Arkansas student loan default rate slides to 11.2%, debt climbs to nearly $11 billion

Student loan default rates for Arkansas college students declined for the fifth straight year even as the amount of debt owed by current and former college goers nears crisis level, according to newly released data from the U.S. Department of Education shows.

In releasing the new data from fiscal year 2015, USDE Secretary Betsy DeVos announced that the FY 2015 national cohort default rate is 10.8%, down from 11.5% in the previous year. By comparison, Arkansas’ cohort default rates dropped from 12.2% to 11.2%, inching closer to the national average. Since 2013, Arkansas student loan default rate has dropped 7.8 percentage points, while the national rate has only dropped 3.9 percentage points.

The once-a-year student loan default data was released electronically on Sept. 24, to domestic and foreign colleges who have borrowers who enter repayment on U.S. federal loan programs, including the Federal Family Education Loan (FFEL) and the William D. Ford Federal Direct Loan (Direct Loan) Program.

ARKANSAS STUDENT LOAN TREND
That same data culled from the annual release of USDE’s cohort default data and other federal financial information shows that Arkansas’ 351,000 student loan borrowers carried more than $10.8 billion in debt at the end of 2017. That pales in comparison to the national student loan debt tally, which topped $1.4 trillion at the end of the first quarter. According to Tony Williams, executive director of the Arkansas Student Loan Authority (ASLA), Arkansas is now ranked 30th among the 50 states and Washington, D.C., compared to 31st in 2017 and 42nd in 2016. Five 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 had declined from 19% in 2010 to the more manageable 12.2% in 2014.

“If Arkansas continues trending in the direction in which it has trended over the last five years, the state will soon be below the national average for the first time in the history of the federal student loan program,” Williams told Talk Business & Politics. “We expect this trend of lower default rates for Arkansas to continue into 2019.”

Williams said the improvement in the state’s overall student loan default rate is due to several reasons, including ASLA’s default prevention program. He also 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 several thousand delinquent accounts in the last five years,” said Williams. “(We) are currently working with 14 colleges and universities to assist in student loan default management. I believe the overall economy has also had a positive impact on student loan defaults.”

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

STUDENT LOAN BUBBLE
Despite fewer defaults, the Federal Reserve and other economic forecasters are predicting that the nation’ so-called student loan “bubble” is close to bursting. According to the Fed’s latest quarterly report on U.S. household debt and credit, outstanding student loan liabilities grew by $29 billion to $1.41 trillion at the end of the three-month period ended March 31, 2018. Of that total, 10.7% of aggregate student debt was over 90 days delinquent or in default in the first quarter.

By comparison, mortgage balances stood at $8.94 trillion at the end of the first quarter, an increase of $57 billion from the fourth quarter of 2017. Mortgages are the largest component of U.S. household debt, which rose for the 15th consecutive quarter at the end of March to $13.21 trillion, up by $63 billion from the fourth quarter of 2017. Further, overall household debt is now 18.5% above the post-recession trough reached during the second quarter of 2013.

A recent study by the Federal Reserve Bank of New York’s Center for Microeconomic Data, shows that over half of young adults who went to college took on some debt, including student loans, for their education. In 2017, one-fifth of those with education debt were behind on their payments. Individuals who did not complete their degree or who attended a for-profit institution are more likely to struggle with repayment than those who took on large amounts of debt but completed a degree from a public or not-for-profit institution, the report said.

Forty-two percent of those who attended college, representing 30% of all adults, have incurred at least some debt from their education. This includes 22% who still owe money and 20% who have already repaid their debt. Adults under the age of 30 who attended college are more likely to have taken out loans than older adults, consistent with the upward trend in educational borrowing over the past several decades.

Emeryville, Calif.-based American Financial Benefits Center (AFBC), which monitors rising college cost and its impact on millions of borrowers, said the student loan crisis is worse than it looks because default rates don’t tell the whole story.

“The cost of college continues to relentlessly rise. Borrowers are faced with a difficult choice to take on debt that will impact their lives or forego a college degree which may also impact their lives,” said AFBC Manager Sara Molina. “”The closer we look at the numbers, the more challenging the student loan debt crisis becomes.”

ARKANSAS LOAN DEBT AVERAGES $26,799
According to USDE data, Arkansas’ 351,000 college tuition borrowers carried average of $26,799 in student loan debt per student, slightly less that the $27,857 average balanced held by the other 43.6 million Americans that are still paying for college.

Statewide, ASLA’s data compiled by the USDE shows there was nearly $649.6 million in federal student loans that originated in Arkansas during the 2017-2018 academic year. That is down 1.1% from $656.9 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 2017-2018 academic years, when $107.6 million was handed out to enrollees at the state’s largest university. That amount is nearly flat from a year ago.

Arkansas State University in Jonesboro received the second-largest share of federal student loans at nearly $91.9 million in the 2017-2018 academic year, up slightly from $91 million in the previous school year. 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 $53.4 million, $52.8 million, and $51 million in federal student loans, respectively.

Among the Arkansas colleges and universities with more than $3 million in student loan volume, Philander Smith College in Little Rock had the largest share increase of federal funds at 23.2%. The local HBCU, or Historically Black College and Universities, received $8.11 million in student loan proceeds in the recent academic year, up from nearly 6.6% from a year ago.

Less than a mile down the street, another HBCU saw the biggest decline in student loan volume at 40.2%. Students at Arkansas Baptist College in Little Rock received only $3.46 million in student loans in the 2017-2018 academic year, compared to $5.8 million a year ago. The local HCBU has struggled for several years  to regain its financial footing due to enrollment declines and budget problems related to misspent and delayed payment of federal USDE funds.