Default rate low for student financial aid

By KATE DAILEY
Collegian Staff Writer

Maybe more students are getting jobs after they graduate that don't involve the production of french fries. Maybe more students are listening to their consciences. Or maybe students simply realize defaulting on a loan is an unwise financial decision with long-term consequences.

Whatever the reasons, the Pennsylvania Higher Education Assistance Agency (PHEAA) recently recorded the lowest loan default rate of the 44 major student loan guarantors. The rate of 1.96 percent is a positive for both students and other taxpayers.

The low rate means that 260,000 student borrowers who might normally default on their loans were able to make payments. It also makes borrowing money easier for all students.

"Fewer defaults make the risk lower, so (interest) rates are more reasonable," said Keith New, PHEAA spokesperson.

When a student defaults, New said, federal tax dollars are used to pay off the loan. By keeping the rate of default low, PHEAA saved taxpayers $774 million last year.

PHEAA is the government agency responsible for providing financial aid to students. Should a borrower be unable to make payments on a private loan, PHEAA will reimburse the lender.

This is the fourth consecutive year that PHEAA's loan default rate was under 2 percent.

One of the main reasons behind PHEAA's success is its willingness to work with the student borrowers, said Anna Griswold, assistant vice provost of student financial aid for Penn State.

"Many students can encounter difficulty in making their payments," she said. "PHEAA has a very good practice of assistance, which is very helpful for student borrowers."

Some of these practices include forbearances, loan consolidation and payment deferment, depending on the borrower's situation. Each of these options gives borrowers more flexibility when it is time to pay their loans. PHEAA is also one of the first loan guarantors to provide credit counseling, a federal mandate for anyone who wants to take out a loan, on the Internet.

"The priority is the student and the borrower," New said of PHEAA.

Last year, PHEAA processed over 500,000 loans.

More than 90 percent of Penn State loans are handled through PHEAA, said Griswold, adding 43 percent of Penn State students receive financial aid in the form of student loans.

A loan goes into default if no payment is made 180 days into a delinquency period. Defaulted loans can result in bad credit, civil litigation and wage garnishment for the borrower.

Should a loan default, "all is not lost," New said. "There is an opportunity for the borrower to have the loan rehabilitated … and their credit rating cleared."

New urges students, however, to avoid defaulting in the first place.

"A federally guaranteed loan is a serious obligation that must be paid," he said.