Only 1.5 percent of Brown students default on their loans within three years of entering repayment, compared to 13.4 percent nationwide, according to reports recently released by the Department of Education.
This is the first time the Department of Education has released an official report of the three-year cohort default rates, which measures the number of borrowers who entered repayment between October 2008 and September 2009 and defaulted by the end of September 2011.
The national default rates include both Federal Family Education Loan Program loans and William Ford Federal Direct Loan Program loans. Of the loans calculated in this rate, Brown only uses direct loans, said Wynette Richardson, director of financial services at Brown.
Within two years of starting repayment, 9.1 percent of students nationwide defaulted, according to this year's report. This is up from last year's 8.8 percent two-year cohort default rate, which measured the number of students who defaulted on their loans by the end of the fiscal year 2009. By comparison, 1.2 percent of borrowers at Brown, including master's and doctoral students, defaulted within two years, up from last year's 0.5 percent.
Though this year's rate is more than double that of last year's, the jump does not represent a significant change in the number of borrowers who default, Richardson said. Brown's current two-year rate represents 10 defaulting students out of 772 borrowers. Five students out of 839 borrowers were in default in 2010, according to last year's released figures.
While the national two-year cohort default rates have climbed steadily since 2005, Brown's rates have remained at around 1 percent over the past few years.
"I would say that a lot of it is to do with some of the education that we do with students, ensuring that borrowing is kept at a minimum," Richardson said.
Educating students early about their options is key, Richardson said. The loan office has introduced a new program this year called Get Your Bearings, which promotes financial literacy among students. A series of workshops over the course of the semester will instruct on matters such as budgeting and saving, how to manage credit and loan repayment options. Sessions will be offered to students ranging from sophomores to seniors in hopes that students will better understand their financial responsibilities by the time they graduate, Richardson said.
The loan office does not encourage students to change their intended career path based on the level of expected debt, but students should take into account their earning potential when making decisions about their future, Richardson said.
"I think when students are graduating with $20,000 in loan debt, that's not a thing to ask and still expect all of their future prospects to be intact," said Alex Mechanick '15, president of Brown for Financial Aid.
Education is an investment, and having no loans is not necessarily the goal, he said. But Brown for Financial Aid does want to see certain policy changes at the University, he said, such as more advanced notice when a student will be laid off from an on-campus job.
Default can happen when students exhaust the safety net options - such as forbearance, unemployment deferral and income-based repayment - that come with federal loans. But in some cases, students do not maintain communication with their loan servicers, leading them to address repayment issues too late, Richardson said.
For students who do default, repercussions can be devastating, she said. Being registered with delinquent loans with the Credit Bureau will negatively affect a borrower's credit rating, and the extra fees associated with repaying delinquent loans become increasingly burdensome, she said. The outstanding principle, crude interest, late fees and collection fees can even double the balance owed, she said.
Nationally, rates tend to be highest among proprietary institutions, private two-year colleges and public two-to-three-year programs. High rates of default are also common with students who do not complete their degree, Richardson said.
Rates among other Ivy League institutions have been consistently similar to Brown's, and generally remain within a 0.5 percent margin of difference. Though default rates may be similar, the average debt burden for Brown graduates remains among the highest in the Ivy League, Mechanick said.
This year's two-year default rate for student borrowers at the University of Rhode Island was 3.9 percent, reflecting the national pattern of higher rates of default at public versus private institutions.
Overall, borrowers are becoming more educated about their options as servicers come out with new programs to address their needs, both Richardson and Connors said. The loan office predicts the default rate will remain stagnant or decrease in the coming years despite continuing turmoil with the nation's finances.
