Arkansas student default rate continues four-year decline, state moves closer to national average

Arkansas’ contribution to the nation’s massive $1.4 trillion student loan bubble actually got smaller in 2014, moving the state off another “bottom ten” financial ranking of U.S. states with the greatest amount owed to attend college, according to newly released data from the U.S. Department of Education (USDE).

Tony Williams, executive director of the Arkansas Student Loan Authority (ASLA), told Talk Business & Politics that the latest data compiled by the federal government shows the default rate for Arkansas federal student loan borrowers improved for the fourth straight year, dropping 1.8 percentage points from 14% down to 12.2%.

Over the past five years, however, the federal default rate has decreased 3.2 percentage points from a high of 14.7% in 2009. The 2014 cohort default rate is compiled from the percentage of a school’s borrowers who entered repayment on Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans between Oct. 1, 2013 and Sept. 30, 2014, and subsequently defaulted prior to Sept. 30, 2016.

Arkansas is now ranked 31st in the country compared to 42nd last year, and just seven-tenths of a percentage point off the national default rate of 11.5%. Just four years ago, when ASLA initiated efforts to lower the state’s default rate, Arkansas ranked near the bottom of all 50 states at 49th. During that period, Arkansas’ default rate has declined from 19% in 2010 to a more manageable 12.2% in 2014.

“We are very excited to be a part of this impressive accomplishment for the state and to be a part of helping individuals successfully manage their student loan debt,” Williams said. “Our goal was to see (Arkansas) move (its) ranking into the 30’s, so we view 31st as a huge success and we have expectations of more progress next year.”

WHAT’S DRIVING THE DECLINE
Williams said the improvement in the state’s overall student loan default rate is due to several reasons, including ASLA’s own default prevention program. He said state colleges and universities have also placed a greater emphasis on loan counseling and helping students not to “overborrow.”

“ASLA began focusing on default prevention in 2013 and we have been a part of resolving over 20,000 delinquent accounts in the last four years,” Williams said, adding that the agency is currently working with 14 colleges and universities across the state.

Statewide, ASLA’s data compiled by the U.S. Department of Education shows there were $656.9 million in federal student loans that originated in Arkansas during the 2016-2017 academic year. That is slightly up from $639.1 million in loan originations in the previous year and well above the $435.7 million handed out to student borrowers a decade ago.

The highest level of federal student loan origination in the last decade occurred during the period between 2009 and 2016. Federal student loan origination topped out at $701.3 million in the 2011-2012 academic year, followed by $679.7 million and $675.5 million the 2010-2011 and 2013-2014 academic years, respectively.

By far, college-goers attending the University of Arkansas at Fayetteville received the largest portion of federal student loan proceeds in the 2016-2017 academic years, when $107.6 million was handed out to Arkansans attending the state’s largest university. That amount was up 4% from the $101.6 million in federal student loans handed out in the prior year.

After the UAF, Arkansas State University in Jonesboro received the second-largest share of federal student loans at nearly $91 million in the 2016-2017 academic year, up 9.3% from $83.2 million a year ago. The University of Central Arkansas, the University of Arkansas at Little Rock, and the University of Arkansas for Medical Sciences rounded out the top five with $53.8 million, $53.3 million, and $50.6 million in federal student loans, respectively.

NATIONAL, STATE NUMBERS
Nationwide, Americans still owe more than $1.45 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt. That leaves the average 2016 graduate with $37,172 in student loan debt, up 6% from last year. In Arkansas, 338,000 student loan borrowers owe a total of $10 billion.

The USDE data, which was released on Friday (Sept. 27), comes just over a month after credit reporting giant Experian shows that Arkansas ranks among the top five states with the highest percentage of balances that are more than three months past due.

According to Arkansas specific data provided to Talk Business & Politics by Experian, whose database includes credit information on nearly all U.S. consumers, 12.8% of the federal student loan borrowers in the state have balances that were 90 days past due, which ranks Arkansas behind only South Carolina, Louisiana and Mississippi at 14.3%, 14.2% and 13.8%, respectively.

Overall, the average Arkansas student loan borrower has 3.7 loans with a balance of $31,217, which is better than the national average of 3.7 loans with $34,099 left to pay. However, that is largely offset by overall debt of $133,390 for federal student loan borrowers in Arkansas, compared to the national average at $101,501. Consumer debt tallies include credit cards, mortgages and other installment loans.

At the time, Williams said Arkansas’ cohort default rate has trended in a positive direction over the last three years and predicted that the state would continue that same trajectory once new USDE data was available. Williams said the credit report giant measure different data based on credit information, noting that “in arrears” data used by Experian and “in default” compiled by the USDE are similar but different tracking methods.

Despite Arkansas’ student loan default rates trending in the right direction, three-year student cohort default rates rose for the rest of the nation two percentage points between fiscal years 2013 and 2014 to 11.5%. Altogether, more than five million borrowers entered repayment, and 580,671 of them defaulted on their loans. Those borrowers attended 6,173 postsecondary institutions across the nation.

Still, many financial experts are predicting the U.S. student loan debt burden is impacting the financial well-being of the nation, especially the millennial generation According to a recent joint study by the National Association of Realtors and nonprofit American Student Assistance, student debt is holding back millennials from financial decisions and personal milestones, such as adequately saving for retirement, changing careers, continuing their education, marrying and having children.

NAR and ASA’s new study found that only 20% of millennial respondents currently own a home, and that they are typically carrying a student debt load ($41,200) that surpasses their annual income ($38,800). Most respondents borrowed money to finance their education at a four-year college (79%), and slightly over half (51%) are repaying a balance of over $40,000.

ASLA’s Williams said student loan borrowers need to understand they do not have to default. “There are several options, such as income-based repayment plans, to help anyone manage their student loan debt,” he said. “But even more important is to not to borrow more than needed while in school.”