Archive for Monday, December 14, 2009

Student loan defaults at for-profit schools highlighted

December 14, 2009


More than one in five borrowers of federal student loans who attend for-profit colleges default within three years of beginning repayment, new figures made available by the U.S. Department of Education today show.

Historically, the government has reported such figures in terms of how many students default within two years — a figure that stands at 6.7 percent of student borrowers overall and about 11 percent at for-profit schools.

But the new three-year numbers, though preliminary, give a clearer picture of whether a student at a particular school will default, so the government will soon begin using them to help decide which colleges qualify for taxpayer-supported student aid programs.

Nearly 12 percent of borrowers who began repayment in fiscal 2007 defaulted within three years — up from 9.2 percent for 2006. But at for-profit colleges, the rate was 21.2 percent within three years, The Associated Press calculated from the government’s data. That was up from 18.8 percent for fiscal 2006. More recent overall figures aren’t available, though experts generally presume default rates increased during the recession.

Harris Miller, president and CEO of the Career College Association, which represents for-profit colleges, said the increase reflects the poor economy. He also said high default rates don’t measure a school’s quality, and noted that his group’s members enroll large numbers of low-income students.

“If you accept low-income students you’re going to have high default rates,” he said. “It has nothing to do with whether you’re for-profit or not.”

In recent years, only a handful of institutions have lost eligibility for federal aid because of high default rates. However, the new data show more than 300 colleges — more than 85 percent of them for-profit schools — had three-year default rates higher than 30 percent. Those schools will have to improve when the rules kick in or risk losing federal aid.

However, most of those schools are smaller, local institutions and not the giant national chains. Among the better-known institutions, the data indicate a three-year default rate of 15.9 percent at University of Phoenix, 23.2 percent at Kaplan University and 17.1 percent at DeVry University.

The figures do not include private student loans, just those from the government.

For-profit colleges are attracting a surging proportion of federal student aid dollars, the AP reported last month, reflecting the rising share of low-income students they educate. But critics say that’s no excuse for higher default numbers; they say it leaves for-profit schools with a greater obligation to make sure students don’t overborrow.

Critics also contend students struggle to pay back loans because credentials from too many for-profit schools aren’t rewarded in the job market.


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