COLLEGE LOANS Default rate hits an all-time low

In 2001, 5.7 million students obtained $40 billion in federally backed loans.
By STEVE GIEGERICH
AP EDUCATION WRITER
The default rate on federally backed college loans hit an all-time low during the 2001 fiscal year, the Education Department said.
The department said in September that only 5.4 percent of college graduates who began making payments in fiscal 2001 defaulted on their debt. In the previous fiscal year, 5.9 percent of students with outstanding loans defaulted.
The announcement stands as something of a contrast to two recently published reports that indicate college debt is resulting in long-term financial problems for many Americans. Even so, Education Department officials heralded the 2001 results.
"Some of us have been around long enough to remember when we dreaded these announcements," said Sally Stroup, assistant secretary for post-secondary education. "That is no longer the case."
The peak default rate, 22.4 percent in 1990, occurred before federal legislation curtailed student loan abuse by beauty colleges, truck driving academies and other trade schools.
The causes
Department officials attributed the drop in defaults to improved credit counseling, more flexible repayment schedules and low interest rates.
While the 2001 findings do not measure the consequences of major tuition increases imposed by many colleges and universities over the past two years, Stroup does not expect the tuition hikes caused default rates to rise.
"You can only borrow so much money regardless of where tuition goes," Stroup said. "There are limits that can control how much people can borrow."
In addition to loan limits, Mary Mowdy, the executive director of the Oklahoma Guaranteed Student Loan Program, said borrowing on an as-needed basis is key to avoiding devastating post-graduation debt.
"Just because a financial aid office says you can borrow 'X' amount of dollars doesn't mean you have to take those dollars," Mowdy said.
How rate is figured
Using statistics from schools and lenders, the Education Department's default rate is based on the number of students who go 270 days without making a payment during their first year of repaying a student loan.
In 2001, 5.7 million students obtained $39.7 billion in federally backed loans.
A Cambridge Consumer Credit Index survey issued earlier this month found that outstanding college debt hampered the ability of 68 percent of graduates with student loans to make major purchases like homes or automobiles.
Jordan Goodman, a spokesman for the index, said 22 percent of all Americans now carry student loan debt, up from 18 percent from last year.
And a poll conducted by Harris Interactive for Collegiate Funding Services -- an education finance and debt management corporation -- revealed that 55 percent of college graduates are having problems meeting their financial goals because of student loan debt.
An adjustment of career plans is one way some graduates are coping with the crunch.
"My budget is tight, very tight," said Jill Deutscher, a Chicago high school teacher who said loan debt played a role in her decision to work summers and accept a higher-paying position in an urban school district, as opposed to lesser salary in a small town school system.
But while a $128-per-month consolidated loan payment cuts heavily into her living expenses, Deutscher -- a 2002 graduate of Illinois State University -- said the $17,000 she'll repay over 10 years is worth every penny.
"Without my education, I never would have been able to do what I do," she said.