Various Repayment Options

Default is a rare case for Pace graduates. Over the past 3 years only 4.8% of those that had initiated payment have defaulted  i.e. stopped payment within 270 days of their first repayment.That might not sound high statistically but it does represent 117 students whose financial life has been dealt a serious blow that will be very difficult to overcome.
I know that no one defaults unless they are at a dead end and they have no other choice. If that is the case then one must accept the consequences and adjust as best as possible to the tough conditions. But this is rarely the case. Many of those that default are not aware of the variety of options available to them.The students themselves are to blame for not being totally informed but the blame is also to be shared by the lending institutions that fail to keep the borrowers abreast of all the new developments as well as the educational institutions themselves who have also failed to keep their former students up to date.

The following example might help shed light on why is it that I feel strongly that no student should ever default: Let us assume that Jane is single, owes #50,000 in Federal Student Loans, has an AGI of $30,000 and that the loans carry a 6.8%. Let us also assume that Jane received her first loan after Sept30, 2007 and that she also received a loan after Sept. 30 2011.

What are some of her repayment option?

A Standard Repayment plans:           $575.40 / month for 120 payments
                                                         347.04 / month for 300 payments

B IBR (Income Based Repayment) $166.00 / month for 300 payments

C Pay-As-You-Earn                             $110.00/ month capped at 10% of Income and forgivness of 
                                                                      the balance after 300 payments.

There are a few other options but as the above example illustrates very clearly it is very difficult to justify default given all these repayment options.  

Default rates: National vs Pace University

That there is a student loan problem is not debatable.  The overall sum of Student Loans is increasing at an unsustainable rate while the ability of borrowers to service this debt is becoming more difficult every day. The most common yardstick to measure the above is called CDR, Cohort Default Rate, which is a measure of the proportion of Federal Student borrowers who default on their obligations within a specific time after the repayment process begins. The 2 year CDR used to be the most common standard until the passage of the High Education Opportunity Act of 2008 which recommended the adoption of a 3 year CDR as a better measure of the default problem.

Default is defined to be a time period of 9 months of nonpayments. The most recent data shows that the problem of default is becoming more acute. The two year CDR has registered an increase to 9.1 % while the three year CDR has risen nationally to13.4%. It must be noted that almost half of the defaults; 47%; are recorded against for -profit-colleges whose total student enrollment accounts only to 13% of the national student body. The record of the not-for-profit institutions ; such as Pace University; is much better. As a group the not-for-profit have 15% of the students and account for 13% of the defaults

The record for Pace students is one of the best in the nation. The last three 2 year CDR for Pace students shows a CDR of 3.4% for those students who started repayments in 2010. That unfortunately is slightly higher than the 2 year CDR for those who started their repayment in 2009 and who had a default rate of only 2.4%.

A high CDR reflects bad on the institution as well. The availability of funds for its students will be affected negatively. The rationale being that the institution is not exercising enough caution in its admission policies and is allowing  its students to carry loan levels that are beyond their capabilities.

Pace University students have an enviable 3 year CDR of only 4.8%. Yet even that low level represents 117 students out of 2399 who have defaulted within 270 days of when they started repayment. The consequences for the student can be rather severe and so must be avoided at all costs , whenever possible. A default will create a bad credit report for life, it could trigger garnished wages and might even affect Income Tax refunds and Social Security benefits.

What is sad about the above situation in which these 117 students find themselves is the possibility that they have not been properly informed of all the options available to them.It is very high likely that each of these students is eligible for the Income Based Repayment program, IBR, which has been available since 2009. Under IBR, loan repayments are caped at a manageble proportion of income  and the balance is forgiven after 25 years of payment. If only one of the 117 Pace students who is in default was not properly informed of his/her options then that is a travesty.