Private Colleges Continue to Have Lowest Default Rate

Overall, student loan cohort default rates have again decreased. The drop in the overall default rate for 2005, to 4.6 percent, follows two years in which the rates increased slightly, relative to the steady decline from the peak rate of 22.4 percent in 1992.

The 2005 composite rate of 4.6 percent is down from 5.1 percent in 2004. For private 4-year colleges, the 2005 rate is 2.3 percent - down from 2.6 percent in 2003 and 2.8 percent in 2004.

The increases of recent years have been relatively small, and the decrease for 2005 occurred despite the significant increase in the number of borrowers who went into repayment. In the case of 4-year privates, the number of borrowers who entered repayment on new loans rose from 197,176 in 2003 to 347,887 in 2005. Much of this increase may be explained by the number of borrowers who consolidated old loans during this period. Borrowers had to begin repaying their new consolidation loans immediately, but they locked in the extremely low interest with extended repayment periods.

The default rates for the different sectors have remained more or less constant in relationship to one another as well. The four-year privates continue to have the lowest rates, whether overall rates are rising or falling. The proprietary sector continues to have the highest overall rate for 4-year institutions, at 7.2 percent, and their rates for less than 2-year and 2-3 year schools are also higher.

Although the cohort default rates have continued to fall, they don't tell the whole story. Many borrowers default after the "window" in which the cohort default rate on their loans is measured. This is because the point at which a loan defaults has been pushed farther out, confirming - at least for the short term - the effectiveness of repayment strategies to keep borrowers from defaulting.

For more information, please contact:
Maureen Budetti