Student debt, loan default rates rising

There aren't many spare hours in Nate Butler's day.

The Southeast Missouri State University junior works about 15 hours a week in Campus Life and Event Services. He clocks another 20 hours in guest services at a Cape Girardeau hotel. This semester the computer networking major is taking 18 credits, a heavy course load by most academic measures. In between all of that, Butler squeezes in an array of student activities, including mentoring younger students and, if he's lucky, a rare date night with his girlfriend.

Butler, 21, makes enough to pay his bills, rent, car payment and "luxuries" like satellite and Internet service. He's yet to make a dent in his student loan debt.

When he walks across the stage to take his diploma, Butler will be the first college graduate in his immediate family -- and he expects to owe about $20,000 in student loans for that honor.

"It's pretty discouraging," Butler said of his debt load while finding a few moments to talk at his desk job. "It kind of motivates me, too. I know I'm going to have to make good grades so when I get out of college I'll stand out. I'll be able to take care of my bills and take care of my loan debt."

Butler has picked a higher-earning career path. Computer administrators on average earn about $70,000 a year, according to 2009 figures from the Bureau of Labor Statistics. But he's making plans for graduate school, so he can count on a lot more debt.

Butler's expected college debt would take him just above the national average of $19,000, and a little below the loan balance of $21,707 for recent Southeast graduates. The average student debt level has risen about $4,500 from 2006, according to the university.

As student debt rises, so too does the loan default rate, made worse by an anemic economy and high unemployment.

The national student loan default rate rose to 7 percent for fiscal year 2008, the most recent data available, up from 6.7 the previous fiscal year, according to the U.S. Department of Education. The report, issued earlier this month, shows default rates increased from 5.9 percent to 6 percent for public institutions, from 3.7 percent to 4 percent for private institutions, and from 11 percent to 11.6 percent for for-profit schools.

The default rate is a snapshot, representing borrowers whose first loan repayments came due between Oct. 1, 2007, and Sept. 30, 2008, and who defaulted before Sept. 30, 2009. During that time, almost 3.4 million borrowers entered repayment, and more than 238,000 defaulted on their loans, the report says.

"This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times," said Arne Duncan, U.S. secretary of education, in a new release.

For-profit institutions reported disproportionately high default rates.

In loan award year 2008-2009, students at for-profit schools represented 26 percent of the borrower population and 43 percent of all defaulters, according to the Department of Education. The median federal student loan debt carried by students earning associate degrees at for-profit institutions was $14,000. The majority of students at community colleges do not borrow.

Missouri's default rate was 5.8 percent. Illinois reported 7.1 percent of student borrowers in default, while Kentucky's rate was 9.6 percent. Montana posted the lowest default rate nationally, at 1.8 percent, while Puerto Rico had the highest, with 12.4 percent of borrowers in default.

Kathryn Love, spokeswoman for the Missouri Department of Higher Education, said student borrowers are traditionally more conservative in Missouri, and that's why default rates are usually lower than the national average.

Financial illiteracy

College students often are their own worst enemies when it comes to debt. Financial aid experts say ignorance can be costly and that a lack of financial literacy on college campuses is costing students thousands of dollars over the life of their loans.

"I think it's a pretty common scenario where students aren't thinking about the impact of borrowing several thousand dollars a year for several years," said Karen Walker, director of financial aid at Southeast Missouri State. "We were just discussing in a committee just how many students don't realize how much they took out as freshman, because in many cases the parents are doing all the work for them."

Nate Butler counted himself among the financially illiterate in his first year or two of college. He said he knows a lot of students with similar experiences.

"A lot of times we don't know exactly what's going on. We know we need loans to pay for college ... and there's certain paperwork to fill out," he said. "Most of the time we don't read it or what they're saying for interest rates or the repayment options or things like that."

After looking at form after form, Butler would skip ahead to sign on the dotted line. In so doing, he took out more loans than he needed, something a lot of college students do.

"When I first got to college I said, 'Oh, I can get this much,' and I took it. If there's some left over, it goes to the pocket," Butler said. "You don't think about when you get out of college that those interest rates rise and rise over time and about all that money you owe."

Valuable lessons

Financial literacy begins early at Southeast. Students must go through entrance counseling, the basics of borrowing, before they receive their first student loan disbursement. Over the past three years, Southeast has received a default/financial literacy grant from the Department of Higher Education. The money pays for graduate assistants who help students understand the language of their loans, credit card interest and the basics of budgeting. Just before graduation, the university offers Countdown to Commencement, a program aimed at taking soon-to-be-graduates through the steps of loan repayment. Academically at-risk students may receive tutoring and other assistance to keep them in school and eligible for financial assistance.

"One of the reasons we started doing that is because a majority of defaulters are students who have small loan amounts," Walker said. "It's the student who came to school for a semester or two and then dropped out. They might have a $3,500 loan debt but they're working a minimum-wage job."

Love, the Department of Higher Education spokeswoman, said there are some basic rules college students should follow in tackling college debt:

* Never take out more money than you need.

* Look for grants before loans.

* If you're teetering on the brink of default, seek help.

"We work with them on setting a repayment plan," Love said. That can buy a borrower some time and, on occasion, debt relief.

Butler has learned some important lessons along the way. The Southeast junior advises new borrowers to be informed about their loans. For students thinking about graduate school, start visiting campuses and learning about financial aid early, he said.

Despite the debt he's facing, Butler said his degree will be worth it.

"My opinion is, you can't put a price on education," he said.

mkittle@semissourian.com

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