Following the devastation wrought by Hurricane Sandy, there has been much talk regarding what could have been done to mitigate the disaster. How could we have been more prepared; what could we have done? One answer comes from NASA, which as been working on developing storm-chaser drones, or Severe Storm Sentinels. Completed, but still in the testing phase, these drones are able to hover high above a storm and closely monitor it for up to 30 hours at a time, providing critical information about the damage path and meteorological readings. This is just one instance in which an ounce of prevention is worth a pound of cure. The same logic applies to student loan defaults, and yet desperate borrowers are still falling into the chasm of default. Let’s take a look at how your choice of school may dramatically affect your chances of defaulting.
The New York Times recently compiled a list of the private, public and for profit schools with the lowest and the highest rates of default. Overall, just over 13% of students who began student loan repayment in 2009 were in default within the first three months of repayment. Not surprisingly, the Times reports that by far and away the schools with the worst track records are for profit colleges and universities with a whopping 47% of students defaulting.
For students who have yet to commit to a particular college and are still trying to educate themselves about how student loans will affect personal finance for years to come, it may be of extraordinary benefit to consider choosing a school with a low rate of default. This means what type of school; of course, for profits are wisely viewed with a healthy amount of skepticism, but also which particular school. Many of the schools on the Times’ list of those with the lowest default rates boast similar strengths as those with the highest default rates.
Borrowers are considered to be in default when they’ve reached 270 consecutive days of non-payment. What’s truly unfortunate is that there are a number of available ways to avoid defaulting, and it’s something you definitely want to avoid. Despite the huge hurdle that student loans are non-dischargeable, there are ways to drastically reduce monthly payments to a manageable level. If the borrower’s income is low and all student loans are federal direct loans, the government’s Income-Based Repayment plan is a fantastic option; with it, low income borrowers are making payments of between $0 and $20 per month. This plan is exponentially better than falling into default, a state that is guaranteed to haunt your foreseeable future.
Borrowers who are at risk of defaulting will be served by taking advantage of student aid organizations whose goal is to facilitate refinancing and debt management. In capable hands, fears of default will fade.