Students at South Carolina colleges and universities are 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 13.2% of students at South Carolina postsecondary schools who were scheduled to begin paying their loans in 2013 were in default by the third year of repayment. South Carolina’s default rate was the 12th-highest in the nation.
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 80 in South Carolina, including private, public and proprietary (for-profit) schools. Among the largest in the state by enrollment, default rates were:
- Trident Technical College: 20.4%.
- Greenville Technical College: 18.4%.
- Midlands Technical College: 16%.
- University of South Carolina, Columbia: 4.5%.
- Clemson University: 2.9%.
(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.
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.
Columbia advisor: Expensive college for low-paying job is ‘biggest mistake’
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 people’s 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 Columbia, South Carolina-based financial advisor Laura Scharr-Bykowsky 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?
Parents should set realistic expectations with their children. If they can’t afford to send them to an elite college without borrowing heavily, they probably shouldn’t consider that college. No child wants to see his or her parents suffer financially for an education.
Students should focus on their career planning. I recommend the Highlands Ability Battery to my clients. It’s a comprehensive test that helps people determine the career that best matches their natural skills and abilities. Students who have a clearer idea of their career path will be motivated to do well and complete college without having to change majors repeatedly and take on additional debt.
Furthermore, college isn’t the answer for everyone. You may want to consider a trade or technical school.
After completing the career-planning step, look into schools or programs that specialize in a major identified by the career testing and determine which ones are affordable.
How does taking out student loans potentially affect students’ future financial lives?
If you have a lot of college debt, you may have a hard time making your budget work post-college. This will interfere with your ability to save for emergencies, a house or retirement. It may force you to delay marriage and live with your parents after college.
If you choose a career in government or at a nonprofit, you may qualify for the Public Service Loan Forgiveness Program. Under this program, your federal loans may be forgiven after you make 120 monthly payments. Before you take out loans with this strategy in mind, however, be aware that you must work full-time for 10 years at qualifying organizations — and that overall salaries for these jobs are often much lower than what they would be in the private sector.
What should parents and students keep in mind when taking out student loans?
Don’t rack up the debt to begin with. The biggest mistake is to go to an expensive college for a degree that will result in a low-paying job. The rule of thumb is that your total college debt shouldn’t exceed your expected first year’s salary. For example, it doesn’t make sense to take loans of $100,000 to be a social worker. To save money, go to a state school or attend a community college or technical school for a few years, and then transfer to a four-year college.
Alternatively, attend a college that will provide need-based or merit aid, which will reduce the need for student loans. If you do need to take out loans, opt for federal loans over private loans, where possible. Federal loans tend to have lower fixed interest rates and qualify for income-driven repayment, loan forgiveness and consolidation programs. Plus, parents don’t need to co-sign a federal loan.
What options exist to improve the terms of student loan debt?
If you have federal loans, you may be able to improve the terms through loan consolidation or an income-driven repayment plan. Several repayment options are available, depending on your type of loan and personal situation. Monthly payments are based on your income and are generally around 10% to 15% of discretionary income.
And remember, federal loan forgiveness may be available for qualifying public service employees after they make 120 monthly payments.
What should families do if they find they can’t make payments?
If you can’t make your payments, you may be eligible for loan deferment or forbearance.
Loan deferment allows you to delay payments temporarily, for up to three years. If you don’t qualify for deferment, loan forbearance will let you stop making payments or reduce payments for up to 12 months due to financial hardship or illness. Depending on the type of loan you have, interest may still accrue for both deferment and forbearance, so check with your provider.
Do everything possible to avoid a loan default. It could ruin your credit, your wages may be garnished, or additional taxes may be withheld to pay back your loan. Even declaring bankruptcy won’t resolve it; unlike other debt, student loans can almost never be discharged through bankruptcy.
State student loan default ratesThe 50 states ranked from highest student loan default rate to lowest.
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