Student Loan Default Rate Drops One Percentage Point in 2013

September 29th, 2014

The U.S. Department of Education announced this week that the defaults on federal student loans declined in 2013, although they remain far above prerecession levels. The data indicates that among the student loan borrowers in their third year of repayment, 13.7 percent have defaulted. That number is down from 14.7 percent in the year prior.

Under the Higher Education Opportunity Act of 2008 (HEOA), institutions that fail to meet federal default standards are subject to sanctions, including the loss of eligibility to receive federal student loans or grants – which would effectively shut the doors of almost any postsecondary school. A school with a default rate of 30 percent or more for three years, or 40 percent or more for one year, may be sanctioned by the Department of Education.

The department identified twenty-one schools with high cohort default rates, twenty of which are for-profit schools. Many of those colleges are trade schools, and many are relatively small.

Efforts to reform the current set of student loan regulations have largely stalled in Congress. For now, commentators are encouraging prospective students to strongly consider institutions’ student loan default rate in choosing where to pursue postsecondary education.

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