Iowa students’ loan default rate below national average

Graduates of Iowa's regent universities default on student loans at a rate well below the national average, despite carrying some of the country's highest debt loads.

Several university officials said they stress the importance of repayment during loan counseling, and the Midwestern work ethic also may play a role in the generally favorable rates.

“I hope we help out from the very beginning with our awarding philosophy. We try to minimize the amount of borrowing a student has to take out while in school,” said Mark Warner, University of Iowa director of student financial aid.

The UI's most recent three-year student loan default rate is 2.9 percent, compared with 3.2 percent at Iowa State University and the University of Northern Iowa.

The national three-year default rate for all types of institutions is 11.8 percent; it's 7.1 percent when looking at public four-year universities. The U.S. Department of Education recently released rates for 2007 graduates.

The default rate is important because if it's too high, it can affect a college's ability to award federal financial aid. Defaulting on a student loan hurts the student, too, by making a person ineligible for federal financial aid in the future and lowering credit ratings.

Colleges keep an eye on defaults, but several officials said there's not much a school can do once students enter repayment to the government.

Still, financial aid officers said they do their best to counsel students on smart borrowing and repayment. The economy can play a role in the default rates, just as with other types of loans, they said.

“That's what you hear a lot - they can't find a job, or they are not making enough money,” said Tim Bakula, UNI associate director of financial aid. “Our job is to make sure students who borrow are well-educated.”

There are legitimate ways to suspend repayment on student loans - unemployment or graduate school deferments, for example - and officials often offer advice on those, ISU student financial aid Director Robert Johnson said.

Higher default rates are common at for-profit institutions, community colleges and other institutions that serve lower income populations, according to the federal data.

Community colleges tend to have more students who are in and out of school, students who have been laid off from jobs, older students who don't have parents helping pay the bills and students who may get lower-paying jobs after graduation, said Kristie Fisher, vice president for enrollment at Kirkwood Community College.

Kirkwood's most recent three-year default rate was 17.5 percent.

“It's the diversity of the population,” she said.

More than 220 colleges nationally, though none in Iowa, have default rates so high they would lose federal student financial aid under the terms of a new law, which requires colleges to have three-year rates less than 30 percent, according to the Chronicle of Higher Education.

That law change eventually will measure rates over three years, rather than the current two years. The change takes full effect in 2014, but many institutions are already using the three-year rates in looking at data.