Student Loan Defaults - New Report Predicts Further Increases

A recent report issued by the U.S. Department of Education predicted that the adjusted default rate for federally guaranteed student loans would rise to the highest levels since 1998 shortly, with banks predicting that the default rate could increase to as much as 6.9 percent.

Such an increase would effectively mean that the rate will have increased by two percent over the last two years. The recent increase in these default rates have been attributed to the economic crisis and high levels of unemployment, which has meant that recent college graduates are finding it extremely difficult to secure employment.

Many college graduates are currently opting to temporarily suspend loan payments, while others who qualify, are opting to defer their loan repayments citing financial difficulties. In the case of this loan “deferment,” the government makes the interest payments on behalf of the student for the period of time in which the student is unable to make payments. If college graduates who are finding it difficult to make loan repayments due to financial difficulties choose to suspend their loan payments under the “forbearance” programs which are offered with most federal loans, they remain liable for the interest payments for the duration of the loan suspension, and this accrued interest is then spread out over the life of the loan.