Student loan penalty rates at public schools are at least three percent higher than private schools.
What are penalty rates?
Penalty rate or also called as default rate is the term for the computation when a loan bearer fails to pay during the scheduled payment date.
Annually, the Department of Education publicizes the student loan default rates of various educational institutions across different states. The department monitors over 4000 institutions, public, private, and even for-profit colleges.
For this year’s released penalty rate data, it dated back to 2016 and tracked payments for years 2016, 2017, and 2018.
Public college interest rates are higher
During the sorting of data, the department found out an interesting detail about interest rates from the 4,425 institutions. Public college’s rates are three percent higher as compared to its private counterparts.
According to the State report from LendEDU,
Average student loan debt in private institutions is $38,186 and $27,524 in public colleges.
The average of sending a student into a four-year course in a private institution is around $50,900, $40,900 at a public college as an out-of-state student, and a cheaper one at $25,290 for in-state students at a public college.
Current student loan penalty rates at public colleges are at 9.6 percent as compared to the 6.6 percent in private institutions.
Why do rates differ?
According to data, students graduating from private institutions are more likely to land high earning jobs as opposed to those from public colleges. In a published report from PayScale, graduates earning in the top 25 of median starting salaries came from private institutions.
With well-paying jobs, student loanees from private institutions will less likely miss their due dates and incur additional default rates.
Another reason experts see is that most students going to private institutions come from affluent families, which means student loans are not that utilized. Private institutions do not emphasize updating their student loan default rates.
Abusive interest rates
The Department of Education is more focused on chasing down predatory policies like what for-profit schools do. For-profit institutions have a scary 15.2% penalty rate. It’s like combining the percentage of both public and private colleges.
Some are considered dangerously predatory with false promises of ensured high paying jobs from famous companies in exchange for expensive college fee rates.
Government agencies are looking closely into these for-profit institutions looking to remove them from federal financial aid.
Featured image by InsideHigherEd
