Posted: December 30th, 2009 | Author: Joe | Filed under: Debt, Economy | Tags: default, private student loans, Student Loans | 2 Comments »
It’s a sign of the times. Foreclosures are up, bankruptcies are up. Unemployment is up. Incomes are down. It’s only natural that the rate of default on student loans is on the rise as well.
For example, this story from the StatesMan shows that the data for the last 3 years show more defaults on college loans.
More than one in five recipients of federal student loans who attend for-profit colleges default within three years of beginning repayment, figures from the U.S. Department of Education show.
To put this into perspective, that’s 20% of borrowers. The historic figure is 6.7% of all student loan borrowers, and 11% of for-profit school attendees typically default. For-Profit schools include trade schools and small campuses with traditional bachelor’s programs.
That’s a nation-wide figure.
Here’s a story on the number of federal student loan defaults spiking in New Jersey
The number of New Jersey college students who left school in 2007 and defaulted on federal loans nearly doubled over the past fiscal year, according to data released yesterday by the U.S. Department of Education.
That’s a jump from the typical 6.2% to 11.3% in one year! At for-profit colleges the rate was 25% of borrowers.
Things aren’t so great in Minnesota either, where Data shows 1 in 20 Minn. students default on student loans.
Number one on the list is Duluth Business University with a default rate of nearly 35 percent.
Almost 29 percent of students who borrowed student loans to attend Rainy River Community College defaulted on their loans.
The bright spot for Minnesota is that Minnesota’s public four-year colleges have an average default rate of only 3%.
And in South Carolina, Allen University has highest student loan default rate: 26% of student loan recipients who went to Allen University and whose first loan payments came due between Oct. 1, 2006, and Sept. 30, 2007, were in default by Sept. 30, 2008.
None of this should bee surprising. College costs have been skyrocketing and far outpacing inflation and incomes for decades now. And double digit unemployment doesn’t help any either. When faced with a choice between paying the rent, groceries and student loans, the rent student loan payment will always lose out.
Maybe this will provide incentive for some pressure on colleges to lower their costs, though I doubt it.
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Posted: December 21st, 2009 | Author: Joe | Filed under: Debt, Tips | Tags: private student loans, Student Loans | No Comments »
Private Student Loans were big business, until 2007-2008.
The number of private loans has grown more than 3 times in the past decade, going from 7% of all loans in 1998 to 23% in 2008. Then the credit crunch hit, and private loans market dried up for a while. Now, private loans are making a come back and this new round is more expensive and harder to get.
Federal loans have fixed rates, and flexible repayment terms, but private loans are often variable rate (usually in the double digits when all is said and done) and are less flexible in repayment.
Because of this, you should avoid private loans where you can by maxing out federal loans first, and then only use private loans sparingly if you cannot avoid them altogether.
4 things to watch for with private student loans.
1. Cosigning.
Cosigning is best avoided, if it can be. The problem is that most students don’t have a credit history, or if they do it’s likely to be lacking. So they often come to mom or dad to cosign. Two things to know about cosigning your child’s student loan: 1) Lenders usually look for a credit score of at least 700, if you fall short you can be denied or have to pay a higher rate. 2) If junior misses even a single payment – you’ll be on the hook to make it for him.
2. Interest rates.
The base interest rate for a student loan is pegged to either the LIBOR index, or the prime rate, plus a margin. This added margin is how the lender makes his profit, since it’s the difference between the cost of the money he’s lending you and the amount you’re paying back. This margin depends on the applicant and cosigner’s credit history.
3. Total costs.
When deciding on a private loan, look at the total costs and not just the interest rate. This is true of any loan really, but it’s especially important with private student loans. Consider any fees and how often interest is calculated and added to the loan. The annual percentage rate (APR) includes those factors as well as the interest rate, but can be misleading. For example, the number may be different when the student is in school than when he is in repayment.
4. Shop around.
It’s important to shop around for the best deal from the best lender, but don’t shop too much. Applying for too many loans in a short period of time can look bad on your credit report and negatively impact your credit score, thus increasing your over all cost of borrowing in the first place. TO avoid this black mark, limit your applications to 4 or 5 lenders and apply to them within the same 30 day time period.
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