As Cowlitz County’s blue-collar economy struggled in recentyears, students poured into Lower Columbia College in recordnumbers. Now, many of those former students are defaulting onstudent loans at surprisingly high rates, sometimes within ninemonths of graduating.
Of 439 LCC graduates or dropouts who were supposed to makestudent loan payments in 2009, 87 — or 20 percent — defaulted onstudent loan payments in 2009, the most recent year for which datais available.
LCC’s default rate is among the highest in Washington state, butother colleges and universities are seeing dramatic jumps indefault rates as debt-laden students encounter a struggling stateeconomy.
Lisa Matye Edwards, vice president of student success at LCC,said Cowlitz County’s high unemployment rate led to a crush of newstudents at LCC, many of them non-traditional students who had losttheir jobs and were trying to learn new skills before attempting tore-enter the workforce, she said. Some of those students hadtrouble finding steady jobs when they graduated and were unable torepay their student loans, she said.
“Students who get themselves caught in that cycle often haveother things going on too,” Edwards said. “They have to decidebetween paying loans, and paying for rent and food.”
The problem is statewide and national in scope, and it hasfinancial aid officials at Washington’s two major universitiesconcerned, too.
Default rates remain relatively low at the University ofWashington and Washington State University, but they have increasedmore than 25 percent at both schools since 2007, according to datafrom the U.S. Department of Education. UW’s default rate increasedfrom 1.1 percent in 2007 to 1.4 percent in 2009, and WSU’sincreased from 2.8 percent to 3.8 percent.
At WSU, the average student graduates with more than $20,000 indebt. At the UW, the average debt is just over $16,000.
“Even though the economy is not the best, I’m hoping it (thedefault rate) stays constant,” said Kay Lewis, the UW’s director offinancial aid and scholarships.
Millions of students are struggling to pay off college debt,which is nearing $1 trillion nationally, according to financialanalysts. As tuition rises and the economy flounders, more studentsare failing to repay federal loans, according to the EducationDepartment, which has documented a rising national default ratesince 2006. About 9 percent of students in the U.S. defaulted ontheir federal loans in 2009, up from 5.2 percent in 2006 and 8.8percent in 2009.
Students must start making loan payments on federally-backedstudent loans within six months of graduating or leaving school.Borrowers are in default if they fail to make a payment in ninemonths. Whoever holds the loan — the school, lender, or state orfederal agency — can take action to recover the money, includingnotifying credit bureaus. This could poison the student’s creditrating for seven years, result in withholding of tax refunds or agarnishment of wages. And students can also be held liable forcollection fees.
For Brandon Chum, who borrowed $1,800 to enroll at LowerColumbia College in 2006, the debt continues to follow him. After acar accident, he fell behind on his private loan from Red CanoeCredit Union, and the debt nearly doubled.
“I didn’t have money to pay all my bills,” said Chum, 26, wholater dropped out of school. “I was making late payments. I wasmissing payments. … After a while they (the credit union) juststopped contacting me entirely. So I thought I could get away witha bad credit score, but that wasn’t the case, at least with thebanks.”
Last spring, the credit union began garnishing one-fourth of hiswages from J.C. Penney, where he works in the shoe department.
“I’m paying far more than what I borrowed,” said Chum, who saidhe still owes more than he originally borrowed. “People are gettingrich off me.”
However, Amy Davis, vice president of marketing at Red CanoeCredit Union, said because the credit union takes a loss whenborrowers default, it is in the best interest of both parties toavoid this.
“We make money off healthy loans,” she said.
Chio Flores, WSU director of financial aid and scholarships,said she expects the default rate to continue rising due to thestruggling economy. Flores said a student in default is ineligiblefor more student aid, and the default may cause long-term financialtroubles.
Unlike borrowers who can declare bankruptcy to rid themselves ofmortgages and other debt, those who take out student loans areunable to do this. Lewis said this is unacceptable. Students —especially those who attend public schools — need to have thebankruptcy option, she said. Both Lewis and Flores emphasized thatUW and WSU try to educate students about the risk of studentdebt.
Last week, state Sen. David Frockt, D-Seattle, proposedlegislation that would require colleges and universities to counselstudents about loans and debt. Frockt said some universitiesprovide information for students, but this information is oftenpoor quality. He compared the ease of taking out a loan todownloading a song — students don’t read the fine print orunderstand what their monthly payments will be when they graduate,he said.
“We want to give them better quality information so they cancalibrate their academic field of study and so they’re not stuckwith huge amounts of debt they can’t pay.”
Anna Marum was a Daily News summer intern in 2010.