A total of 4,707 Webster University students entered the student loan repayment process from Oct. 1, 2008, to Sept. 30, 2009. Of that number, 389 defaulted by Sept. 30, 2011, according to the U.S. Department of Education data released Sept. 28, 2012.
Presented differently, of the 4,707, 8.2 percent of Webster students defaulted on loans within the three-year repayment window.
A study by the Institute of Higher Education Policy (IHEP) said a loan default occurs when a student fails to repay on a loan within 270 days of payment being due.
When a student goes into default, the university, the owner of the loan, the loan guarantor and the government can take action to get their money back.
According to a report in the Chronicle of Higher Education, 13.4 percent of students nationally, or approximately 489,000 people, have defaulted within that three-year period.
Private institutions nationwide, however, have averaged a 7.5 percent default rate since 2008 and 2009. That is compared to an 11 percent default rate at public institutions and a 22.7 percent default rate at for-profit institutions.
James Myers, Webster’s financial aid director, attributed private institutions’ lower default rate to more attention between students and counselors at the generally smaller-sized schools. Myers said private institutions also recruit students with more intent than public and for-profit schools. This leads, generally, to lower default rates.
“It’s the responsibility of the school to make sure they keep their default rates low,” Myers said.
Myers, who became director in September 2012, said he would like to create a student loan default team at Webster. The group would work to educate students about loan repayment options and good borrowing habits.
Myers said a student who defaults on his or her loans should contact their servicer to create a new plan to rehabilitate the loans. Myers also said a student should contact the Webster Financial Aid office if they need advice on how to proceed after default.
“We are here for our current and past students and for guidance,” Myers said.
Myers said a default would drastically decrease a student’s credit score. Consequently, said student would be unable to borrow money to purchase a car or home. Myers also said potential employers may not hire a student because of a low credit score.
Defaulted borrowers could also see wages garnished and tax refunds seized to pay back the loans, according to The New York Times. Student loans cannot be forgiven in bankruptcy.
By Sept. 30, 2010, 4 percent of students had defaulted out of the 4,707 students who entered loan repayment in 2008 and 2009.
Missouri reported an average loan default rate of about 1 percentage below the national average — 12.5 percent.
An IHEP study analyzed loans that entered repayment in 2005. The study also found for every defaulted borrower, two students exist who have not made a loan payment within 60 days of it being due.
After 60 days, the lender will contact the credit agencies and inform them of nonpayment. This may lead to the decrease of a student’s credit rating.
The study also said only 37 percent of student borrowers who entered repayment in 2005 paid back the loan in-full and on time.
According to The New York Times, a federal program exists that will forgive a borrower’s loan debt if he or she pays 15 percent of discretionary income for 25 years.
In 2014, the program’s requirements will be adjusted to 10 percent of discretionary income to be paid over the course of 20 years.
The U.S. Education Department uses these loan default rates to assess whether an institution is eligible to receive financial aid from the federal government. Currently, the Department uses the two-year default rate to judge eligibility, but is moving towards the three-year default rate barometer. The switch will provide a more accurate snapshot of loan defaults.
Under the three-year rate assessment, if an institution has a rate of 30 percent or greater every year for three years, or if the rate is greater than 40 percent for a single year, the university will become ineligible for all federal student aid. These sanctions will begin in September 2014.
— Brittany Ruess contributed to this article