Research notes [Mar. 2005]

Student Loan Default Rates FY2002
Fifty percent of all financial aid received by USG students is in the form of federal loans. In FY2003, this amounted to over $450 million dollars. Over the course of a student's education, these loans can be substantial. For example, Federal Stafford loan aggregate limits are: $23,000 for dependent undergraduate students, $46,000 for independent undergraduate students, and $138,500 for graduate students.1 Thus, federal loans are a significant component in the way students finance their higher education. However, as the name implies, federal loans are a type of financial aid that must be repaid.
Repayment options are available for all programs within the Family Federal Loan Program. Federal Stafford loans begin repayment no later than six months after graduation or termination of at least half-time study. Federal PLUS loan repayment begins after the final disbursement is made. Repayment schedules are set up for a ten-year repayment term with a minimum payment of $50, depending on the amount borrowed. Additionally, there are options available to persons having difficulty repaying federal student loans such as:
Income-Sensitive Repayment Option factors in the amount of gross income. Gradual Payment Option monthly payments increase gradually over the term of the
repayment schedule. Consolidation Loans offers borrowers with multiple loans or high balances
consolidation into a single payment and often over longer periods, thus reducing the monthly payment to a manageable amount.
Even with the repayment options, there are still students who default on their federal loans. This research note provides an overview of student loan default rates using the most currently available data for borrowers who left college in FY2002.
The U.S. Department of Education tracks federal student loan recipients. Every September, a cohort default rate is issued, which measures the percentage of borrowers who have defaulted on their federal loans within 12 to 24 months of leaving college.2 The Department of Education issues draft cohort default rates in January, and institutions are given the opportunity to correct any inaccuracies before the official data are released. By determining cohort default rates,
1 A subsidized Federal Stafford loan is a need-based loan. The federal government pays the interest that accrues while the recipient is in school, during the grace period after leaving school or graduating, and during eligible deferment periods. An unsubsidized Federal Stafford loan is a non-need-based loan. The student is responsible for all interest that accrues on the loan from the date of disbursement forward. Eligibility for the Federal Stafford Loan Program is determined by the Financial Aid Office at the institution of attendance using federal guidelines. http://www.gsfc.org/GSFA/dsp_staffordloans.cfm. 2 The Federal Family Education Loan Programs (FFELP) included in the cohort default rate calculation are Subsidized and Unsubsidized FFEL and Federal Supplemental Loans for Students (SLS). Federal SLS loans have not been made since July 1, 1994; however, it is possible for an SLS loan to be included in a current cohort rate calculation under certain circumstances. The Direct Loans included in the cohort default rate calculation are the Federal Direct Subsidized and Unsubsidized Ford Loans.
March 2005 Page 1 of 6

sanctioning schools with higher rates from Title IV programs, and providing benefits to schools with lower rates, the U.S. Department of Education creates an incentive for colleges and universities to work with borrowers to reduce defaults.3
According to the U.S. Department of Education, the FY2002 rate at which borrowers default on federal student loans had dropped to an unprecedented low of 5.2 percent. This was a 0.2 percentage point drop from the 2001 rate, and represented a reduction of about 17 percentage points since FY1990, when the default rate peaked at 22.4 percent.4 U.S. Secretary of Education Rod Paige attributes the debt repayment surge to the lowest interest rates in 35 years. In July, student loan interest rates dropped to 3.4 percent, making repayment more affordable for borrowers.5
Nationally, Georgia ranked 8th in student loan default rates for FY2002, behind Nevada, Arkansas, Florida, Alaska, West Virginia, Alabama, and Kentucky (see Table 1). Such rankings, however, should be interpreted with caution. Nevada had 643 borrowers from 23 colleges and universities to default on their student loans, producing an overall rate of 8.5 percent. In contrast, Georgia had 4,009 borrowers from 119 post-secondary institutions defaulting on their federal student loans. The average default rate among the 34 USG institutions was 5.6 percent, lower than the state average of 6.6 percent (see Table 2).
Figure 1 illustrates the overall decreasing trend of student loan default rates over time. In FY1995, the USG had a double-digit default rate of 10.5 percent, comparable to the national rate of 10.4 percent. In FY2002, the USG and national student loan default rates were similar, decreasing to 5.6 percent and 5.2 percent respectively.
In FY2002 the national average default rate was 4 percent for public four-year colleges and 8.5 percent for public two-year colleges. When looking at default rates by sector, research university students had the lowest rate of 2.5 percent (see Figure 2). Two-year college students had the highest default rate by sector with 10.8 percent in FY2002 (see Figure 3).
Although Georgia's default rate is high relative to other states, this rate is improving within USG institutions. Institutional financial aid officers work with students individually to create a financial aid package that meets educational expenses, as well as providing a manageable repayment schedule. It is likely that the trend in default rates will continue to decline in the future.
For more information contact: Dr. Anoush Pisani
Senior Research Associate University System of Georgia
270 Washington St., SW Atlanta, Georgia 30334 Anoush.Pisani@usg.edu
3 Institutions with student loan default rates greater than 40 percent in one year or 25 percent or more for three consecutive years can be dropped from most federal student aid programs. 4 Burd, Stephen, "Default Rate on Student Loans Falls to New Low, Education Department Reports," http://chronicle.com/daily2004/09/2004091504n.htm 5 http://www.ed.gov/print/news/pressreleases/2004/09/09142004.html
March 2005 Page 2 of 6

Table 1
National Student Loan Default Rates, FY2002

State
Nevada Arkansas Florida Alaska West Virginia Alabama Kentucky Georgia Arizona Idaho Mississippi Texas Oklahoma Tennessee New Mexico Montana Colorado Iowa Ohio Louisiana New Jersey Pennsylvania Rhode Island Delaware Hawaii Wyoming Illinois Maine Michigan Washington California New York Kansas South Carolina Maryland Indiana Oregon Virginia Connecticut North Carolina Nebraska Minnesota Missouri Wisconsin Utah Massachusetts North Dakota New Hampshire South Dakota Vermont

Number of Schools
23 52 223
9 48 62 89 119 92 26 42 284 88 128 33 27 92 91 235 71 127 376 25 13 22 11 256 41 137 92 552 424 79 62 84 109 91 126 75 132 54 117 179 87 34 182 24 39 28 27

Borrowers in Default
643 1,260 8,093
159 1,164 2,355 2,094 4,009 5,181
779 1,525 8,620 2,158 2,826
768 572 2,505 2,296 6,038 2,414 2,840 7,185 809 296 270 287 4,732 613 4,052 2,202 10,879 9,285 1,430 1,309 1,538 2,633 1,369 2,328 979 1,876 793 2,223 2,237 1,674 738 2,204 351 471 298 236

Borrowers in Repayment
7,506 17,806 115,293
2,300 16,831 34,494 31,232 60,425 79,290 12,162 23,671 134,428 35,084 45,667 12,701
9,823 44,366 40,470 107,495 43,882 52,468 134,696 15,082
5,689 5,171 5,495 92,724 11,908 78,619 43,127 216,084 188,485 30,844 28,037 33,618 59,514 30,982 52,753 23,009 44,386 19,327 57,159 57,963 47,653 21,626 65,501 10,643 16,215 11,386 17,536

Borrower Default Rate
8.5% 7.0% 7.0% 6.9% 6.9% 6.8% 6.7% 6.6% 6.5% 6.4% 6.4% 6.4% 6.1% 6.1% 6.0% 5.8% 5.6% 5.6% 5.6% 5.5% 5.4% 5.3% 5.3% 5.2% 5.2% 5.2% 5.1% 5.1% 5.1% 5.1% 5.0% 4.9% 4.6% 4.6% 4.5% 4.4% 4.4% 4.4% 4.2% 4.2% 4.1% 3.8% 3.8% 3.5% 3.4% 3.3% 3.2% 2.9% 2.6% 1.3%

Source: Federal Student Aid Default Management; http://www.ifap.ed.gov/DefaultManagement/DefaultManagement.html.

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Table 2
USG Student Loan Default Rates, FY2000-FY2002

Research Universities Georgia Institute of Technology Georgia State University Medical College of Georgia University of Georgia Weighted Average

Borrowers in Default

FY2000
Borrowers in Repay

Default Rate

Borrowers in Default

FY2001
Borrowers in Repay

Default Rate

Borrowers in Default

FY2002
Borrowers in Repay

Default Rate

25

1,613 1.5%

183

3,973 4.6%

1

498 0.2%

132

4,526 2.9%

341

10,610 3.2%

28

1,709 1.6%

130

3,714 3.5%

6

500 1.2%

128

4,345 2.9%

292

10,268 2.8%

20

1,560 1.3%

144

3,637 4.0%

4

504 0.8%

79

4,091 1.9%

247

9,792 2.5%

Regional Universities Georgia Southern University Valdosta State University Weighted Average

260

3,315 7.8%

140

2,144 6.5%

400

5,459 7.3%

186

3,363 5.5%

118

1,898 6.2%

304

5,261 5.8%

143

2,863 5.0%

88

1,822 4.8%

231

4,685 4.9%

State Universities Albany State University Armstrong Atlantic State University Augusta State University Clayton College & State University Columbus State University Fort Valley State University Georgia College & State University Georgia Southwestern State University Kennesaw State University North Georgia College & State University Savannah State University Southern Polytechnic State University State University of West Georgia Weighted Average

151 92 64 43 64
236 48 29 67 12
263 34
126 1,229

1,081 1,362
807 725 984 1,199 1,100 490 1,814 409 1,199 581 1,820 13,571

14.0% 6.8% 7.9% 5.9% 6.5%
19.7% 4.4% 5.9% 3.7% 2.9%
21.9% 5.9% 6.9% 9.1%

122

1,335 9.1%

92

1,311 7.0%

66

813 8.1%

59

897 6.6%

56

860 6.5%

156

1,090 14.3%

46

991 4.6%

27

504 5.4%

76

1,832 4.1%

11

365 3.0%

116

850 13.6%

20

563 3.6%

105

1,687 6.2%

952

13,098 7.3%

85

934 9.1%

83

1,217 6.8%

51

816 6.3%

73

799 9.1%

40

835 4.8%

85

761 11.2%

21

912 2.3%

32

491 6.5%

75

1,687 4.4%

11

484 2.3%

82

650 12.6%

21

431 4.9%

93

1,677 5.5%

752

11,694 6.4%

State Colleges Dalton State College Macon State College Weighted Average

6

117 5.1%

65

711 9.1%

71

828 8.6%

11

92 12.0%

59

698 8.5%

70

790 8.9%

18

107 16.8%

63

804 7.8%

81

911 8.9%

Two-Year Colleges Abraham Baldwin Agricultural College Atlanta Metropolitan College Bainbridge College Coastal Georgia Community College Darton College East Georgia College Floyd College Gainesville College Georgia Perimeter College Gordon College Middle Georgia College South Georgia College Waycross College Weighted Average

63

671 9.4%

10

250 4.0%

9

60 15.0%

6

96 6.3%

23

284 8.1%

34

247 13.8%

17

243 7.0%

9

134 6.7%

89

1,267 7.0%

24

322 7.5%

61

408 15.0%

9

109 8.3%

5

53 9.4%

359

4,144 8.7%

77

647 11.9%

44

348 12.6%

12

90 13.3%

3

59 5.1%

34

298 11.4%

38

268 14.2%

23

229 10.0%

7

141 5.0%

103

1,032 10.0%

41

358 11.5%

81

442 18.3%

11

118 9.3%

10

85 11.8%

484

4,115 11.8%

58

546 10.6%

50

338 14.8%

4

63 6.3%

1

71 1.4%

38

356 10.7%

40

257 15.6%

30

271 11.1%

5

145 3.4%

68

992 6.9%

50

395 12.7%

73

425 17.2%

13

128 10.2%

8

84 9.5%

438

4,071 10.8%

SYSTEM TOTALS

2,400

34,612 6.9%

2,102

33,532 6.3%

1,749

31,153 5.6%

March 2005 Page 4 of 6

Figure 1
Student Loan Default Rates: USG vs. National Average
FY1995-FY2002

12.0% 10.0%

10.5% 10.4%

8.0%

9.7%

9.6%

8.8%

8.2%

6.0%

7.4% 6.9% 5.9% 5.6%

6.9% 5.9%

6.3% 5.4%

5.6% 5.2%

4.0%

2.0%

0.0%

FY1995

FY1996

FY1997

FY1998

FY1999

USG Nation

FY2000

FY2001

FY2002

Figure 2
Student Loan Default Rates: USG vs. National Average
Four-Year Colleges FY2002

USG State Colleges

8.9%

USG State Universities

6.4%

USG Regional Universities

4.9%

USG Research Universities

2.5%

National Public Four-Year Colleges

4.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

March 2005 Page 5 of 6

Figure 3
Student Loan Default Rates: USG vs. National Average
Two-Year Colleges FY2002

USG Two-Year Colleges

10.8%

National Public Two-Year Colleges

8.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

March 2005 Page 6 of 6