FAME Posts Low Default Rate

AUGUSTA — Despite the challenging economy, the Finance Authority of Maine (FAME) has recorded an unofficial decline in its student loan default rate.  According to data recently released by the U.S. Department of Education, FAME’s draft student loan cohort default rate fell to 6.1% of borrowers who entered repayment during federal Fiscal Year 2009, a decline from the 7.9% rate posted last year for the previous cohort of borrowers.  It is the lowest rate posted by FAME since 2005.

The new figure is below the FY 2007 national average rate of 6.7% for all guarantors.  Although many borrowers nationwide are experiencing difficulties with repayment in the stubborn recession, FAME has improved its default rate as a guarantor in the Federal Family Education Loan Program (FFELP).  In Maine, there were 1,128 more borrowers who entered repayment in FY 2008 and 72 fewer borrowers than the previous year who defaulted.

Cohort default rates measure the percentage of all federal Stafford Loan borrowers entering repayment in a given federal fiscal year who default on their loans before the end of the following fiscal year.  Official cohort default rates won’t be released by the U.S. Department of Education until September 2010.  Draft rates are released in mid-February each year and typically serve as good indicators of the subsequent official numbers. 

FAME’s lower than average default rate is the result of its expanded outreach and default prevention services that support financial aid offices and educate borrowers.  Because of these efforts, many Maine colleges experienced lower default rates than the previous year.  FAME’s ability to maintain a low claims rate saves Maine taxpayers millions of dollars each year by reducing claim payments from the U.S. Department of Education.  It also directly benefits borrowers, schools and lenders. 

“We are proud of our low default rate, especially in these challenging economic times.  FAME’s emphasis on default prevention rather than on post-default collection is the right one for guarantors, schools, lenders and taxpayers,” stated FAME CEO Beth Bordowitz.  “FAME’s business model puts the needs of student loan borrowers first, where they should be,” she added.  “Eliminating these important services, as contemplated by pending federal legislation, would have a negative impact on Maine students and schools.”