Fewer People are Defaulting on Student Loans — But Don’t Celebrate Yet

Student loan default
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When you prepare to graduate from college, the idea of actually paying back your students loans might ruin any cake-and-balloons celebration you have planned.

Incessant warnings about the consequences of defaulting on your loans can take the wind out of your mortarboard and make you wish you could stop time and enjoy life before repayment begins.

But now there’s some good news about the state of federal student loan repayment in the United States. Sort of.

Federal Student Loan Default Rate Drops — Slightly

The three-year federal student loan default rate has dropped a whopping 0.5 percent — from 11.8% to 11.3% — for students who started repaying their loan between 2012 and 2013, the U.S. Department of Education said.

More than 5.2 million borrowers entered repayment between October 2012 and September 2015, and 593,182 of them have defaulted on their loans, according to a media release.

So if the percentage seems low, remember that we’ve got almost 600,000 graduates and former students who are totally screwed.

While such a decrease might seem trifling, let’s put it in perspective: The default rate has declined continually since 2012, when it was 14.7%. Talk about recession woes.

Why Do Loan Default Rates Matter?

The release discusses the “cohort default rate,” which is the “percentage of a school’s borrowers who enter repayment” on certain federal loans “during a particular federal fiscal year, the Department of Education explained.

The loan default rate doesn’t just affect students who are wringing their hands over their next steps.

Schools with high default rates may find their eligibility to be a part of federal student aid programs limited or completely revoked. For-profit schools are notorious for being on the sanctions list.

Remember, Defaulting Is the Worst

A loan default rate approaching 10% doesn’t mean it’s time to rest on your laurels when it comes to paying down your student loans.

Defaulting occurs when you haven’t paid your federal loan for an entire nine months; at that point, your entire balance comes due and can quickly escalate to a collections situation.

Deferment and forbearance may be options for you if you can’t pay your loans, but the first step is communicating with your federal loan administrator.

Income-based repayment options may also be available to help you get through difficult financial times while still remaining in good standing. Feeling completely overwhelmed? Refinancing your loans can help you get a lower interest rate.

Once you’ve done everything you can to get your payments under control, consider bringing in extra income to put toward your loans. It may be a long road to freedom, but picking up a side hustle can help you ensure you’re doing all you can for your financial future.

Your Turn: Have you ever defaulted on a student loan?

Lisa Rowan is a writer and producer at The Penny Hoarder. She will be paying off her graduate school loans until the rapture, and probably after.

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