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Defaults Nearly Double

December 14, 2009

WASHINGTON -- Scores more colleges could face federal restrictions on financial aid once the government starts holding them accountable for their three-year student loan cohort default rates, judging from the first look at three-year rates made public by the U.S. Education Department today. Taken together, the three-year rates are 93 percent higher than the standard two-year rates for for-profit colleges, 63 percent higher for public two-year institutions, and 70 percent higher for private four-year colleges.

The rates released today are informational only, as colleges will not be punished based on their three-year rates until 2014, when the government will have collected and published three consecutive years of data on three-year rates.

The release of the data are meant to serve as something of an early warning system for colleges and universities, such that those whose rates would put them at risk of federal penalties might begin to "change their thinking a little bit" about their students' loan burdens, said Dan Madzelan, acting assistant secretary for postsecondary education at the Education Department.

Cohort default rates represent the proportion of federal loan borrowers who began loan repayments in a given fiscal year and who defaulted on their loans within a defined period that follows (since 1989, that period has been two years).

For two decades, the government has used the rates as one high-profile indicator of whether institutions were providing a meaningful education, with the idea that colleges where students were regularly defaulting on their loans were failing to prepare them adequately for jobs that would allow them to pay off their student debt. Colleges and universities with default rates above certain levels risk losing access for their students not only to federally subsidized loans, but also to Pell Grants.

The cohort default rate has come in for criticism from two sides. Officials at for-profit colleges and some other institutions that serve large numbers of students from low-income backgrounds have argued that it is a skewed indicator of institutional quality, disproportionately punishing institutions that enroll more needy students. But consumer protection and student groups have argued that tracking borrowers over only a two-year window failed to account for many defaults, since the average borrower falls into default four years rather than two years after entering repayment, according to several studies.

The latter arguments proved persuasive to Congressional Democrats as they crafted the 2008 renewal of the Higher Education Act, which included a provision to extend to three years from two the period over which the government tracks borrowers' defaults.

Opponents of the change won numerous concessions from Congress aimed at softening the impact of the change. The government will not begin basing colleges' eligibility for loans and grants on the new three-year rates until 2014, when it has accumulated three full years of three-year rates. (The data published today present a three-year rate for the cohort of borrowers who entered repayment in 2006, and examines whether they defaulted by September 2009. It will take until 2014 for the Education Department to have accumulated three full years of three-year rates.)

In addition, the Higher Education Opportunity Act raised the level of the default rates that subject colleges to federal restrictions on financial aid. Beginning in 2014, colleges will face restrictions -- up to and including being barred from awarding loans -- if they have a three-year cohort default rate of 30 percent for three consecutive years, up from the current 25 percent. They will continue to face serious penalties, including being barred from awarding any kind of federal aid, for a default rate over 40 percent in any single year.

In making the rates public, Education Department officials sought to play down the imminent risk to colleges with rates at those levels. "It's important to remember that these rates are purely informational at this point," said Madzelan, the assistant secretary. "We're trying to be as forthright and clear and transparent as we can be, with the hope that schools will, as they have been, continue to work to minimize [their default rates].

"It's not quite, 'Move along, there's nothing to see here,' but there's no reason for places to panic at this point," he said.

Still, the data suggest that some colleges -- and some types of institutions -- have more to worry about than others. Analysis performed by Student Lending Analytics shows that for-profit colleges, which already have the highest default rates of any postsecondary sector, would see the sharpest rise in their cumulative rates using the three-year window, as seen in the table below:

Sector 2-Year Rate 3-Year Rate % Change Absolute Change
Private 2-Year 8.7% 16.2% 86.5% 7.5%
Private 4-Year 3.7% 6.3% 69.9% 2.6%
For-Profit 11.0% 21.2% 92.7% 10.2%
Public 2-year 9.9% 16.2% 62.8% 6.2%
Public 4-Year 4.4% 7.1% 64.0% 2.8%
Total 6.7% 11.8% 75.8% 5.1%

Significantly greater proportions of for-profit colleges would find themselves falling into default levels that would put them at risk for Education Department sanctions, as seen in this table:

Proportion of Colleges With 3-Year Default Rates at Various Levels, by Sector

  Private 4-Year Public 4-Year Public 2-Year For-Profit
Less than 5% 58.0% 36.0% 1.0% 2.0%
5-9.99% 28.0% 38.0% 13.0% 4.0%
10-14.99% 8.0% 16.0% 22.0% 10.0%
15-19.99% 3.0% 8.0% 43.0% 19.0%
20 to 29.99% 3.0% 3.0% 21.0% 41.0%
30-39.99% 1.0% 0.0% 1.0% 21.0%
40+% 0.0% 0.0% 0.0% 3.0%

Below is a list of institutions with enrollments of more than 500 students and more than 100 borrowers entering repayment whose three-year default rates would -- if they were in effect for three consecutive years when Education Department sanctions kick in in 2014 -- put them at risk of restrictions on their federal financial aid. Numerous campuses of Corinthian Colleges' Everest College appear on the list. Numerous two-year colleges appear on the list, including several in Illinois, as do several historically black colleges, both public and private, including Central State University in Ohio, Allen University, and Rust College:

Institution State Sector Enrollment Number of Borrowers Entering Repayment, 2007 % Defaulting Within 2 Years Number of Borrowers Entering Repayment, 2007 % Defaulting Within 3 Years
ATI Technical Training Center TX For-Profit 1,355 781 27.2% 783 49.5%
College of Office Technology IL For-Profit 972 646 28.6 644 47.3%
Sawyer School RI For-Profit 1,264 593 25.9 606 46.3%
NTMA Training Centers of Southern California CA Private 2-year 924 303 32.3 300 44.6%
Texas Careers TX For-Profit 1,518 2,058 28.7 2,046 44.5%
Texas Barber Colleges & Hairstyling Schools TX For-Profit 1,034 508 22.2 506 44.0%
Lamson College AZ For-Profit 969 330 26.6 330 43.9%
Texas School of Business TX For-Profit 1,174 2,131 28.5 2,125 43.4%
Everest Institute TX For-Profit 1,748 2,888 22.3 2,888 42.8%
Lincoln Technical Institute PA For-Profit 565 543 19.8 544 42.2%
TESST College of Technology MD For-Profit 2,082 1,097 25.7 1,098 42.0%
Tucson College AZ For-Profit 764 414 26.3 410 41.4%
Huntington Junior College of Business WV For-Profit 1,279 483 31.2 483 41.2%
ATI- Career Training Center TX For-Profit 1,305 555 21.9 555 41.0%
Texas College TX Private 4-Year 910 364 23.3 365 40.8%
Career Institute of Health and Technology NY For-Profit 1,017 1,468 27.4 1,468 39.7%
Jarvis Christian College TX Private 4-Year 712 224 25.4 224 39.7%
South Texas Vocational Technical Institute TX For-Profit 797 390 18.2 383 39.4%
Arizona Automotive Institute AZ For-Profit 590 552 18.2 552 38.7%
ATI Career Training Center TX For-Profit 821 837 22.8 830 38.7%
ATI Career Training Center FL For-Profit 780 600 22.5 601 38.4%
Career Technical College LA For-Profit 919 649 20.8 637 38.1%
International Career Development Center CA For-Profit 1,569 1,125 0.8 1,126 38.0%
TESST College of Technology MD For-Profit 955 508 26.1 505 38.0%
Kaplan Career Institute - ICM Campus PA For-Profit 1,827 1,040 21.9 1,040 37.9%
Kaplan Career Institute OH For-Profit 1,105 421 16.8 418 37.7%
Miami - Jacobs Career College OH For-Profit 1,317 689 20.3 692 37.5%
Remington College - Houston Campus TX For-Profit 1,547 1,333 17.5 1,329 37.4%
Everest Institute NY For-Profit 2,230 1,654 21.4 1,638 37.2%
Everest College CA For-Profit 1,480 768 20.0 765 37.1%
Wright Career College KS Private 2-Year 1,634 1,074 19.8 1,073 36.9%
Everest Institute MI For-Profit 2,212 3,984 18.6 3,981 36.8%
Everest Institute FL For-Profit 1,514 1,372 20.0 1,359 36.7%
Lincoln College of Technology TX For-Profit 1,662 1,138 21.9 1,137 36.6%
IntelliTec College CO For-Profit 556 249 24.0 249 36.5%
Everest College CO For-Profit 759 1,638 19.6 1,639 36.2%
Everest College CA For-Profit 1,014 436 16.9 435 36.0%
All-State Career MD For-Profit 1,341 848 23.9 847 35.8%
Ohio Institute of Photography & Technology OH For-Profit 1,043 904 22.0 905 35.8%
United Education Institute CA For-Profit 5,087 2,882 24.3 2,881 35.7%
Southeastern Career Institute TX For-Profit 604 660 23.0 657 35.7%
Institute of Technology CA For-Profit 2,273 1,812 15.7 1,810 35.5%
ATI Career Training Center FL For-Profit 769 312 18.5 313 35.4%
Kaplan Career Institute PA For-Profit 916 1,363 20.4 1,364 35.3%
Career Point College TX For-Profit 2,284 1,530 15.6 1,530 35.1%
Everest College OR For-Profit 1,124 2,063 18.5 2,060 34.9%
Everest University FL For-Profit 1,627 2,066 18.6 2,062 34.8%
Brazosport College TX Public 4-Year 5,595 69 21.7 69 34.7%
New York Automotive & Diesel Institute NY For-Profit 1,020 715 19.5 715 34.2%
Everest Institute FL For-Profit 1,709 1,590 18.1 1,588 34.1%
Benedict College SC Private 4-Year 2,838 1,104 21.9 1,103 33.9%
Westwood College - South Bay CA For-Profit 940 332 11.4 323 33.7%
Rockford Career College IL For-Profit 1,049 350 23.4 350 33.7%
Daymar College KY For-Profit 512 584 18.8 584 33.7%
Camelot College LA For-Profit 583 251 18.3 249 33.7%
Kaplan College CA For-Profit 861 856 18.8 856 33.5%
Andover College ME For-Profit 1,893 654 22.0 641 33.5%
Lincoln College of Technology IL For-Profit 2,181 1,406 18.1 1,404 33.4%
Ponce Paramedical College (POPAC) PR For-Profit 3,800 521 14.9 520 33.4%
Southeastern Illinois College IL Public 2-Year 8,926 15 10.0 15 33.3%
Central State University OH Public 4-Year 2,039 563 22.0 564 33.3%
Allen University SC Private 4-Year 586 220 26.3 225 33.3%
Everest College WA For-Profit 801 1,489 16.8 1,485 33.2%
Martin Community College NC Public 2-Year 1,237 183 20.7 184 33.1%
CHI Institute/RETS Campus PA For-Profit 1,372 1,888 16.7 1,853 33.1%
Springfield College Illinois IL Private 2-Year 956 118 20.3 118 33.0%
Kaplan College OH For-Profit 931 500 22.8 506 32.8%
Career Centers of Texas - El Paso TX For-Profit 1,222 1,248 16.8 1,251 32.8%
Lassen College CA Public 2-Year 3,234 122 25.4 122 32.7%
Florida Technical College FL For-Profit 1,567 648 17.5 648 32.7%
TESST College of Technology MD For-Profit 1,140 600 17.5 600 32.6%
Katharine Gibbs School NY For-Profit 3,361 2,053 14.2 2,047 32.6%
Everest College CO For-Profit 835 628 15.7 629 32.5%
Texas State Technical College TX Public 2-Year 5,635 1,792 18.5 1,792 32.5%
Institute for Business & Technology CA For-Profit 951 927 23.6 922 32.4%
Rust College MS Private 4-Year 1,029 272 22.4 271 32.4%
WyoTech CA For-Profit 2,767 2,225 17.1 2,224 32.3%
Concorde Career College TN For-Profit 1,314 1,172 17.4 1,164 32.3%
Remington College - Mobile Campus AL For-Profit 937 2,548 12.6 2,548 32.2%
Everest College CA For-Profit 1,238 1,328 18.1 1,327 32.2%
Heritage Institute FL For-Profit 649 171 12.2 171 32.1%
Edward Waters College FL Private 4-Year 956 430 20.2 424 32.0%
Everest Institute PA For-Profit 1,422 605 20.1 606 32.0%
Advanced Career Training FL For-Profit 2,016 1,129 20.8 1,129 31.9%
Concorde Career Institute FL For-Profit 836 641 17.6 642 31.9%
All-State Career School PA For-Profit 1,019 683 20.3 683 31.9%
National College of Business & Technology PR For-Profit 3,082 214 16.3 216 31.9%
Concorde Career Institute FL For-Profit 770 630 15.8 631 31.8%
Everest Institute WV For-Profit 754 1,482 14.8 1,480 31.8%
Stuart School of Business (The) - MedTech College IN For-Profit 859 308 18.5 309 31.7%
Arkansas Baptist College AR Private 4-Year 603 99 18.1 98 31.6%
Everest College CA For-Profit 1,198 1,908 15.5 1,908 31.6%
Kaplan Career Institute MA For-Profit 792 325 15.3 322 31.6%
Kaplan College NV For-Profit 832 376 21.2 374 31.5%
CHI Institute PA For-Profit 1,335 844 19.4 841 31.5%
Everest College UT For-Profit 999 893 17.2 891 31.5%
Hallmark College of Aeronautics TX For-Profit 1,086 516 13.3 480 31.2%
Miller - Motte Technical College TN For-Profit 889 2,123 16.0 2,110 31.1%
American Institute of Technology AZ For-Profit 1,482 590 16.4 589 31.0%
Las Vegas College NV For-Profit 880 415 15.6 415 31.0%
Navarro College TX Public 2-Year 9,971 1,645 15.9 1,646 30.9%
Ashland Community and Technical College KY Public 2-Year 5,408 555 18.9 478 30.7%
Remington College - Lafayette Campus LA For-Profit 876 1,763 11.1 1,764 30.6%
Vatterott College MO For-Profit 1,422 3,440 14.2 3,440 30.5%
Hazard Community and Technical College KY Public 2-Year 5,679 428 22.1 423 30.4%
Westwood College - DuPage IL For-Profit 910 881 17.7 885 30.3%
Everest College VA For-Profit 988 986 14.6 985 30.3%
Everest College CA For-Profit 887 510 14.7 509 30.2%
Otero Junior College CO Public 2-Year 2,242 317 23.3 317 30.2%
Remington College - Cleveland Campus OH For-Profit 1,519 1,371 11.4 1,371 30.2%
Heritage College OK For-Profit 1,269 447 14.7 447 30.2%
ITT Technical Institute TX For-Profit 1,384 453 15.2 453 30.2%
Everest College AZ For-Profit 2,768 961 13.0 961 30.1%
Mohave Community College AZ Public 2-Year 8,642 744 20.2 742 30.1%
Center for Employment Training CA Private 2-year 609 1,126 14.6 1,126 30.1%
Everest College CA For-Profit 1,422 2,530 13.1 1,479 30.0%
Midstate College IL For-Profit 708 240 17.0 243 30.0%
Texas State Technical College Marshall TX Public 2-Year 852 206 16.9 206 30.0%

 

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