Student Loan Default Rate Rises Slightly –

On average, 9.1% of students default on their loans within two years of beginning repayment, according to information recently released by the U.S. Department of Education.

The two-year cohort default rate – borrowers whose first loan repayments were due between Oct. 2009 and Sept. 2010 and defaulted by the end of Sept. 2011 – increased from last year’s rate in both the public and private nonprofit sectors. Public institutions saw an increase from 7.2% to 8.3%, and private nonprofit institutions saw an increase from 4.6% to 5.2%. For-profit institutions experienced a decrease from 15% to 12.9%; however, this sector still holds the highest two-year rate.

The three-year cohort default rate—released for the first time this year—is 13.4% for students. These rates include borrowers whose first loan repayments were due between Oct. 2008 and Sept. 2009 and defaulted by the end of Sept. 2011. The highest average three-year default rate belonged to for-profit institutions, at 22.7%. The rate for public institutions was 11%, followed by private nonprofit institutions at 7.5%.

Congress believes the switch to the three-year default rate will provide a more accurate picture of how many borrowers default on their student loan debt, because it will account for the many borrowers who default past the two-year window.

“We continue to be concerned about default rates and want to ensure that all borrowers have the tools to manage their debt,” U.S. Secretary of Education Arne Duncan said in a press release. “In addition to helping borrowers, we will also hold schools accountable for ensuring their students are not saddled with unmanageable student loan debt.”

The three-year default rate will be used to determine schools’ eligibility for federal student aid programs. Sanctions will not be applied to schools based on the three-year rates until three annual rates have been calculated. Any school with a three-year cohort default rate of 30% or more will have to create a default prevention task force and submit a default management plan to the Dept. of Education.

Follow Valerie Jones on Twitter @ValerieJonesCMN