Report: College-loan default rates rise

September 14, 2010 at 12:00a.m.

Associated Press

The number of college students who defaulted on their federal student loans climbed in the fiscal year that ended in September 2008, according to new government data released Monday.

And once again, those who attend for-profit colleges and universities were the most likely to default.

The grim numbers are no surprise, given that the time frame roughly aligns with the start of the recession. But they come at a politically charged time, as for-profit colleges fight proposed regulations that would cut off federal aid to some programs if too many students default on loans or don’t earn enough after graduation to repay them.

Figures from the U.S. Department of Education show 7 percent of borrowers of federal student loans defaulted within two years of beginning repayment, up from 6.7 percent the previous year and 5.2 percent the year before that.

Default rates crept up in all sectors of higher education — from 3.7 percent to 4 percent for private nonprofit schools, 5.9 percent to 6 percent for public nonprofit schools, and 11 percent to 11.6 percent for for-profit schools.

The data cover borrowers whose first loan repayments came due between Oct. 1, 2007, and Sept. 30, 2008, and who defaulted before Sept. 30, 2009.

“Even before the economy went down, student borrowing had doubled in this decade,” said Patrick Callan, president of the National Center for Public Policy and Higher Education in San Jose, Calif. “More students borrowed, and they borrowed more money, and now they’re going out in a very tough economy.”

The Education Department underscored the for-profit default rates. Education Secretary Arne Duncan, repeating what has become his mantra on the fastest-growing segment of higher education, voiced concern about excessive debt and useless degrees while simultaneously highlighting the sector’s positive contributions.

Students at for-profit schools represented 26 percent of federal-loan borrowers and 43 percent of all defaulters in 2008-09, the department says.

Citing those figures and the sector’s rapid growth, the department has proposed a complicated aid- eligibility formula that would weigh both the debt-to-income ratio of recent graduates and whether all enrolled students repay their loans on time, regardless of whether they finish their studies.

For-profit colleges argue the government is soft- pedaling the potential harm of the proposal and say the changes would hurt minority students disproportionately.