Wisconsin’s student loan default rates are among the lowest in the country, which saw nationwide rates drop by one percentage point this year after years of steady increases.
Some attribute the change to the way the rate is calculated, thus providing an inaccurate picture of how many students default on their loans. Still, the national rate dropped from 14.7 percent last year to 13.7 percent this year, according to the U.S. Department of Education.
Twenty-one colleges, however, face penalties for having default rates higher than the 30 percent limit, the largest number of colleges facing penalties for high default rates since 1997.
At the University of Wisconsin, the default rate is about 1.6 percent, where it has hovered at for the past two years, he said. Statewide, Wisconsin’s default rate is one of the lowest in the nation with 9.9 percent in default, Hillman added.
Robert Kelchen, an education policy professor at Seton Hall University in New Jersey, said student loan default doesn’t necessarily affect a lot of universities.
Kelchen said UW will likely never be subjected to penalties because the 30 percent limit affects mostly small for-profit schools that have vocational or cosmetology programs.
For example, online schools such as University of Phoenix or DeVry University, Hillman said, which often market themselves on TV and rely on financial aid.
For the past 15 years the federal government’s measurement only followed students two years after they paid their loans, but this year it followed them for three years, said UW education policy professor Nicholas Hillman, a UW education policy professor.
Hillman defined the calculation as the numerator being anyone who defaulted in three years and the denominator being the total number of students who took out loans in that fiscal year, he said.
“The basic calculation hasn’t changed,” Hillman said. “[…] The real problem with this new policy is it doesn’t account for [the proportion of students] who borrow in the first place. It’s disproportionate and too simple. Students keep their loans 10, 20, even 30 years. It doesn’t show the magnitude of [the default problem].”
Hillman called the method of penalizing universities “a weak policy,” and universities need to be held more accountable for students’ defaulting on their loans. He said these schools produce students who make low wages or don’t even graduate.
Hillman said universities that lose federal funding due to high default rates are able to reapply in a matter of years, contrasting that to students who are stuck with loans until they pay them off.
“While there is a long-term implication financially for students, the colleges get a ‘Get out of jail free card,'” Hillman said. “They get a chance to turn the rate around and students don’t.”
Kelchen said a student defaults on loans after not paying for a year, but missing a few months does not necessarily lead to default. The consequence of default is not something students can get rid of with bankruptcy like other debt, he said.
Kelchen said there are a lot of reasons why default rates, even at UW, are nowhere near a complete picture of the struggle students face.
“You can hurt your credit score, and it will be difficult to get a car, a house or even a job,” Kelchen said. “They aren’t able to start a family or buy a house like people like to do in their twenties.”
Hillman urges students to be informed about their loans and how to pay them back, as well as to become more vocal with university administration about financial aid and debt. He said the university should also continue looking into how it can bring its default rate down.
“We should still be concerned about those 2 percent defaulting,” Hillman said. “Who are they? First-generation students, low income, minority? Just because it is a low number doesn’t make it okay.”
Previously, a statement from Hillman was misattributed to Kelchen in this article. This post has been updated to reflect that change.
