A new report from the U.S. Department of Education shows that 16.3 percent of Kentuckians with student loan debt have defaulted on their loans in the last three years, which ranks as the third-highest percentage in the country. While Kentucky’s default rate decreased by 1 percent over the past year, it still is well above the national average of 11.8 percent.
The report calculated the share of students whose loans entered repayment in 2012 who have missed payments for at least nine months. Of the 76,691 borrowers in Kentucky, 12,524 have defaulted. This measure underestimates the number of borrowers who have difficulty paying loans, as it does not count those whose loans are in forbearance.
The Department of Education’s new College Scorecard also shows that while roughly half of students at Kentucky’s public university take out federal loans, a significant percentage are not paying down debt on their loan, which is defined as paying at least a dollar toward the principal balance of the loan within three years of leaving school.
At the University of Louisville, 43 percent of undergraduate students are receiving federal loans, with the average total debt amounting to $21,500, which would require a monthly payment of $239 per month if repaid over 10 years with a 6 percent interest rate. In addition, 78 percent of students who have left U of L have made a payment within three years of leaving the school, including those who did not graduate. U of L’s graduation rate is 53 percent, which is below the national average.
Ashley Spalding, a research and policy associate at the Kentucky Center for Economic Policy, said Kentucky’s high rate of student loan default is a direct result of state budget cuts to higher education — which also have been among the highest in the country since the Great Recession — and the ensuing increases in tuition.
“This information from the U.S. Department of Education is another example of the negative consequences of not investing in higher education,” said Spalding. “Already this year Kentucky has been singled out as one of three states still cutting funding to its public colleges and universities, resulting in higher tuition for students. As this data shows, the consequence of higher tuition is the heavy burden of student loans, which many Kentucky students are struggling to pay.”
U of L President James Ramsey emphasized in his State of the University Address this month that an increase in the state budget for public universities would be their top priority in next year’s session of the Kentucky General Assembly, a point that Spalding also stated is needed to address the student default rate in Kentucky.
From the Department of Education’s College Scorecard, repayment rates on federal loans are much lower at for-profit colleges, many of which have been targeted by Kentucky Attorney General Jack Conway for misleading consumers.
While 67 percent of Sullivan University students receive federal loans, only 49 percent have made a payment on that loan in the three years since leaving the school. Students leave Sullivan with an average total debt of $24,625, despite having $30,300 average salary 10 years after leaving the school.
These numbers are even more pronounced at for-profit schools National College and Daymar College. For example, 75 percent of students at National’s Lexington campus take out federal loans, but only 26 percent have made a payment three years out — with an average total debt of $27,043, a graduate rate of 34 percent, and an average salary after leaving the school of $20,600.