Arkansas student loan defaults decline for 6th straight year, debt climbs to $11.5 billion

As concerns from the nation’s $1.48 trillion student loan bubble continues to grow, default rates for Arkansas students to attend college declined for the sixth consecutive year and is now just 0.3 percentage points off the national average at 10.4%, according to newly released data from the U.S. Department of Education (USDE).

Tony Williams, executive director for the Arkansas Student Loan Authority (ASLA), told Talk Business & Politics that Arkansas student loan cohort default rate has improved from 19% in 2013 to 10.4% in 2019, a decline of 45%. Year-over-year, Arkansas’ student loan default fell from 11.2% in fiscal 2018.

“We are very pleased with the progress that has been accomplished but we won’t be satisfied until Arkansas is ranked in the top half of the nation,” said Williams. “We began a default management initiative in early 2013 not knowing if we could make a difference. Almost seven years later we have proven that we can make a difference when we set a goal and keep our focus on obtaining the goal.”

The once-a-year cohort default rates (CDRs) for federal student loans were released by the U.S. Department of Education on Sept. 23. In compiling the 2019 data, the USDE measures the percentage of borrowers who entered repayment between Oct. 1, 2015 and Sept. 30, 2016 and defaulted on their loans before Sept. 30, 2018.

Williams said Arkansas colleges and universities also deserve credit for the improvement in the state’s student loan default ranking due to their enhanced efforts to provide loan counseling to their students. He said student loan borrowers in Arkansas now have many tools available to assist in managing their debt.

“When borrowers are made aware of these tools and the tools are utilized properly, default can be avoided in most every situation,” he said.

Nationally, outstanding student loan debt stood at $1.48 trillion in the second quarter, down $8 billion from the first quarter, according the Household Debt and Credit report, published quarterly by the New York Federal Reserve. That same data shows that 10.8% of aggregate student debt was 90 days delinquent or in default in the second quarter of 2019, a deterioration from 9.9% from the previous quarter.

In Arkansas, the USDE’s cohort default data and other federal financial information shows that $11.5 billion in federal student loan debt is held by 359,900 Arkansans. Federal student loans in the amount of $639 million were made to Arkansas families in the 2018-19 academic year, a decline of $10.5 million from the previous year. According to Williams, Arkansas is now ranked a respectable 27th among the 50 states and Washington, D.C., compared to 30th in 2018, 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.

In calculating student loan default rates nationwide, USDE calculates the percentage of borrowers who entered repayment in fiscal year 2016 on Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans between Oct. 1, 2015 and Sept. 30, 2016 and subsequently defaulted prior to Sept. 30, 2018.

During the current cohort tracking period, 4,533,276 borrowers entered repayment, and 458,687 of them – 10.1% – defaulted on their loans. These borrowers attended 6,130 postsecondary institutions across the country. According to USDE officials, this year’s data shows the national three-year default rate dropped from 10.8% for loans that entered repayment in fiscal year 2015 to 10.1% for loans repaid in fiscal year 2016, a decrease of 6.5%.

National Association of Student Financial Aid Administrators President Justin Draeger said the default rates are trending in the right direction for the second year in a row.

ARKANSAS DEBT DETAILS
According to USDE data, Arkansas’ 351,000 college tuition borrowers carried an average of $26,579 in student loan debt at the end of 2018, slightly below $26,999 in the previous year and considerably less than the $32,731 average balance held by the other 44.7 million Americans still paying for college.

As noted, ASLA’s data compiled by the USDE shows nearly $639 million in federal student loans that originated in Arkansas during the 2018-2019 academic year. That is down 1.1% from $649.6 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 2018-2019 academic years, when $108.5 million was handed out to enrollees at the state’s largest university. That amount is down 0.8% from a year ago at Arkansas’ flagship university, which enrolled nearly 28,000 students in the fall.

In the northeast corner of the state, Arkansas State University in Jonesboro received the second-largest share of federal student loans at $90.2 million in the 2018-2019 academic year, down 0.9% from nearly 107.7 million in the previous school year. The University of Central Arkansas and the University of Arkansas at Little Rock were listed at third and fourth, respectively, with student loan volume of $51.7 million and $48.9 million.

Rounding out the top five, Harding University replaced the University of Arkansas for Medical Sciences at Little Rock with $46.99 million in student loan volume. UAMS saw a 11.4% decline in student loan originations, falling to $46.8 million in 2018-2019 academic year from $52.8 million in the previous year.

Among state colleges and universities with more than $3 million in student loan volume, the Arkansas Colleges of Health Education in Fort Smith saw the largest share increase of federal funds at a whopping 88.5% in the 2018-2019 academic year. The nonprofit group, which includes the flagship Arkansas College of Osteopathic Medicine, saw loan volume nearly double from $9.8 million in the 2017-2018 academic year to more than $16.7 million in loan proceeds this year. The growth in loan volume reflects the addition of a new class in the college that opened in August 2017.

Southern Arkansas University in Magnolia also saw a double-digit spike in student loan proceeds at nearly $22.3 million in the recent academic year, up 11.8% from $19.9 million in the 2017-2018 academic year.

Among the state colleges and universities with the biggest decline in student loan volume in the most recent academic year, Northwest Arkansas Community College in Bentonville, Central Baptist College in Conway, John Baptist University in Siloam Springs, pulled in $6.3 million, $4.7 million and $14.3 million, respectively. Those student loan proceeds represent declines range from 12.1% to 13.3%.