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Kentucky Student Loan Default Rates Among Highest In Nation

Ervins Strauhmanis/Creative Commons

Kentuckians are continuing to default on federal student loans at one of the highest rates in the nation.

More than 12,500 Kentuckians, all set to begin repaying their loans in 2012, have missed payments for at least nine months during the last three years, according to data released this week by the U.S. Department of Education.

The state's three-year default rate of 16.3 percent is slightly lower than last year. Still, only two states — West Virginia and New Mexico — have higher default rates. The national rate is 11.8 percent.

Federal law mandates the U.S. Dept. of Education calculate and keep this data.

Kentucky's high default rate comes at no surprise to education data analysts, like Ashley Spalding, a research associate with the Kentucky Center for Economic Policy.

Surprise or not, it's still disappointing, Spalding lamented.

A number of factors play a role. Most notably, inadequate state funding leads schools to hike up tuition rates, in turn forcing students to take out more loans, according to Spalding.

In fact, a May 2015 reportfrom the Center on Budget and Policy Priorities shows Kentucky is among just three states — including West Virginia — to cut per-student higher education funding for two consecutive years.

"I hope that legislators do take these kind of issues into account and we see that higher education is prioritized in the next budget," Spalding said.

WFPL reached out to seven state legislators for their take on the default data and education cuts. None immediately returned requests for comment.

Other factors contributing to a heightened default rate include a job market that has been unkind to recent graduates, Spalding added.

In October 2012, when this most recent group of borrowers entered the repayment period, the state's unemployment rate sat at 8.1 percent. It's slowly dropped since and today hovers around 5 percent.

Still, some students who begin college dropout before earning a degree. That makes it even tougher to find a job and repay loans, she noted.

The default data takes into account nearly every post secondary school in the state. Institutions based outside Kentucky, like University of Phoenix, are not calculated. Some smaller institutions did not have adequate data to report.

Default rates range from nearly 33 percent to as low as 1.5 percent at others.

Spalding said for-profit and community colleges are more likely to show a higher default rate than other schools.

She calculated the default rate of the state's community colleges to be more than 26 percent.

Schools with default rates above 30 percent for three consecutive years face the risk of sanctions from the U.S. Dept. of Education. A handful of the state's community colleges boast default rates above that threshold.

Gateway Community and Technical College in Florence, Ky. is one of those schools. And the school's default rate in last year's analysis hovered above 30 percent. If next year's rate breaches the 30 percent, the school could lose federal financial support.

Officials with Gateway did not return a request for comment.

What can students do to avoid loan default?

Before a student ever accepts a loan they need to understand the consequences of default, Erin Klarer, a spokeswoman for the Kentucky Higher Education Assistance Authority, said in an interview last year.

“Student loans are such a unique entity,” she said.  “There is no tangible thing that can happen, what happens is you get dinged on your credit, you get dinged on your future financial aid."

But she added, those “dings” can have lasting effects on a student’s credit.


Jacob Ryan is the managing editor of the Kentucky Center for Investigative reporting. He's an award-winning investigative reporter who joined LPM in 2014. Email Jacob at jryan@lpm.org.

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