Stu­dent loan de­fault rates high­est at for-profit uni­ver­si­ties

The Washington Times Weekly - - National - BY JUSTIN POPE

The num­ber of bor­row­ers de­fault­ing on fed­eral stu­dent loans has jumped sharply, the lat­est in­di­ca­tion that ris­ing col­lege tu­ition costs, low grad­u­a­tion rates and poor job prospects are get­ting more and more stu­dents over their heads in debt.

The national two-year co­hort de­fault rate rose to 8.8 per­cent last year, from 7 per­cent in fis­cal 2008, ac­cord­ing to fig­ures re­leased Sept. 12 by the Depart­ment of Ed­u­ca­tion.

Driv­ing the over­all in­crease was an es­pe­cially sharp in­crease among stu­dents who bor­row from the govern­ment to at­tend for-profit col­leges.

Of the ap­prox­i­mately 1 mil­lion stu­dent bor­row­ers at for­profit schools whose first pay­ments came due in the year start­ing Oct. 1, 2008 — at the peak of the fi­nan­cial cri­sis — 15 per­cent were al­ready at least 270 days be­hind in their pay­ments two years later.

That was an in­crease from 11.6 per­cent.

At pub­lic in­sti­tu­tions, the de­fault rate in­creased from 6 per­cent to 7.2 per­cent; at pri­vate not-for-profit col­leges, the rate jumped from 4 per­cent to 4.6 per­cent.

“I think the jump over the last year has been pretty as­ton­ish­ing,” said Debbi Cochrane, pro­gram di­rec­tor for the Cal­i­for­nia-based In­sti­tute for Col­lege Ac­cess and Suc­cess.

Over­all, 3.6 mil­lion bor­row­ers en­tered re­pay­ment in fis­cal 2009; more than 320,000 al­ready had de­faulted last fall, an in­crease of 80,000 over the pre­vi­ous year.

The fed­eral de­fault rate re­mains sub­stan­tially be­low its peak of more than 20 per­cent in the early 1990s, be­fore a se­ries of re­forms in govern­ment lend­ing.

But af­ter years of steady de­clines the de­fault rate has now

8.8% risen four straight years to its high­est rate since 1997, and is nearly dou­ble its trough of 4.6 per­cent in 2005.

Trou­bling as the new fig­ures are, they un­der­state how many stu­dents even­tu­ally will de­fault. Last year’s two-year de­fault rate in­creased to more than 12 per­cent when the govern­ment made pre­lim­i­nary cal­cu­la­tions of how many de­faulted within three years.

Be­gin­ning next year, the depart­ment will be­gin us­ing the fig­ure for how many de­fault within three years to de­ter­mine which in­sti­tu­tions will lose el­i­gi­bil­ity to en­roll stu­dents re­ceiv­ing govern­ment fi­nan­cial aid.

The fig­ures come as a stalled econ­omy is hit­ting stu­dent bor­row­ers from two sides — forc­ing cash­strapped state in­sti­tu­tions to raise tu­ition, and mak­ing it harder for grad­u­ates to find jobs. The un­em­ploy­ment rate of 4.3 per­cent for col­lege grad­u­ates re­mains sub­stan­tially lower than for those with­out a de­gree. But many stu­dents don’t fin­ish the de­gree they bor­row to pay for.

The Depart­ment of Ed­u­ca­tion has be­gun an in­come-based re­pay­ment plan that caps fed­eral loan pay­ments at 15 per­cent of dis­cre­tionary in­come. And new reg­u­la­tions im­posed by the Obama ad­min­is­tra­tion on the for­profit sec­tor have prompted those so-called pro­pri­etary col­leges to close fail­ing pro­grams and tighten en­roll­ment. Both de­vel­op­ments could help lower de­fault rates in the fu­ture.

Among some of the largest and bet­ter-known op­er­a­tors, the de­fault rate at the Univer­sity of Phoenix chain rose from 12.8 to 18.8 per­cent and at ITT Tech­ni­cal In­sti­tute it jumped from 10.9 per­cent to 22.6 per­cent.

“We are dis­ap­pointed to see in­creases in the co­hort de­fault rates for our stu­dents, as well as stu­dents in other sec­tors of higher ed­u­ca­tion,” said Brian Mo­ran, in­terim pres­i­dent and CEO of the As­so­ci­a­tion of Pri­vate Sec­tor Col­leges and Uni­ver­si­ties.

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