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Student Loan Defaults Remain Low


U.S. Secretary of Education Margaret Spellings today announced that the FY2005 national student loan cohort default rate fell to 4.6 percent from last year’s rate of 5.1 percent—remaining historically low.

A record number of loan consolidations, as well as forbearance and deferments granted to victims of hurricanes Katrina and Rita, contributed to the decline in the default rate.

The FY 2005 default rates represent the percentage of borrowers in the Federal Family Education Loan and William D. Ford Federal Direct Loan programs who began loan repayments between October 1, 2004, and September 30, 2005, and who defaulted before September 30, 2006.

During that period, borrowers took advantage of the opportunity to lock in record low interest rates by consolidating their federal student loans. Consolidation combines multiple loans into a single loan with new repayment terms that may extend repayment from the standard 10 years to 30 years, thus lowering monthly payments and improving borrowers’ ability to manage student loan obligations.

Another factor contributing to the lower default rate is loan relief and other assistance the department was able to offer to college students and families impacted by hurricanes Katrina and Rita in the Fall of 2005. Specifically, the department offered six months of student loan payment forbearance to federal student loan borrowers who were directly affected by the disaster. Deferments were also granted to those who qualified for economic hardship and job loss.

In addition to the national rate, the Department is also releasing rates for 5,600 individual schools, as well as states, types of postsecondary institutions and other sectors of the federal loan industry.

Borrowers who need assistance in repaying their student loans can visit or contact the holders of their loans to learn about repayment options. For help locating their loan holders, borrowers may access or contact the Department’s Federal Student Information Center at 1-800-4-FED-AID (1-800-433-3243).


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