Who’s at (De)fault Here?

Graduation day for college students may be filled with nerves, caps and gowns, but the hope of a bright future is not the only thing about which graduates worry.

The average 2016 college graduate will leave with some damage to his or her wallet, especially when considering that the average 2015 graduate left with $35,000 in student loan debt. The class of 2015 has the highest percentage of students, at 71 percent, to have taken out student loans to date.

However, for various reasons, not all college graduates are able to repay their federal student loans after graduation. Students default on their loans when they do not make payments within a certain timeframe.

As the national student loan default rate sits at 11.8 percent for 2014, down from 13.7 percent in 2013, one has to wonder what causes Cedarville University to have a federal loan default rate of just 2 percent, according to 2012 data, the most recent data reported for the university.

Experts give more than one reason for Cedarville’s low federal loan default rate, including: outcome rate, academics, employment, manageable amounts of debt and ethical lifestyles.

Just the basics

According to the U.S. Department of Education, student loans can come from two different sources, the federal government or private financial establishments. The DOE encourages students to use federal loans, because federal loans provide lower interest rates than those given by private institutions. The Federal Direct Loan Program and the Perkins Loan Program are the two sources of federal loans for students.

Depending on the specific federal student loan, undergraduate students can borrow up to $12,500 a year, and graduate students can borrow up to $20,500 each year.

When students receive a loan, they must sign a promissory note in which they consent to pay back the federal loan in the allotted time, which can be anywhere from 10-25 years. Federal student loans do not have to be paid back until after a student graduates, as long as the student remains full-time.

The DOE states that, typically, a student will begin paying off federal student loans on a monthly basis, and default occurs when payments are not made for 270 days. For students who do not make payments once a month, default occurs after a lack of payment for 330 days.

Kim Jenerette, executive director of financial aid at Cedarville, said student loan default affects more than meets the eye.

“When a student comes into default it affects the student’s credit and the institution’s cohort default rate,” Jenerette said.

Although defaulting on loans can lead to consequences many years down the road, defaulting on loans is avoidable, as seen from the lower federal loan default rate of former Cedarville students.

Stacking up against the competition

Currently, the National Center for Education Statistics has found that private nonprofits have the lowest rate average at 7.4 percent, followed by public universities at 8.7 percent, based on the three-year student loan cohort default rates for four-year institutions. Private for-profit universities have an average rate of 21.2 percent.

Not only does Cedarville’s federal cohort loan default rate run lower than the national average and the average for comparable private nonprofits, but Cedarville’s rate is also the fourth lowest among member schools within the Council for Christian Colleges & Universities (CCCU).

The CCCU is an international association of Christian colleges and universities and is composed of 118 members in North America, including Cedarville.

To analyze where Cedarville ranks for its three-year student loan cohort default rates in comparison to schools with comparable qualities, data was obtained from the DOE’s Default Coordination Team’s official three-year cohort default rates published for schools participating in the Title IV student financial assistance programs for the years 2010-2012.

Shapri LoMaglio, vice president for government and external relations for the CCCU, advocates on behalf of schools within the CCCU on legislative and legal matters in Washington, D.C., on issues that could affect CCCU schools positively or negatively. LoMaglio’s role with the CCCU also involves notifying member schools about changes, as she encourages them to advocate for their schools within their communities.

“We (schools within the CCCU) need to continually be making a case for Christian colleges through a positive, proactive approach by showing why we exist, what we do well, what we value, what we contribute to our community and what our grads contribute to their faith and world,” LoMaglio said.

LoMaglio said that, in general, CCCU schools have a much lower loan default rate compared to the national average, and she attributes federal loan default to students not graduating and the cost of a degree not being proportional to its worth.

“CCCU colleges and universities are helping and equipping students to know how to pay back debt, this is specifically seen in the financial management that John Brown University teaches,” LoMaglio said.

John Brown University (JBU) is a private, interdenominational, Christian liberal arts college located in Siloam Springs, Arkansas. JBU’s low loan default rate average of 3.9 percent and a 2012 rate of 3.1 percent shows that Cedarville is not the only CCCU school preparing its grads to pay back loans.

Kim Eldridge, associate vice president for admissions and financial aid at JBU, has been working with the financial aid department at JBU for the past nine years. Eldridge has encouraged JBU graduates to pay their loans in two years post-graduation.

“We educate soon-to-be graduates on the process of loan payments,” Eldridge said. “Over the years, I have accumulated emails from graduates who thank me for helping guide them on how to pay off their loans.”

Eldridge received an email from a graduate who paid off thousands in school loans in one year by devoting 90 percent of her paycheck to paying her loans, as Eldridge had advised.

The student wrote, “Even with some minor setbacks to my plan, I made my last payment this morning and finished paying back $16,500 in student loans, a number which had seemed so daunting before graduation. I achieved my goal in 10-and-a-half-months rather than 12. I calculated the amount of interest I saved on my loans by doing it this way, and it’s upwards of $5,000.”

Because of federal regulations, Cedarville students also undergo entrance and exit loan counseling online. Additionally, students are given a reference guide about loan repayment.

However, financial counseling is not the sole reason why people pay off student loans or why schools within the CCCU tend to have low federal loan default rates. Another possible factor may be an institution’s outcome rate that measures how many students were employed or in grad school within six months of graduation.

Factors for low default rates

The National Association of Colleges and Employers (NACE), is a professional association composed of members in university relations, recruiting specialists and career services employees.

Examples of the research that NACE has completed for its members include salary reports, the 2015 recruiting benchmarks survey and the 2016 job outlook research.

Mimi Collins, director of communications at NACE, explains that the association’s job outlook research gathered data that measures outcome rate through a first destination survey.

“Outcome rate measures how many students have obtained employment after graduation or further school or work part-time,” Collins said.

NACE also conducted outcome rates for specific institutions upon request.

Cedarville’s federal loan default rate of 2 percent and an average of 1.8 percent for its three-year student loan cohort default rate are coupled with an outcome rate of 96.8 percent.

Even with this data, career services, financial aid and enrollment management and marketing personnel at Cedarville said they do not believe outcome rate is the main reason Cedarville students are paying back their student loans in a timely manner.

Default rates are one piece of the bigger story,” Janice Supplee, vice president for enrollment management and marketing said. “I think students getting good grades, having manageable amounts of debt, and ethics are also reason why students have low loan default rates here (at Cedarville).

Similarly, Jeff Reep, director of Career Services at Cedarville, said his office aims to help students with securing a career or further education upon graduation. He said his staff tries to be intentional in the office, teach students navigational skills and teach students how to network, with hopes that this will lead to lower loan default rates.

“I believe our default rate is low because our students are getting gainful employment and paying back their loans, because they have a platform to be a testimony for Jesus Christ,” Reep said.

Help: I’m already in debt

Although defaulting on loans may be frowned upon, opting out of ever borrowing loans in the first place is not always an option for those pursuing higher education.

Eldridge said that while debt should be avoided, there are circumstances in which assuming debt is temporarily acceptable.

Students need to stay out of credit card and auto debt, but I think college loans are a little different,” Eldridge said. “If that is what it takes to get the degree that they want, as long as there are limited risks, then I think that becomes a key factor.

But, Eldridge said it is crucial that students pay off their loans and not default.

“We live in a culture where people think it is OK to live in debt, and they still do life, whether it is a car loan, educational loan or a mortgage, and they are going to live in debt,” Eldridge said.

Eldridge said JBU’s Financial Aid Office teaches students how to get out of debt when going into debt is necessary.

“There are plenty of programs and options to help a student not default,” Eldridge said, “so there really is no good reason to default.”

Loan repayment, rehabilitation and consolidation programs are all ways students can pay off federal student loans. Program information is available at www.ed.gov.

Jenerette said, “Defaulting on loans is avoidable if students just work with their loan servicer who will send students a plan that works for them.”

Kathryn Sill is a senior journalism major from Wichita, Kansas. She loves Jesus, her niece and food.