A large number of University students and alumni paid back their loans on time in the 2009 fiscal year compared to many of their peers at other institutions.

More than 320,000 college students and graduates nationwide defaulted on their federal student loans in the 2009 fiscal year, which drove the national default rate to 8.8 percent — the highest since 1997. But only 49 of these students attend or graduated from the University of Michigan, according to U.S. Department of Education data.

Stephen DesJardins, director of the University’s Center for Higher and Postsecondary Education, said the number equates to a default rate at the University of 0.9 percent. The low rate is evidence of the success of the University’s graduates and the breadth of the University’s financial aid offerings, even as tuition rises and the state’s economy struggles, DesJardins said.

“That (number) doesn’t surprise me because this is a high-quality education that people get at the University, and I think our students have lots of success in the labor market,” DesJardins said. “Those two things go hand in hand — success in the labor market and people paying back their loans.”

In the fiscal year 2008, the default rate of University students was 1.4, and in 2007 it was 1.2 percent, according to data from the National Student Loan Data System for Students.

The rates announced in a U.S. Department of Education press release issued Monday represent a cohort of borrowers whose first loan repayment was due between Oct. 1, 2008 and Sept. 30, 2009 and who defaulted on their payments before Sept. 30, 2010. Between the 2008-2009 and 2009-2010 academic years, the University’s Board of Regents raised tuition 5.6 percent but committed $118 million to financial aid initiatives for undergraduates.

The highest loan default rates typically occur in states with high unemployment rates such as Indiana and Michigan, which ranked as the top states with default rates at for-profit institutions, according to DesJardins. But he said the qualifications of many University graduates, together with the generous financial aid program offered by the University the past several years, have kept default rates at the University low.

“Because people like to hire folks from Michigan, those people who have loans are likely to pay them back,” he said.

The University’s default rate was slightly less than some of its peer institutions, such as the University of California-Berkeley and the University of Virginia. Michigan State University’s rate rose slightly — to 3 percent from 1.7 percent in the 2008 fiscal year — but the rates for universities in Michigan and the state’s rates stayed far below national averages, as DesJardins and Michael Boulus, executive director of the Presidents Council, State Universities of Michigan, expected.

“I would hope that the default rate would be lower — I mean U of M and (Michigan State University), those are our most highly competitive admissions universities,” Boulus said.

The jump in the national rate sparked concern across the country. Mark Kantrowitz, founder of the financial aid and student loan information website Finaid.org, said he doesn’t expect unemployment rates to improve in the next four years. This would likely cause an uptick in the default rates since unemployed graduates are often unable to repay their loans, he said.

Richard Williams, a higher education associate at the U.S. Public Interest Research Group, wrote in a Sept. 13 press release that student defaults are “just the tip of the iceberg.”

“It is extremely troubling that defaults have doubled in just the last six years since we are looking at just a snap shot in time which does not capture the full magnitude of those borrowers defaulting through the lifetime of their student loans,” Williams wrote.

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