Default Rates, Maligned, Rise to 5.2%
Nobody really likes the federal government's method of measuring and reporting student loan cohort default rates. Some members of Congress and advocates for students, arguing that the rates are no longer a realistic assessment of how individual institutions (and lenders) are faring in keeping student borrowers on track to repayment, want to extend to three years from two the period over which borrowers’ defaults are measured.
Their effort to do so during debate over renewing the Higher Education Act last winter was turned aside, though, by career college officials and others who agree that the default rates are flawed -- but for completely different reasons. They think the federal government should stop using them as an indicator of students' indebtedness or, more importantly, of colleges' malfeasance.
For now, though, the default rates -- imperfect as they are -- aren't going anywhere. In its annual report on the cohort default rates Tuesday, the Education Department said that the 2006 default rate -- the proportion of federal loan borrowers who began loan repayments between October 2005 and September 2006, and who defaulted on their loans by the end of September 2007 -- had risen to 5.2 percent, from 4.6 percent the year before. Increases were greatest among borrowers who attended for-profit colleges.
The previous three years' rates were 5.1 percent in 2004, 4.5 percent in 2003, and 5.2 percent in 2002. The rates have been fluctuating by a point or two each year in recent years, though even when they rise, as they did this year, they are a far cry from the double digit rates of the late 1980s and early 1990s, when Congress established the default rates on the theory that holding colleges accountable for the rates at which their students defaulted on loans would weed out fraudulent schools and force other institutions and lenders to take the issue of student debt more seriously.
Department officials attributed this year's rise to increases in part to the aftermath of Hurricanes Katrina and Rita, where significant numbers of student borrowers presumably defaulted after many of them were granted relief, in the form of six months of forbearance and deferments to those who suffered economic hardship and job loss.
But while states like Louisiana (5.8 percent and Mississippi (6.7 percent) did have higher than average default rates in 2006, so too did some states unaffected by the natural disasters: Arizona (9.2 percent), Colorado (7 percent), and Kentucky (9.7 percent), to name a few.
The table below shows default rates by type of institution:
Cohort Default Rates from 2003 to 2005, by Type of Institution
|Institution Type||Default Rate||No. of Borrowers Entering Repayment||Default Rate||No. of Borrowers Entering Repayment||Default Rate||No. of Borrowers Entering Repayment|
|Less than 2-year||8.9%||130,810||8.9%||141,953||10.9%||140,302|
Source: U.S. Education Department