Student Loan Defaults Rising

New numbers are indicating that student loans may be another area where consumers are having problems paying their bills, following the rise in mortgage delinquencies and defaults seen this year. But the severity of the problem for students remains unclear. Last year there was about $100billion in federal student loans.

Several guarantors of these loans are releasing statistics that show increases in their ‘trigger rate’, the number of loans that default in a fiscal year as a percent of their total loans that year.

American Student Assistance Corp. reports its trigger rate for fiscal 2007 is 1.12 percent, up more than 14 percent from 0.98 percent in fiscal 2006, according to Michael Ryan, vice president of borrower services.  

American Student Assistance is one of about three dozen firms that guarantee federal student loans, said Ryan. The industry is experiencing increases around 28 percent in the fiscal year that ended Sept. 30.

The industry’s average trigger rate was 1.57 percent in fiscal 2006 but some are expecting that to rise to 2 percent or higher for 2007, said Ryan.

United Student Aid Funds, or USA Funds, reports its trigger rate rose about 22 percent in fiscal 2007. USA Funds is the largest guarantor of federal loans, handling about 25 percent of the loans.

Both USA Funds and American Student conduct in-house collections and out source some collection needs, according to their spokespersons.