’SC student loan default rate low

At 1.6 percent, USC’s student loan default rate stands well below the national average of 8.8 percent, although defaulting on such loans is still a prevalent concern for many students at USC.

In the 2009 fiscal year, the cohort default rate, which measures the number of borrowers whose first loan repayments were due between Oct. 1, 2008, and Sept. 30, 2009, among student borrowers rose to 8.8 percent, from 7 percent in the previous year, according to a report released by U.S. Department of Education last week.

USC does what it can to ensure its students do not default on their loans, said Thomas McWhorter, executive director of USC Financial Aid.

“Students go through federally mandated entrance and exit counseling in addition to USC counseling,” McWhorter said. “And depending on the amount of debt they take on, they can even go through customized counseling.”

Rachel King, a senior majoring in psychology, said she was told the value of her education superseded debt.

“I’ve always been given the advice to take out what you need and pay back the minimum because education is the most important and you can pay back your loans later,” King said.

As defined by the Financial Aid Office, defaulting is the failure to repay a loan, as specified in the loan documents. For federal loans, the specified time period is nine months. If the borrower has not made a payment within this time frame, the lender will declare the loan in default and the remaining balance will be due immediately.

Of the 3.6 million borrowers who entered repayment during this time, more than 320,000 defaulted.

The percentage of students who defaulted on student loans at private institutions rose from 4 to 4.6 percent, while the percentage of students who defaulted on student loans at public institutions rose from 6 to 7.2 percent.

Students who are saddled with debt when they leave college face serious financial hurdles later on in life, said Rich Williams, higher education advocate for the California Public Interest Research Group.

“A large debt burden makes life tough for graduates,” Williams said. “Buying a home, starting a family or starting a small business may not be options for some student loan borrowers, even if they have a job. Those who default on their loans have a damaged credit history and could be discriminated against when applying for a job or even renting an apartment.”

Shrinking state budgets and stagnant grant aid have shifted much of college tuition costs to students and their families, leading to an increased reliance on student loans, Williams said.

Twelve years ago, the average college student graduated with $12,000 of debt. He or she now carries more than $23,000 of debt on average, Williams said.

Williams said defaulting on student loans is particularly bad because unlike unsecured debt, such as credit card bills, student loans are nearly impossible to discharge, the cancelling of a loan, even in bankruptcy. He added, however, there are options available to students that have defaulted on student loans.

“Once you’ve defaulted, effort is made by the school and government to get you back into paying your debt,” Williams said. “Students can investigate other options that are available to them. The government has increased the number of repayment programs.”

Borrowers who have defaulted can either consolidate the loans, allowing students to combine federal student loans to make for easier payments, or rehabilitate the loans, which allows students to reverse their default status.

Once the student has forgone default, many more payment plans are available. An income-based repayment program is one option that caps borrower’s required monthly payment at an amount deemed affordable based on a student’s income and family size. Through the Public Sector Loan Forgiveness program, the federal government forgives the loans of students who go on to work in the public sector for at least 10 years.

Vanessa Woghiren, a junior majoring in biological sciences, said defaulting on college loans is a serious concern for her.

“I receive a lot of financial aid but every year I almost have no choice but to take out the rest in loans,” Woghiren said. “I have to consider that I’ve been doing this every semester and I’m a junior now and a lot will have occurred by the time I graduate.”

Steve Moltzen, a senior majoring in business administration, is more focused on a job so that he can pay off his loans in the near future and avoid defaulting.

“I’m more concerned about finding a job,” Moltzen said. “If I don’t, defaulting becomes a serious possibility.”