They are called recession graduates. They have moved back home; they are just beginning to understand what their credit score means; and after four-plus years of attending their choice school they find themselves jobless or under-employed.
Without the money to pay back thousands of dollars in school loans, increased defaults will debilitate a growing number of graduates — many of whom came from low-income households and attended schools as first-generation college students — and their institutions will suffer stiff penalties due to having increased rates of delinquent borrowers.
A new report from the Washington-based Education Sector organization released Tuesday called “Lowering Student Loan Default Rates: What One Consortium of Historically Black Institutions Did to Succeed,” argues that institutions can work proactively to reduce default rates among former students using “default-aversion” strategies. Education Sector is an independent, nonpartisan think tank that develops progressive education policy ideas and proposals.
A high cohort default rate (CDR)— the number of defaulters divided by the number of borrowers calculated annually by individual schools — could render some institutions ineligible for federal aid thus endangering their ability to enroll students.
“The latest cohort default rates, which track students who left school in 2007, showed the largest increase since 1989, with 6.7 percent of (U.S.) students defaulting on their federal loans.,” the report states. “The classes of 2008 and 2009 face bleak job prospects, putting more students at risk of defaulting and suffering its consequences — ruined credit and mounting debt from accumulated collection fees and unpaid interest.”
Since it usually takes roughly 14 months after graduation for defaults to show, most colleges and universities can keep their default rates low for recent graduates for the two-year period prior to when institutions have to report their CDRs for a given graduate cohort to the U.S. Education Department.
In 2009, only two U.S. higher education institutions out of several thousand faced sanctions, the report said.
