Education

Kentuckians default on student loans at one of the highest rates in the U.S.

About 11,700 people had defaulted on student loans they were supposed to begin repaying in 2011 for attending a Kentucky college, according to data released Wednesday by the U.S. Department of Education. 

That puts Kentucky’s default rate at 17.5.

The national average is 13.7.

Just three states—New Mexico (20.8), Arizona (18.4 percent) and West Virginia (18.2)—had a higher college loan default rate for students who were supposed to start repayment in 2011.

The national default rate average in 2010 was 14.7.  U.S. Education Secretary Arne Duncan said in a release the declining default rate is “good news,” but the number is “still too high.”

(For a searchable database of schools across the U.S., go here.)

The 2011 “cohort” provides the most up-to-date data because the U.S. Education Department is required by federal law to calculate the default rate using three years of data.

Kentucky’s unemployment rate was 9.5 in 2011, according to the Kentucky Education and Workforce Development Cabinet.

In Kentucky, dwindling resources for higher education, coupled with the the economic downturn, have played a significant role in putting some students behind on loan payments, said Erin Klarer, a spokeswoman for the Kentucky Higher Education Assistance Authority.

“More and more people are interested in higher education and the resources available to help subsidize that are just not there, whether it’s state or federal,” Klarer said.

Here is a map of all higher education institutions in Kentucky that provide federal financial aid to students.  (Note: Red markers indicate a higher default rate, purple indicates a mid-range default rate and blue markers indicate a lower default rate.)

[googlemaps https://www.google.com/fusiontables/embedviz?q=select+col1+from+1YiT6RhbPKrweCaB5viM__uZUNzpAwuo2HHvclKFm&viz=MAP&h=false&lat=39.13800901867441&lng=-81.92197887500005&t=1&z=5&l=col1&y=2&tmplt=2&hml=ONE_COL_LAT_LNG&w=575&h=323]

She said many students who have defaulted on their loans are often unaware of available options that can help prevent slipping into default—which means a payment has not been made in at least 270 days.  But she added that before assistance can be given, students must ensure they communicate with the loan provider.

“It’s very, very easy to ignore that phone call when you know who it is every time, but they can’t provide assistance when they can’t talk to you,” she said.  “The easiest way to avoid default is to just talk to your servicer.”

What Schools Are Doing To Help

Default rates in Kentucky are as high as 33.3 percent—that’s Somerset Community College in south central Kentucky.

Here is a look at some Kentucky schools with the highest default rates.

Schools are subject to sanctions if they exceed a 30 percent default rate for three consecutive years. 

Those sanctions include losing the ability to provide federal financial aid to students, according to the education department.

The 2011 cohort default rate for Somerset Community College comes after a 33.4 percent default rate in 2010 for the school, which enrolled about 11,500 during the 2011 fiscal year, according to data provided by the education department. This means Somerset Community College could lose its ability to provide federal financial aid if its default rate exceeds 30 percent for the 2012 cohort of students.

Despite that, Somerset Community College President Jo Marshall said she isn’t worried about losing aid providing eligibility.

“We will not lose our ability to provide financial aid services, we will do everything within our power as a college to avoid this happening,” Marshall said on Wednesday.

Marshall said the college has implemented a “loan default management plan,” and is working with the Kentucky Higher Education Assistance Authority to alert students near default status and help get payment options in place, she said.

“We expect a tremendous drop in our default rate from here on out,” she said.

She added the college may also “challenge some of the data.”

Marshall said a factor in default rates stem from loans that “are so readily available” to students who have never received loan counseling. 

“If a student chooses to take out the maximum then he has very much the potential to be very much in debt by the time he graduates or gets a job,” Marshall said. 

First generation college students often enter higher education with less understanding of how the system works—and they’re much more likely to default on loans, said David Bailey, the vice president of the Kentucky Higher Education Assistance Authority.

Klarer said before a student ever accepts a loan they need to “understand the consequences of default.”

“Student loans are such a unique entity,” she said.  “There is no tangible thing that can happen, what happens is you get dinged on your credit, you get dinged on your future financial aid,” she said.

But she added, those “dings” can have lasting effects on a student’s credit.

Klarer said the state’s 17.5 percent default rate is disappointing—but it’s “not surprising.”

“You just need a pulse to get a student loan,” Klarer said.  And she means that because schools cannot decline student loans, oftentimes students will “overborrow.”

“There needs to be some sort of control,” she said.

Jacob Ryan is a reporter for the Kentucky Center for Investigative Reporting.