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New-Look Default Rates

February 4, 2011

WASHINGTON — The U.S. Department of Education released its last trial set of three-year cohort student loan default data today. And yet again, for-profit institutions show the highest cohort default rate of all the sectors.

A full 25 percent of borrowers who attended for-profit colleges and entered repayment on their loans in 2008 had defaulted within three years. By comparison, 10.8 percent of those attending public institutions defaulted and 7.6 percent of those attending private institutions defaulted. Community colleges were the sector with the next highest three-year default rate, as nearly 18 percent of borrowers from two-year public institutions defaulted on their loans within three years of leaving college in 2008.

The three-year rates issued by the government today are for “informational purposes only.” Next year, the government will release its first official three-year cohort rate; however, institutions will not be punished based on their three-year rates until 2014. At that point, those institutions with a three-year default rate at or above 30 percent risk punishment. (Note: This article has been updated from an earlier version to correct an error.)

For about two decades, the government has used two-year rates to judge colleges and universities. Currently, those institutions with two-year default rates greater than 25 percent risk their students’ access to federal loans and Pell Grants. (This will remain the standard until 2014.) As part of the 2008 renewal of the Higher Education Act, Congress extended to three years the period over which the government tracks borrowers’ defaults.

In addition to the broad sector-by-sector comparison data, the Education Department also issued a comprehensive spreadsheet of default rates for thousands of institutions organized by state.

Among the for-profit institutions with high default rates are numerous campuses of Everest College, a large system of institutions run by Corinthian Colleges, Inc. At an Everest campus in Texas, more than 57 percent of students with loans defaulted within three years. At Everest campuses in Colorado, Michigan and New York, the default rates were all greater than 48 percent.

Officials at the Education Department, which has proposed tougher rules governing for-profit colleges, and Senate Democrats, who have begun their own inquiry into the institutions, seized on the new rules as justification for their chosen approaches.

“You do see some signs of inconsistent quality in [the for-profit] sector, and [we] have reason to believe students aren’t being well-served,” an Education Department official said on a conference call with reporters Thursday.

High default rates in the three-year cohort, the official continued, suggest that some institutions have been gaming or "managing their default rates aggressively" to push them beyond the measurement window.

“These numbers paint a troubling picture of life for students after they leave a for-profit college, with one-quarter of for-profit college students defaulting on their loans within three years of leaving school,” wrote Sen. Tom Harkin, Iowa Democrat and chair of the Senate Health, Education, Labor and Pensions Committee, in a statement. “It is also clear from these default rates that students who attend for-profit colleges are dramatically worse off after they leave than students at private or public nonprofit schools.”

Advocates of for-profit institutions have deflected these critiques in the past, arguing that they serve larger proportions of students from low-income backgrounds and that these individuals have a hard time repaying loans.

For-profit institutions are not the only ones with high three-year default rates, though. A number of community colleges also rank high on the list, but Education Department officials said the percentages may appear inflated due to the smaller number of students defaulting on loans. For instance, Paris Junior College, in Texas, has a default rate of nearly 49 percent, but that figure is based on just 47 students who entered repayment, 23 of whom defaulted.

  Fiscal Year 2008 Official Fiscal Year 2008 3-Year Trial
# of Schools Borrower Default Rate (%) # of Borrowers Defaulted # of Borrowed Entered Repayment # of Schools Borrower Default Rate (%) # of Borrowers Defaulted # of Borrowed Entered Repayment
Public 1,618 6.0% 104,292 1,720,664 1,619 10.8% 186,099 1,721,050
Less than 2 yrs 145 6.7% 523 7,736 142 14.7% 1,123 7,621
2-3 yrs 848 10.1% 49,331 487,436 848 17.9% 87,206 485,038
4 yrs(+) 625 4.4% 54,438 1,225,492 629 7.9% 97,770 1,228,391
Private 1,702 4.0% 30,620 761,129 1,697 7.6% 58,135 759,938
Less than 2 yrs 45 14.1% 537 3,794 44 26.1% 991 3,783
2-3 yrs 180 8.2% 1,167 14,157 179 16.7% 2,338 14,000
4 yrs(+) 1,477 3.8% 28,916 743,178 1,474 7.3% 54,806 742,155
Proprietary 2,118 11.6% 103,764 889,034 2,133 25.0% 222,046 887,682
Less than 2 yrs 1,105 12.4% 15,418 123,454 1,109 27.6% 33,917 122,647
2-3 yrs 723 12.6% 34,538 272,215 728 27.9% 76,122 272,299
4 yrs(+) 290 10.9% 53,808 493,365 296 22.7% 112,007 492,736
Foreign 421 2.2% 176 7,902 422 4.7% 375 7,897
Unclassified 1 0.0% 0 5 1 0.0% 0 5
Total 5,860 7.0% 238,852 3,378,734 5,872 13.8% 466,655 3,376357

Data Source: The National Student Loan Data System and Integrated Postsecondary Education Data System

 

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