Student loans, which are not dischargeable in bankruptcy in nearly all cases, contribute tremendously to personal debt. This debt is spread among both young and old Americans who have attended institutions of higher education. By some measures, however, the default rate on newer student loans is on the decrease.

The New York Times reported on September 24, 2014 that default rates have fallen for student loans in their third year from 2012 to 2013. In 2012, the figure was 14.7% and in 2013 that figure was 13.7%. The figures are different for different types of schools.

  • Three-year default rates for private schools were 7.2%.
  • Three-year default rates for public schools were 12.9%.
  • Three-year default rates for for-profit schools were 19.1%.

To ensure schools are preparing students for the job market so that they can pay back their student loans, schools where students have a default rate of 30% or greater for at least three years cannot receive federal funds for student aid and loans. If the schools’ default rate is at least 40% for one or more years, then that school will also loose federal funds for the same purposes. This is to try to keep students out of debt that they will not likely be able to pay off. As a result of these measures, 21 schools will be cut off from federal funding. Twenty of those schools are for-profit schools, mostly trade schools.

There have been changes in how these default figures have been calculated. In previous years, before 2012, the government looked at two-year figures. This was problematic because to be in default; you must not have repaid your loan for nearly a year. Therefore, schools could manipulate the figures by encouraging students to place their loan in deferment until after that two-year period instead of defaulting. Some say that student loans are the country’s next great debt crisis, similar to the home mortgage crisis of a few years ago.

If you have questions about loans or mortgages, or if you are considering filing for bankruptcy, then you should speak to a qualified attorney. Jayson Lutzky has over 31 years of legal experience in New York State and has helped many highly satisfied clients file for personal bankruptcy. He offers free in-office consultations. To set up a confidential, no-obligation appointment, call 718-514-6619 or visit Mr. Lutzky’s website, www.MyNewYorkCityLawyer.com to learn more about bankruptcy.