Help Is Available for Students Struggling With Student Loan Debt

10/7/2013

 

Contact: Sandy Connolly, Director of Communications
Office of Higher Education
(651) 259-3902

St. Paul, MN--In the face of rising student loan default rates, the Minnesota Office of Higher Education (OHE) wants to remind students that most defaults are avoidable.

"The most expensive thing students can do is default on their student loans," said Larry Pogemiller, Commissioner of the Office of Higher Education. "Instead of ignoring contacts from their student loan lender, students struggling to make their payments should work with them to find out what options are available for avoiding default. They may be eligible for income-based repayment plans or a Pay as You Earn repayment plan. Students may also qualify for a deferment if they are unemployed or facing an economic hardship, giving them months of no monthly payments."

Pogemiller said loans already in default can be rehabilitated, likely removing them the student's credit report and making it possible for them to again receive Pell grants to continue their education.

According to the U.S. Department of Education, two-year default rates on federal student loans for Minnesota students increased from 6.9% in 2010 to 8.6% in 2011. Three-year default rates, a new measure introduced in 2008, increased from 9% in 2009 to 11% in 2010. These default rates only apply to federal subsidized and unsubsidized loans, not private loans.

Minnesota default rates remain lower than the national average of 10% for 2 years and 14.7% for 3-year rates. Minnesota default rates also remain lower than peer states of Illinois, Indiana, Iowa and Michigan.

"We are certainly concerned that the numbers are going in the wrong direction, but need to remember that many of these loans were taken out at the height of the recession," said Pogemiller. "The high numbers in some parts of the state may reflect lagging employment opportunities in regional industries over the past several years. We expect those numbers could turn around as these industries rebound."

Unemployment is only one of the reasons a student may default on their loan. Non-traditional students, especially, often have life-events that make it difficult to stay on track, and students who enter postsecondary unprepared to succeed are more like to struggle and drop out. Students who do not finish their program of study have more difficulty finding good-paying jobs, making them four times more likely to default on their loans than students who graduate.

"The new data confirms what we are hearing from students," said Pogemiller. "A growing number are finding it necessary to borrow to complete their postsecondary education, but at the same time, more are struggling to make their payments when the bill comes due.

I'm hopeful that as a result of the recovering economy and the significant investment Governor Dayton and the state legislature made in student aid and tuition relief last year we will see these numbers begin to come down."

Pogemiller said that before taking out any loans, students and families are encouraged to consider all of their options. If they need help, they can talk to a financial aid expert at their college or contact the Minnesota Office of Higher Education.

More information on managing debt and avoiding default can be found at www.studentaid.ed.gov and student loan advice from the Minnesota Office of Higher Education.

If you have questions, contact Sandy Connolly at 651-259-3902 or by email at sandy.connolly@state.mn.us.