Student Loan Default Rate Now Under 10 Percent

US Education Department Press Releases, Oct 26, 1998

This year, 138 schools are affected by this provision, including 44 institutions affected for the first time and 94 whose loss of eligibility was extended another year based on their 1996 rates. However, 12 of the 44 schools have already either withdrawn or have been removed from the loan programs for other reasons. 32 schools that were participating in the loan programs on or after Oct. 7, 1998, may also lose access to Pell Grants, according to a new provision in the Higher Education Amendments of 1998.

In addition, under department regulations, schools with a one-year default rate over 40 percent may have their eligibility for all federal student aid programs restricted or terminated. Based on the 1996 rates, 66 schools fall in this category. The total number of schools affected by one or both sanctions is 165.

Historically Black Colleges and Universities, tribally controlled institutions, and Navajo community colleges are exempt from sanctions until July 1999.

The secretary also said the department's improved gatekeeping activities -- both at the front end for institutions initially seeking to participate in the federal student aid programs as well as accountability measures schools must meet to stay in the programs -- have helped weed out schools that often had the highest default rates.

Borrowers who default on federal loans face serious repercussions, such as the withholding of federal income tax refunds, wage garnishment, adverse reports to credit bureaus, and denial of further federal student aid.

To avoid these sanctions, defaulters have the option to consolidate their loans and establish an income-based repayment plan that more realistically matches their ability to pay.

Borrowers who believe they may be in default on a federal student loan should contact the holder of the loan for more information about available repayment options. For accounts currently being handled by the department or to locate a past due account, borrowers may call the department's Debt Collection Service Center at 1-800-621-3115.

School default rates are posted on the department's web site at: http://www.ed.gov/offices/OSFAP/defaultmanagement/.

A Statement by the President on this subject is also available.

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