They are called recession graduates. They have moved back home; they are just beginning to understand what their credit score means; and after four-plus years of attending their choice school they find themselves jobless or under-employed. Without the money to pay back thousands of dollars in school loans, increased defaults will debilitate a growing number of graduates, many of whom came from low-income households and attended schools as first-generation college students, and their institutions will suffer stiff penalties due to having increased rates of delinquent borrowers.

A new report from the Washington-based Education Sector organization released Tuesday called "Lowering Student Loan Default Rates: What One Consortium of Historically Black Institutions Did to Succeed," argues that institutions can work proactively to reduce default rates among former students using "default-aversion" strategies. Education Sector is an independent, non-partisan think tank that develops progressive education policy ideas and proposals. A high cohort default rate (CDR) -- the number of defaulters divided by the number of borrowers calculated annually by individual schools -- could render some institutions ineligible for federal aid thus endangering their ability to enroll students.

"The latest cohort default rates, which track students who left school in 2007, showed the largest increase since 1989, with 6.7 percent of (U.S.) students defaulting on their federal loans". "The classes of 2008 and 2009 face bleak job prospects, putting more students at risk of defaulting and suffering its consequences, which will ruin individual's credit and create mounting debt from accumulated collection fees and unpaid interest."

Since it usually takes roughly 14 months after graduation for defaults to show, most colleges and universities can keep their default rates low for recent graduates for the two-year period prior to when institutions have to report their CDRs for a given graduate cohort to the U.S. Education Department. However, with the federal Higher Education Opportunity Act (HEOA) passed in 2008, colleges and universities will have to track student cohorts for three years, increasing the likelihood schools will see more defaulters in their reported numbers, said Erin Dillon, senior policy analyst and co-author of the Education Sector report.

This means that each institution will see increased (default) rates. Since the government began measuring the default rate in the early 1990s, nearly 1,000 schools have been denied participation in the Pell Grant program and other aid. Focusing on degree completion, the co-authors said, concurrently improves default rates for students who better their job prospects with full degrees. Those who don't finish, they say, have a harder time finding well-paying jobs and repaying loans. "Institutions do matter in lowering student loan default, even though demographics are a factor they are not the main factor," said Education Sector editor and report co-author Dr. Robin Smiles. "We found pretty powerful evidence that shows there is a lot an institution can do to improve the likelihood a student will graduate."

Posted By: Chelsie Revis, Senior