Default Rates on Student Loans Rise
Default rates on student loans are increasing, as Education Secretary Arne S. Duncan ’86 announced last week, but the news has not translated into dramatic changes for a private university like Harvard.
Up from 6.7 percent the previous year, the default rate stood at 7 percent in 2008, the last year for which statistics have been reported. While an increase was noted in all categories of colleges, Duncan noted that students at for-profit schools are facing the most severe default rates, meaning that they have not made a payment or arrangements on their loan for 270 days.
Meanwhile, Harvard institutional loans have a default rate that is “very, very low, less than 2.5 percent,” said Director of Financial Aid Sally C. Donahue.
This rate places Harvard on the lowest end of student default rates. Bloomfield College in N.J. is on the other end, with an average of 9.8 percent default rate from 2005 to 2007, according to the Center for College Affordability and Productivity.
In a decision made in Dec. 2007, Harvard eliminated loans from financial aid packages, a change that was implemented in the 2008-2009 academic year.
“We have been thrilled to eliminate loans to attract talent worldwide, so that students [from disadvantaged backgrounds] do not take themselves out of our applicant pool,” Donahue said. Both Princeton and Yale also implemented the no-loan policy for financial aid packages.
Despite this change, Harvard still offers its own loan program which extends loans at a 5 percent fixed interest rate without fees.
“Student loans are a wonderful way of financing education if they’re the good kind,” Donahue said, referring to loans in which interest does not accrue while the student is enrolled, such as those offered by Harvard.
Students who do not qualify for either Harvard or federal loans can turn to private lenders, whose interest rates do accrue. Donahue noted that these Harvard students tend to come from higher income families who have committed their assests to credit card bills and mortgages.
Each year, the Financial Aid Office published “A Guide to Your Educational Loan Debt.” According to this document, the average loan debt for the Harvard class of 2008 was $9,879, less than half the national average of $23,200 for graduates of four-year colleges and universities in 2008.