As Lane’s 2014 graduating class approaches its final weeks on campus, a looming burden awaits them.
According to the Federal Reserve Bank of New York, student loan debt is currently the second largest form of consumer debt in the United States, behind only home mortgages. This burden is so large for some that they may not be able to repay their debts and default, or fail to make scheduled payments, on them.
Default cripples both students and institutions in many ways. Grads and non-grads, past and present, need to take responsibility for their student loans and avoid default after graduation.
Future borrowers could ultimately pay the price of debt avoidance, especially at Lane.
Since 2008, colleges have been required by the federal government to keep default rates below 30 percent. These rates are based on three-year measurements of post-graduates and are used to determine the ability of colleges to lend and create economically viable degree programs.
When colleges are unable to keep these rates below the threshold, they face penalties from the federal government.
Prior to the 2008 recession, Lane had default rates in the mid-teens. These rates began to increase substantially in 2008 for many reasons.
• Enrollment spikes of 16 percent occurred in 2008–09 and 2009–10. Increased lending during this period led to an increased default rate in the following years, which is currently being used to determine the college’s ability to lend.
• The college’s budget structure has changed substantially. Tuition has increased in all but one of the past five years and funds 42 percent of the college’s budget. Additionally, the Oregon Legislature has decreased Lane’s funding to the same level as in 2008.
These factors have led to 73 percent of Lane students borrowing money, according to the National Center of Education Statistics.
• The 2008 Higher Education Opportunity Act changed the period in which default is measured from two years to three. This change increases the default rates of community colleges substantially. While the two-year default rate averages 15 percent, the comparable three-year rate is 21 percent.
Lane’s three-year default rate from 2013 is set at 29.7 percent by the U.S. Department of Education, although this number won’t be finalized until September.
If not for a set of data challenges sent to the Department of Education by the college, Lane’s default rate would have remained above 30 percent for a second consecutive year.
According to the college’s most recent numbers from April 2011, the default rate is at 28.5 percent, a two-year low.
Any college with a default rate higher than 30 percent for three consecutive years, or higher than 40 percent for one year, automatically loses all financial aid eligibility, including Pell grants. For this reason, 9 percent of community college students nationwide do not have access to student loans, as their schools have opted out of federal loan programs to avoid losing Pell grant eligibility.
As the college has little control over who it lends to, it is key that students take responsibility for their loans before major damage is done to Lane’s ability to disburse financial aid to the community.
It is key that every student addresses his or her debt. Many avenues are available to students to repay financial aid loans.
Loan servicers may offer payment plans based on income, deferments/forbearance, changes to payment due dates and/or loan consolidation.
This could result in a student’s payments amounting to zero while searching for gainful employment.
Exploring these options not only increases a student’s ability to maintain good credit and navigate difficult financial times, but also decreases default rates and helps the college maintain its ability to provide financial aid to the community.
Students who have defaulted are ineligible for federal student aid and, should they return to school, must rely on private loans, which can come at higher interest rates from less forgiving lenders.
If you’re worried about repaying your student loans, seek help early. Take responsibility for the money you borrow so that future students will have the same opportunities you had to pay for school.