A new report from the U.S. department of Education shows that in Minnesota alone, there are 9,500 students that have defaulted on their federal government backed student loans since 2009.
According to state officials, out of seven students with federally backed loans, at least one is defaulting on loan payments. At Capella University alone, which is the largest for-profit school in Minnesota, about 1,000 debtors are in arrears.
Meanwhile, the University of Phoenix, which is the largest online school in the U.S., has a default rate of 26.4 percent, with over 49,000 students in default.
However, the second largest Minnesota-based for-profit school, Walden University, had a default rate of just 4.2 percent, which is way lower than that of other schools. According to the school’s president Cynthia G. Baum, one of the reasons behind this is that the school ensures a good fit between interest and skills. She added, “We are committed to the outcomes employers are looking for.” In other words, by abiding by their education standards, the chances of their graduates getting employed are increased.
More defaults elsewhere in the U.S.
However, reports show that defaults on student loans are trending everywhere else in the U.S. Nationally, default rates for private, public and for-profit education are higher than in Minnesota’s higher education system.
The overall default rate of Minnesota’s schools is 9 percent, compared to the national default rate of 13.4 percent. Moreover, the default rate of Minnesota for-profit schools is 10.1 percent, compared to the national average default rate of 22.7 percent. Minnesota public four-year schools have a default rate of 4.4 percent compared to the national average of 7.9 percent.
Student loan default reduction plan
There are still many poorly performing schools when it comes to this aspect. One of which is Rainy River Community College, which has a default rate of 23.8 percent. With this high percentage, the school has voluntarily entered into a default reduction plan assisted by Wisconsin-based Great Lakes Education Loan Services, Inc.
According to Chris Halling, director of student financial aid at Minnesota State Colleges and Universities, to improve their student loan payment, Rainy River Community college contacts their student debtors before their due date and during the grace period, as well as telling the student debtors of their options.
Moreover, due to the increasing default rate, which appears to be a national trend, tools are also entering the marketplace to help students manage their debt. For example, there is the Debt-O-Meter, designed by St. Paul-based Northstar Education Services. This program is currently installed at Minneapolis West Community and Technical College as well as at Inver Hills Community College.
The tool helps educate entering students about the costs of courses of studies and costs of different schools as well as the earning potential of jobs. Not only does this help students weigh which school should they go to but also gives them an idea on which courses should get them to better earning jobs.