Student-Loan Defaults Rise

The percentage of Americans who defaulted on federal student loans shortly after payments came due rose last year, fresh data show, continuing a trend throughout the recession and weak recovery.

The Education Department said 9.1% of borrowers whose payments kicked in during the 2010 federal fiscal year defaulted in the year ended Sept. 30, 2011. That's up from 8.8% in the prior year and 4.6% five years earlier. The government defines a loan as being in default when the borrower hasn't made a payment in a year.

The data released on Friday provide only a glimpse into a broader problem, as the report only includes borrowers who defaulted within the first two years of payments coming due. The data also doesn't take into account borrowers who have been allowed to postpone payments for a period during times of hardship, such as unemployment. Over the long haul, the government projects that nearly 1 in 5 borrowers will default on federal student loans at some point.

The higher defaults come as the weak labor market has left many college graduates unable to find work or having to settle for low pay. While student debt has risen among all age groups in recent years, young college graduates are hit particularly hard because they often have no savings and earn less than older workers. But older workers who went back to school during the recession and early recovery are also struggling with payments during the weak labor market.

The Obama administration has sought to ease the burden of student debt by moving to expand a program that allows borrowers to make payments equivalent to a percentage of their income, and then to forgive the balance of debt after 20 years of payments.

Economists say the combination of higher defaults and "income-based repayment" plans could drain revenues from the federal student-loan program in coming years.


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