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North Carolina Students Default More Than US Average on Student Loans

Dec. 15, 2016
Loans, Student Loans
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Students at North Carolina colleges and universities are slightly more likely than those in other states to default on their student loans, according to a study by the U.S. Department of Education.

The study found that 11.6% of students at North Carolina postsecondary schools who were scheduled to begin paying their loans in 2013 were in default by the third year of repayment.

The overall U.S. default rate was 11.3%. (See the default rates for all 50 states.)

The study looked at more than 6,000 postsecondary schools in the nation and 143 in North Carolina, including private, public and proprietary (for-profit) schools. Among the largest in the state by enrollment, default rates were:

  • Central Piedmont Community College: 20.2%.
  • University of North Carolina, Charlotte: 5.4%.
  • East Carolina University: 5.2%.
  • North Carolina State University: 2.7%.
  • University of North Carolina, Chapel Hill: 1.5%.

(Click here to search the federal database for default statistics by school, city or state.)

Nationwide, public community colleges had an average default rate for 2013 of 18.5%, and proprietary schools were at 15%. For four-year public colleges, the average rate was 7.3%, and for four-year private colleges it was 6.5%.

The default rates for community colleges, vocational schools and for-profit colleges tend to be higher because former students are less likely to have completed their studies or see a boost in earnings, and often can’t keep up with loan payments, according to a report in the Brookings Papers on Economic Activity.

>> MORE: Student loan default: What it means and how to deal with it

The new report provides a detailed look at default rates, but it may not show a complete picture of the debt burden on students. While the report takes a snapshot of borrowers who are within the first three-year window of their repayment phase, it doesn’t capture those who delay repayment until after the three-year measurement window expires.

Wilmington advisor: Debt creates ‘difficult decisions’ after college

People with college degrees earn more, on average, than those with only a high school diploma. In 2014, the median income of young adults with a bachelor’s degree was $49,900, compared with $30,000 for people who completed high school, according to the National Center for Education Statistics.

However, excessive student loan debt is a major burden for many Americans. It can significantly hamper borrowers’ finances by increasing their overall debt burden and cutting into money they could use for mortgages, retirement and other long-term investments. Total student loan debt was $1.36 trillion as of June, according to the Federal Reserve Board, up from $961 billion in 2011.

We asked Wilmington, North Carolina-based financial advisor Brett Tushingham about how families can integrate student loans into their financial lives.

How can students and families make sure their loans are a good investment in their future?

College will be one of the biggest investments many families make. As with any investment, the price you pay for it will affect your future return. The price of college includes not only tuition, room and board, transportation, books and supplies but also any interest paid on student loans. The more you rely on loans to finance your education, the greater the risk that the price of your investment will increase significantly.

That said, an education has been shown to increase a student’s earning power significantly. Families can use various online resources to make income projections and weigh the student’s income potential against the cost of borrowing.

How does taking out student loans potentially affect students’ future financial lives?

Student loan payments can have a negative impact on future cash flow. A high-paying job can help lessen the impact, but those with smaller incomes may be forced to make tough decisions. These can include putting off buying a car or house, delaying marriage or not saving for retirement.

College can still be a great investment, but understand all your options for paying for college and don’t just take out the maximum allowable student loans every year. Families can benefit by working with someone who specializes in developing college planning strategies that incorporate college selection, financial aid and tax aid.

What should parents and students keep in mind when taking out student loans?

Making continual on-time payments will help students establish credit, and most students will be able to deduct the loan interest on their tax returns. But loan payments can affect future cash flow, and even in the event of a financial hardship, student loans are very hard to discharge. Families should turn to student loans only after they have made the best use of all their financial aid options and explored more affordable school choices, such as community colleges.

Lastly, just as student loans can affect a child’s future cash flow, parents need to be certain that loans they take out don’t impede their ability to save for their own objectives, such as retirement.

Brett Tushingham is a financial advisor and the founder of Tushingham Wealth Strategies in Wilmington, North Carolina.

State student loan default rates

The 50 states ranked from highest student loan default rate to lowest.
RankingState Percent defaulting on student loans
1.New Mexico18.9

West Virginia16.2
12.South Carolina13.2
16.South Dakota12.3
22.North Carolina11.6
41.New Jersey9
45.New York8
46.Rhode Island7.9
47.New Hampshire7.8
49.North Dakota6.5