, the job placement rate declines, so recent grads can't start repaying their huge debts, said Mark Kantrowitz of Finaid.org.

"Those with a college degree are better off than those without them, but unemployment for everybody is about twice what it was before the credit crisis," he said.

The Education Department's Duncan said that the data also shows that "students attending for-profit schools are the most likely to default."

Students at those institutions represented only 26% of the borrower population, but accounted for 43% of all defaulters.

"While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not," Duncan said. "Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole."

The state with the highest default rate of 10.9% was Arizona, which is home to the Apollo Group's (APOL) University of Phoenix, the largest for-profit institution.

Earlier this summer, the Obama Administration and the Department of Education proposed a set of rules to protect students from "misleading and overly aggressive recruiting practices" at for-profit schools and from debt they cannot repay.

The Department of Education is in the process of developing final regulations and is expected to publish rules in the coming months.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.08%4.25%
15 yr fixed3.17%3.23%
5/1 ARM3.30%3.37%
30 yr refi4.06%4.19%
15 yr refi3.16%3.18%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,122.01 15.31 0.09%
Nasdaq 4,569.62 -1.02 -0.02%
S&P 500 2,000.12 0.10 0.00%
Treasuries 2.36 -0.03 -1.25%
Data as of 2:09am ET
Company Price Change % Change
Bank of America Corp... 16.20 -0.13 -0.80%
Apple Inc 102.13 1.24 1.23%
Facebook Inc 74.63 -1.33 -1.75%
Yahoo! Inc 38.18 0.39 1.03%
Pfizer Inc 29.49 0.28 0.96%
Data as of Aug 27

Sections

Staggering interest from the Chinese in an immigration program has led the U.S. to run out of available visas for the first time ever. More

Former Fed chief Ben Bernanke believes the 2008 financial crisis was the worst in global history, topping even the Great Depression. More

Snapchat has gotten a $20 million funding round from Kleiner Perkins, valuing the company at $10 billion, according to the Wall Street Journal. More

Utah State professor Michael Glauser cycled 4,000 miles this summer, visiting 100 entrepreneurs across the country. Here's a snapshot of how they grew their businesses. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.