Amir Vera
Staff Writer
More and more students are having trouble repaying college loans after graduation and VCU now has the third highest default rate in the state, according to statistics reported by the U.S. Department of Education.
The default rate – the rate at which students fail to pay back money owed to debtors – has risen to 1.4 percent over the past three years at VCU, reaching 3.7 percent for 2010-2011 graduates. The VCU Office of Financial Aid declined to comment on the increase.
Default rates generally increase during times of economic recession, but there may be more to the issue than the current economic atmosphere.
“One of the things that is driving default rates all across Virginia is simply that more students are borrowing more money,” said Tom Kramer, executive director at Virgina21, a youth issues advocacy group aiming to involve young people across the state in the political process. “Honestly, it’s hard to find a job when you graduate sometimes depending on what you study.”
People have never had to borrow more money to pay for college than those graduating now, Kramer said. What really concerns him, he said, is the 10-20 year default rate. With more students not being able to find jobs, the default rate will likely increase because students will not have a source of income to pay their debts.
The driving force behind such numbers could be a lack of financial literacy among students, Kramer said. According to the 2012 Consumer Financial Literacy Survey, conducted for the National Foundation for Credit Counseling and the Network Branded Prepaid Card Association, about 44 percent of Americans still learn about personal finance from their parents. That same survey revealed that 80 percent of adults said they could benefit from additional advice and answers to everyday financial questions from a professional.
“We’ve done a lot of research in the past that shows students have a hard time understanding both their federal and private loans and some of the consequences of taking those loans out,” said Rory O’Sullivan, policy director for Young Invincibles, a national organization who represents the interests of people between the ages of 18 and 34.
The organization conducts research and proposes policies to state governments on higher education, healthcare and jobs. From a survey on debt borrowers, Young Invincibles found that 65 percent of students who had loans misunderstood or were surprised by aspects of their student loans or the student loan process. Of those polled, 20 percent said they didn’t understand their repayment terms, another 20 percent were surprised by their monthly payment and 15 percent were surprised by their interest rates.
“The high debt borrowers have the least information about student loans or don’t understand nearly as much as they should. We have to do a lot better job of educating students up front and throughout the education process so that they understand the loans they are taking out,” O’Sullivan said.
Another reason students are misunderstanding loan information is because of the complexity of the language, said O’Sullivan. According to Young Invincibles’ research, students would like this information presented more simply and directly.
“We need find a way to get this information to students in plain English and a way that they can understand, and a way they can compare their different options easily so they can make the best choice for themselves,” he said.
The issues of rising default rates and lack of financial education has been felt beyond
Virginia and made their way all the way to the floor of the U.S. Congress. Sen. Daniel Akaka (D-Hawaii) and Rep. Sheila Jackson (D-Texas) have both introduced bills in the Senate and House, respectively, known as the College Literacy in Finance and Economics Act (LIFE). The bills would mandate that college students take financial literacy classes within 45 days of their first loan receipt. The bills are each awaiting discussion in committee.
“One of the biggest things we can do about student debt, that doesn’t have anything to do with money, is to make sure young people have a basic understanding of financial literacy,” Kramer said. “The more work we can do to make sure young people know how to budget their money … the more prepared they’re going to be to take on the burden of paying their debt.”
VCU offers a class on financial literacy, Humanities 202, titled Choices in Consumer Society. Through an online, video game-like setup, students learn about banking, borrowing and loans. If Kramer, O’Sullivan and the members of Congress had their way, classes like Humanities 202 would be eventually taught in live class atmospheres rather than online.