According to the Department of Education, national student loan default rates have increased by almost 2 percent, from 7 percent in 2008 to 8.8 in 2009. Yet during the same time period, default rates of UMB graduates have dropped from 4.8 to 3.7 percent.
UMB’s default rate is based on data from students who entered the university as freshman and graduated four years later. 65 percent of students who fall into this category took out student loans, with a total average debt of $17,486 per student.
Judy Keyes, Director of Finical Aid at UMB, said the low default rates reflect well on the university.
“[It] shows that our students are prepared to enter the work force and are doing well. It is a good real-world check of UMB programs and their effectiveness.”
Keyes also said that students who pay back their loans help fund the Federal Loan program for future students.
“There are plenty of government enforced polices designed to punish schools whose default rates are high,” Keyes said. “Too high a default rate can result in cut funding or many other things. Fortunately we are nowhere near that line.”
According to Keyes, one possible explanation to the increase in national default rates is the fact that the government forbids higher education institutes to deny students loan applications based on the probability that the students would be able to pay them back.
“Whether we think students can pay them off or not is irrelevant,” Keyes said of the application process.
According to a recent editorial by John E. Sununu in The Boston Globe, for-profit schools such as the University of Phoenix encourage unqualified students to enroll and then benefit from government programs like Pell Grants or Federal Loans, even when the students end up failing or dropping out. The students are then left with a big debt and no degree to show for it. The editorial claimed these types of institution make up 10 percent of higher education in America.
Economics Department Chair Professor Julie Nelson described this as being akin to the mortgage frenzy that preceded the recent housing market bust.
“There is a parallel between that and the education market,” Nelson said. “For-profit schools promise a lot and deliver little. They do this because they want to get as many people to enroll and take out loans as possible. In the end whether the school delivers what it promises or not, the student has to pay the loan back or go into default. ”
Subsides loan holders agree to pay back their loans regardless of their level of satisfaction with their educational experience.
Nelson recommended students check out their school’s real job placement statistics before taking out a loan. This information is available at the U.S. Department of Education website.
Nelson also had piece of advise for UMB students.
“Work hard,,” she said. “You want to prove that your degree means something; you want a high GPA to be competitive in the job market. If you took out loans to come here and your getting D’s, you may want to think about whether you are going to be a person who defaults on their loans.”
Accounting Major Cristina Veras said she tried to be forward thinking when she chose her major.
“There is always jobs available in my field,” she said.