The student loan default rate has risen for the first time in four years, according to the U.S. Department of Education.
The increase reflects the growing number of borrowers who simply can’t afford their loans. And some say it’s a sign that Dept. of Ed. policy is headed in the wrong direction.
How much the student loan default rate has risen
The Dept. of Ed.’s report examined the “2014 cohort default rate,” which measured the number of borrowers who entered repayment on their Federal Family Education Loans or Federal Direct Loans between Oct. 1, 2013, and Sept. 30, 2014, and then defaulted before Sept. 30, 2016.
Of the 5 million borrowers in that cohort, more than 580,000 defaulted on their loans — meaning they didn’t pay their loans for more than 270 days. That number equates to 11.5 percent of borrowers, up from 11.3 percent for the 2013 cohort.
It’s the first time the rate has increased in four years, after hitting a peak of 14.7 percent.
Although the increase is slight, the number of borrowers in default isn’t — a record 8.5 million, according to a press release from The Institute for College Access and Success (TICAS).
Put another way, out of every $10 in federal student loans, $1 is in default.
Why these student loan default numbers matter
The reason for the uptick is unclear, according to economists. And although it isn’t necessarily a cause for panic, it should be an impetus for making student loan policies more borrower-friendly.
Instead, some say the reverse is happening.
“Now is the time to be improving student loan policies and increasing oversight and accountability,” said Pauline Abernathy, executive vice president of TICAS. “But the [Dept. of Ed.] is doing the opposite.”
Among other things, Abernathy is referring to the Dept. of Ed.’s “regulatory reset” of two laws meant to protect borrowers who attended for-profit schools.
At these schools, default rates are disproportionately higher.
“Considering both borrowing and default rates, the likelihood of a student defaulting at a for-profit college is three times higher than at a four-year public college and three and a half times higher than at a community college,” reported TICAS.
Further complicating matters is the fact that, despite its promise to the contrary in early July, the Dept. of Ed. hasn’t approved any borrower defense to repayment applications, which forgive student loans in cases of fraud.
“The [Dept. of Ed.’s] rollback of critical protections and enforcement will only lead to more student loan defaults, higher debt burdens, and wasted taxpayer dollars,” said Abernathy.
How to avoid student loan default
Entering student loan default is no joke; it can affect your ability to rent an apartment or get a job and might eventually lead to wage garnishment.
If you’re struggling to pay your loans each month, take the following steps.
1. Enroll in an income-driven repayment plan
Under an income-driven repayment (IDR) plan, your payments are capped at 10 to 20 percent of your discretionary income. For some people, this means their payments drop to $0 per month.
Then, after you make payments on your plan for 20 to 25 years, your loans will be forgiven.
You’ll likely pay more in interest with IDR, and you’ll face a hefty tax bill upon forgiveness. But if you can’t make your loan payments each month, it can be a lifesaver.
Calculate what your payments would be — and how much interest you’ll pay — with our income-driven repayment calculator.
2. Seek forbearance or deferment
If you’re undergoing economic hardship and need a temporary way to pause your student loan payments, you might want to seek deferment or forbearance.
These programs allow you to pause your payments for up to three years under circumstances such as losing your job, enrolling in school, or having loan payments that equal 20 percent or more of your gross monthly income.
For unsubsidized loans, interest will continue to accrue during this period. Use our deferment calculator to get a handle on how much interest you’d owe before selecting this option.
3. Consider refinancing
If you have a strong income and credit score but are weighed down by a mountain of student loans, refinancing might help.
By refinancing your loans with a private lender, you could lower your interest rates and monthly payments. Just be aware that refinancing makes you ineligible for certain federal programs and protections.
The number of student loan defaults is increasing, but that number doesn’t have to include you. Take steps to manage your student loans — and prepare yourself no matter what comes next.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|