Amid the gloomy economic information that has permeated the United States in the past year comes one more setback-and it hits closer to home for most Boston College students. The United States Department of Education released a statement earlier this month indicating that the default rate on student loans for borrowers who had repayments due between October 2006 and September 2007 has risen from 5.2 percent to 6.7 percent.
Defaulting on a student loan occurs when a graduate fails to make scheduled loan payments on his or her student loans. For federal student loans, graduates typically have a six to nine month grace period after graduation before payments are required.
When a student defaults on a student loan, serious ramifications result. Allesandra Lanza, corporate public relations manager for American Student Assistance, a nonprofit federally funded student loan guarantor that insures private lenders against the risk of default on college loans, said the repercussions of student loan defaults extend to the student’s job and apartment search.
‘Students don’t realize that employers check their credit records before giving jobs,’ Lanza said. ‘Before renting at an apartment, the landlord would also do a credit check.’
Although the backdrop of this bleak economic state makes the increase in student loan defaults more significant, student loan default rates have been higher, reaching a pinnacle in 1990 with 22.4 percent of student borrowers defaulting on loans. But with more students than ever before in the United States taking out loans to pay for their education and continually dour news about the current economic conditions, the rise in defaults has set some on edge.
For Boston College students, especially the more than 70 percent of the undergraduate student body that receives some type of financial aid, this recent news can be alarming. However, BC students have not fared as badly as the newly-released national average.
The university’s current student loan default rate has risen to 1.3 percent, a slight increase from its typical below-one-percent rate. This statistic not only includes undergraduates, but students in all of BCs graduate schools and law school. While BC is significantly below the Department of Education’s national average, Bernie Pekala, director of financial strategies, said ‘no increase is a good increase.’
While compared to the nation at large, BC students fare better in repayment of their loans, there are options for students who might find themselves becoming part of the student loan default statistic. Pekala said students faced with such problems should talk with their lenders and the Department of Education and look into options like consolidation which, based on factors such as income, will allow the borrower to pay off his or her loan over a longer period time than the typical 10-year standard.
‘There are people there to try to help them [students],’ Pekala said. BC is another resource, he added. ‘We usually have a lot of contact with students after they leave if they have any questions,’ he said.
Lanza echoed similar sentiments. ‘It is very important for students to understand the repayment options and get support for managing debt that comes with college today,’ he said. ‘At American Student Assistance, our role is to help students understand their student loan from the time they start borrowing.’
Pekala also said that students should be proactive when taking out loans to reduce repayment problems in the future. He said problems often stem from the fact that students do not understand the difference between federal and private loans. Ultimately, he said he would advise students to be ‘wise consumers’ and investigate what options they have for repayment of their loans.
What students can expect in the student loan industry in the future remains unclear. ‘No one has a crystal ball,’ Lanza said. ‘Right now we are seeing the effects of the economy and seeing those effects on student loan default rates. [But it] might get worse before it gets better. Everyone from colleges to agencies like the American Student Assistance to the government, everyone in the student loan industry is committed to preventing default.”
