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Student loan default rates up 40 percent from 2008

Friday, September 18, 2009 | 12:01 a.m. CDT

JEFFERSON CITY — Student loan default rates in Missouri are up 40 percent since 2008, the Missouri Department of Higher Education reported Thursday.

The department released figures that showed 4,617 borrowers from across the state are in default on their student loans.

State officials attributed this increase to the current economic climate and high unemployment rates.

"When people lose their jobs or are working less, they typically have to prioritize things like housing and food," said Paul Wagner, the department's deputy commissioner. "Sometimes they're not able to make a payment like a student loan payment— that might lead to create a default."

Raymond Bayer, director of the Missouri Higher Education Loan Authority, agreed with Wagner that loan default rates can be directly linked to unemployment rates. He also said rates have been affected by graduates unable to find jobs. With no income, they are unable to make loan payments.

Both officials recommended that if borrowers are fearful of defaulting, they should contact their lender immediately.

"If someone is having trouble making their payment they need to contact their lender and see what arrangements can keep you out of default," Wagner said. "Lenders want to prevent default, too."

Bayer said borrowers should be aware that phone calls from lenders aren't always "pay or else calls."

"We want to help you and find out why you're not paying and what options you might qualify for," Bayer said.

Wagner said MOHELA has several options available to prevent default. Unemployment deferment and income contingent repayment options allow borrowers to either defer or freeze payments based on decreased income or job loss.

Although rates have increased, Wagner said they've been higher in the past. He also added, "The vast majority of students do repay their loans and repay them on time."

Students feeling the pressures of the tough economic times could potentially get some help from the federal government.

The House voted Thursday in favor of a bill to oust private lenders from the student loan business and put the government in charge. The measure ends subsidies for private lenders; boosts Pell Grants, which are for students with financial need; and creates a grant program to improve community colleges, among other things.

"These are reforms that have been talked about for years, but they're always blocked by special interests and their lobbyists," President Barack Obama said Thursday during a rally at the University of Maryland.

As consumers, college students probably wouldn't notice much difference in their loans, which they would get through their schools. However, officials at several colleges worry they may not be able to make the switch to direct government loans in time for next year, and Education Department officials said this week they do not intend to extend the deadline.

— The Associated Press contributed to this report.


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