Students repay more debt in spite of recession
MU default rates and statewide rates have both fallen.
Published Sept. 24, 2010
In a time of economic downturn, the default rate for student loans in Missouri has declined from 6.09 percent to 5.8 percent within the last year, according to a news release from the Missouri Department of Higher Education last week.
The decrease pushes rates lower than the national average of 7 percent. The rates track borrowers whose first loan repayments were due between Oct. 1, 2007, and Sept. 30, 2008, and those who defaulted before Sept. 30, 2009.
In Missouri, 77,164 borrowers are making student loan payments on time, and 4,539 students from 164 schools are in default.
A default on a loan occurs when a borrower fails to make required payments within a certain time period or when a borrower cannot meet the loan's conditions.
According to MU Student Financial Aid Director Jim Brooks, MU, like the state of Missouri, has experienced a slight decrease in defaults between 2007 and 2008, as rates dropped from 2.4 percent to 2.3 percent.
Missouri sees lower student loan default rates than other states because of financial literacy programs and grants to institutions sponsored by the Missouri Department of Higher Education.
Despite the recession, numbers have gone down because of the department's efforts to educate students, said Leanne Cardwell, assistant commissioner for the Missouri Student Loan Program.
The MDHE offers grants to schools seeking to reduce student loan default rates. The Default Prevention Grant Program has distributed $65 million to 43 schools since its debut in 2001. Institutions use the grants to teach students about managing finances and the importance of completing their program of study.
Cardwell said she expected to see a rise in defaults because of the economy but was pleasantly surprised to see Missouri's rates decline.
"We don't want to take too much credit," Cardwell said. "But I'm sure our efforts are not wasted and that we're having an impact."
The MDHE also conducts financial literacy programs that aid students in planning and paying for college with the lowest accumulated debt possible. They teach students how to manage their finances, budget efficiently and borrow sensibly.
"Financing a college education can be a confusing and expensive minefield for students," Cardwell said.
MU advisers urge students to borrow only what they need, Brooks said. First-time borrowers must complete online entrance counseling through the federal student aid program's direct loan servicing website.
Edie Irons, communications director for the California-based Project on Student Debt, said she hears from too many students who wish they could turn back the clock. She encourages borrowers to go into the loan process with their eyes wide open.
"Students need to be aware and think about the consequences of borrowing," Irons said. "It's tempting to put your head down and stop worrying during the school year."
The federal government has proposed new regulations to protect students from misleading and overly aggressive loan recruiting practices and to help lower student debt loads, which average $19,000 upon graduation for Missouri students.
For students struggling with loan debt, the MU Office of Student Financial Aid said borrowers can contact their loan servicer. There are also several different repayment methods available for federal loans. Students can find more information on loan repayment options online.