From Diploma to Default: More Students Fail to Pay Back Loans

Jobs for recent graduates have proven hard to come by, and a growing number of recent graduates have been defaulting on their loans.A larger number of recent college graduates are getting an education in loan default, according to a U.S. Education Department report released Monday. U.S. students who exited college and entered student-loan payoff plans in the fall of 2007 were 52% more likely to default within two years, compared with students who began paying off their loans three years earlier, the report concludes.

The findings illustrate the challenges that recent graduates have faced of entering the workforce as the economy has slowed. For a growing number of students in the recession, diplomas have come with financial difficulties.

Of the students whose first loan payments came due Oct. 1, 2007, 7% defaulted before Sept. 30, 2009, the Education Department says. The default rate jumped from 6.7% a year earlier and from 4.6% three years earlier, according the report.

"Many students are struggling to pay back their student loans during very difficult economic times," U.S. Secretary of Education Arne Duncan said in a statement. "Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use."

Students who attended for-profit schools operating two- and three-year programs were about three times as likely to default on their loans as students at four-year public universities, according to the report. For-profit students represented only 25% of all student borrowers, but 43% of the defaulters, the Education Department says.

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