September 14, 2011

Jefferson City - Recent figures released by the U.S. Department of Education show that the student loan default rate in Missouri is still below the national average, and the default rate for loans guaranteed by the Missouri Department of Higher Education is well below the national average.

The information released by the U.S. Department of Education summarizes the default rates for borrowers whose first loan repayments came due between Oct. 1, 2008 and Sept. 30, 2009, and who stopped making payments before Sept. 30, 2010.

The student loan default rate measures the percentage of borrowers who have stopped repaying student loans.

The national student loan default rate rose from 7 percent in 2008 to 8.8 percent in 2009. Missouri's overall rate increased from 5.8 percent to 7.6 percent. The default rate for loans guaranteed by MDHE declined from 6.6 percent in 2008 to 6.3 percent in 2009.

While national student loan default rates have steadily risen from 2007 to 2009, the default rates for loans guaranteed by MDHE have declined each year. Overall state rates declined slightly from 2007 to 2008, but increased the next year.

The Missouri Department of Higher Education acts as a guaranty agency for about 40 percent of all student loans in Missouri that were disbursed before July 1, 2010. Loan guaranty agencies insure student loans against default. If the borrower defaults, the guaranty agency reimburses the lender and attempts to recover the funds from the borrower.

MDHE helps delinquent borrowers become financially responsible by offering free financial counseling. Default prevention grants, distributed by MDHE to Missouri colleges and universities, enable the schools to set up programs for students that encourage smart borrowing, financial literacy and academic success.

Commissioner of Higher Education David Russell says MDHE's success as a guaranty agency is largely due to its aggressive approach to default prevention.

"The recent data on student loan default rates show that MDHE's default prevention grants to institutions have been highly effective," Russell says. "Institutions use the grants to help educate student borrowers on ways to minimize their debts and live within a budget."

The average default rate of colleges and universities that received MDHE grants was significantly lower than the average rate of Missouri schools that were eligible for the grants but did not participate.

Missouri's student loan default rate of 7.6 percent was lower than Arkansas (11.6 percent), Illinois (9.1 percent), Iowa (11.5 percent), Kentucky (10.2 percent) and Oklahoma (10.7 percent). Only Kansas (6.8 percent) and Nebraska (5.6 percent) posted lower rates in the region. Missouri had 84,096 students in repayment and 6,462 defaulted borrowers during the reporting period.

MDHE also publishes free "Smart About Spending" portfolios and "Planning for Financial Success" calendars that guide students through the process of managing money. The free publications can be ordered through the agency's website.