Default judgment
9/22/2012Many more college students, in Ohio and across the country, are taking out loans -- often for tens of thousands of dollars -- to help finance their education. As the economy and job market remain slow to recover, more of these borrowers are falling far behind on paying back their loans, including those made or guaranteed by the federal government.
The Blade reported this month that Owens Community College ranked fifth among U.S. public colleges and universities in the number of its students who defaulted on government-backed loans, according to data from 2009-10, the most recent figures available. The University of Toledo and Bowling Green State University also ranked high among public institutions in student-loan defaults, although none of the schools faces federal sanctions because of its default rate.
Loan default is not desirable, for taxpayers or students. It wrecks borrowers' credit ratings, subjects them to aggressive collection efforts by private companies hired by the federal government, and places them in an even deeper financial hole. Their paychecks, tax refunds, Social Security benefits, and other government checks can be seized.
Loan modification and other ways to prevent default are better options when they can reasonably be invoked. Public and private institutions that make and administer student loans, and schools that benefit from them, must do more to acquaint borrowers with these options.
Financial-aid officers at Toledo-area public colleges and universities say that high tuition is not the main cause of loan defaults at their schools. Tuition at Owens is an economical $4,000 a year, and federal aid often covers the full amount.
Instead, officials say, many financially struggling local students have defaulted on their loans because they left school and can't find jobs. Students who drop out are far more likely to default than those who graduate.
Many students take out loans to help cover transportation and housing costs to stay in school. Borrowers at community colleges may be older and unable to turn to parents for help with loan debt.
The companies the federal government hires to administer student loans need to do a better job of counseling borrowers before they commit to costly obligations, and of advising them of the wide variety of affordable-repayment programs before they default. The U.S. Department of Education, Congress, and colleges and universities must do their part to help students manage the debt they take on, relative to their likely post-graduation income, and to make borrowers aware of repayment options.
Owens officials note that the two-year college offers courses in financial literacy, and discusses loan obligations and terms with student borrowers, especially when they become delinquent. The default numbers suggest that such conversations may need to be more extensive.
Students who took out loans to attend private, for-profit colleges account for a disproportionate share of loan defaults. Despite setbacks in court, the Obama Administration must continue to pursue efforts to regulate loan practices at for-profit colleges more closely.
Students often are encouraged to borrow money to pursue higher education with the hope -- or expectation -- that their investment will be repaid with a better career. When that doesn't happen, or at least not quickly enough, borrowers deserve guidance from the people who offered such enticements on repaying their debts without ruining their lives.