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Interactive Map: Plotting Student Loan Defaults Across the Garden State

At 9.1 percent, New Jersey’s default rate is 11th in the country, particularly good news given that students tend to carry a heavy debt burden

Students from New Jersey’s colleges and trade schools default on their federal loans at a relatively low rate overall, although the proportion of defaults exceeds the national average at four of 10 schools.

This news comes as a package of bills designed to help New Jersey students — particularly those who borrowed through the New Jersey Higher Education Student Assistance Authority — deal with loan repayment problems and the high cost of college in general awaits further action in the Legislature.

Data from the website Student Loan Report put the state’s default rate at nearly 9.1 percent, the 11th lowest in the nation for borrowers who had to begin repayment in the 2013 fiscal year, the most recent year for which data is available because the U.S. Department of Education uses a three-year period to define defaults. Of nearly 90,000 students who borrowed money while at a New Jersey school, 8,153 were in default, defined as nine months of nonpayment.

The national default rate was 11.3 percent, a drop from 11.8 percent the previous year and the third year in a row of declines, from 14.7 percent in 2010. Nationally, more than 5.2 million borrowers entered repayment status in 2013 and nearly 600,000 of them have defaulted.

One reason for the state’s relatively low default rate could be that many students take out New Jersey College Loans to Assist State Students loans through HESAA. According to the authority’s 2015 annual report, it distributed more than $163 million for 10,686 students in and out of state that fiscal year. According to the Institute for College Access and Success, New Jersey is one of three states — the others are Texas and Minnesota — with significant state student loan programs.

New Jersey college students have one of the highest debt burdens in the nation. Two-thirds of the members of the class of 2015 left school with at least some debt, the eighth-highest percentage in the nation, according to the TICAS report Student Debt and the Class of 2015. On average, they had $30,104 in loans from public and private four-year colleges, the country’s 11th highest amount. For-profit schools continue to have the highest loan default rates — 15 percent on average, compared with 11.3 percent for public schools and 7 percent for private schools -- although their rates have been dropping faster than other types of schools.

“A key factor in student loan default is what school borrowers attended,” according to the Student Loan Report. “Those who attend excellent schools are more likely to get well-paying jobs, and are therefore less likely to default on their debt. Those who attend less reputable schools, on the other hand, are usually worse off on average. Since students can get loans for almost any school, looking at default rates is a great indicator of the potential for future financial success or failure.”

The Student Loan Report ranked all 4,544 schools eligible for federal student loans across the country. Seven of the 10 schools with the highest default rates were non-degree proprietary schools, with Larry’s Barber College in Chicago having the worst default rate of 48.4 percent. Starting Points, a private non-profit school in Jersey City primarily providing instruction in early childhood education, ranked 37th nationally and had the highest default rate in New Jersey: 32.2 percent.

Except for Starting Points, the 10 New Jersey schools with the highest default rates were for-profit schools that do not offer a degree. A total of 39 schools had rates higher than the national average. Princeton University had the lowest rate, just below 1 percent, of all public and private colleges.

The Student Loan Report said it published its study “so students and their families can make more educated decisions about which school to attend. Schools with lower default rates give their students a better chance at successfully repaying their debt and being financially prosperous after graduation.”

“In addition to how much they owe, it matters what kinds of loans students have” said Debbie Cochrane, vice president of the Institute for College Access and Success and co-author of its recent report. “Compared to federal loans, private loans — whether from banks, states, or schools — can be much harder to repay, especially if the borrower hits hard times.”

The TICAS report notes that federal student loans come with important consumer protections and repayment options that do not apply to other nonfederal loans. Perhaps most importantly is that income-driven repayment plans have been widely available for federal student loan borrowers since 2009. They are not, as of now, available for state HESAA loans.

State lawmakers are working to change that.

One key bill (A-4084/S-2573) among a package introduced last September following a report of questionable practices by HESAA would require the authority to set repayment amounts based on a borrower's ability to pay. During a hearing last fall, several borrowers said they were forced into bankruptcy because they could not meet their required loan payments when they were unemployed or underemployed.

The measure would create a repayment schedule on a par with or slightly better than the federal program, capping borrowers’ monthly payments at 10 percent of discretionary income, absolve those with income at or below 150 percent of the federal poverty level from making any monthly payment, and discharge any remaining debt after 20 years of payments. The bill also requires a loan rehabilitation program for those in default. It has passed two Assembly committees and the Senate and awaits final action by the full Assembly.

So far, only one bill in the package has been enacted. The new law (C71 of 2016), signed in early December, requires HESAA to forgive NJCLASS loans of those who die or become permanently disabled and requires the deferment of loan principal and interest payment for those who become temporarily disabled.

There are a number of other loan bills still pending. Four have cleared Assembly committees and are awaiting action by the full house:

  • The Succeed in New Jersey Program (A-4085) would have the state spend up to $10 million a year repaying a maximum of $6,000 in loans annually for as many as three years for low-to-moderate income borrowers who work in careers deemed to be in high demand by state labor officials.

  • The total cost of college would be reduced by the College-Ready Students Program (A-4087), which would allow public high school juniors and seniors to take dual enrollment courses at county colleges tuition-free.

  • The High School to College Readiness Commission, created by A-4088, would be charged with recommending ways to better prepare students for college and raise awareness among students and their families of higher education costs.

Bill A-4117 would allow counties to leverage their improvement authorities to refinance student loans for borrowers with high-interest rates, thus easing their debt burden.

Another bill (A-2926) would repeal a 1999 law that allows the suspension of the licenses of attorneys and other professionals for nonpayment or default of student loans.

A final bill (A-4086) that would create the Two to Four Loan-Free Students Program has yet to see any action. Similar to NJ STARS scholarships for high achievers, this program would use state Tuition Aid Grant money to provide free schooling for low-income students at a county college for the first two years and then at a four-year college to earn a bachelor's degree tuition free.

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