Corporate, Domestic, Ethics, For-Profit, Investors, Legislation, Not-for-Profit, Required, Student Loans, University & College - Written by on Monday, October 3, 2011 15:09 - 1 Comment

Federal Student Loan Default Rates Double In Last Six Years

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Federal student loan default rates doubled in the last six years according to the US Department of Education to 8.8%, up from 4.5% in FY 2003 and 7% in FY 2008. It could be showing the triple tensions of a bad economy, high tuition costs and high unemployment. Tell us why you think the rates are rising? Of course, online-related institutions are in the fray, sporting the worst numbers for default rates. Here are what the DOE and a writer at The Huffington Post are saying about the numbers:

Rich Williams at The Huffington Post writes:

Skyrocketing student defaults are just the tip of the iceberg. The new numbers represent just a snap shot in time which does not capture the full magnitude of those borrowers defaulting through the lifetime of their student loans.

For-profit colleges, Wall Street run college programs such as University of Phoenix and Kaplan, reported the largest gains in defaults. Just two years out of college 15% of borrowers from for-profit colleges defaulted, which was double the number of those coming from public schools at 7.2%. For-profit colleges rely almost exclusively on federal funds to operate — while they educate just around 13% of all students they suck in 25% of all federal aid and are responsible for almost half of every student who defaults in the federal loan program.

Through the down economy, states have been slashing higher education funding leading to increases in tuition, which students and families generally shoulder by taking out loans. Just over a decade ago, only a third of college graduates had to borrow money and their average debt was around $12,000. Now, over two-thirds of graduates must borrow money, carrying an average of $24,000 in debt when they graduate.

The DOE press release states:

“These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms and protecting the maximum Pell grant is more important than ever,” said U.S. Secretary of Education Arne Duncan. “We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace.”

Schools with excessive default rates may lose eligibility in one or more federal student aid programs. This year, five schools are subject to sanctions for cohort rates that either exceeded 25 percent for three consecutive years, exceeded 40 percent in the latest year, or both. Four are proprietary schools: Tidewater Technical, Norfolk, Va.; Trend Barber College, Houston, Texas; Missouri School of Barbering & Hairstyling, St. Louis, Mo.; and Sebring Career School, Houston, Texas. The fifth school is a private school: Human Resource Development & Employment – Stanley Technical Institute, Clarksburg, W.Va.

In addition, the Department has taken several proactive steps to protect students and taxpayers from programs that leave borrowers with large amounts of debt and poor employment prospects. Through a series of regulations finalized over the past year, the Department has tightened loopholes to protect students from misleading or overly aggressive recruiting practices; taken action to ensure that institutions are offering high-quality programs; and established rules that require career college programs to better prepare students for gainful employment or risk losing access to federal student aid.

This summer, the Department released several College Affordability and Transparency Lists to provide students and families with easy-to-understand data about college costs to help them make informed decisions about their choice for higher education. The lists highlight schools with the lowest and highest tuition and fees, their average net price and those institutions whose prices are rising at a particularly fast rate, and they allow students to compare costs at similar types of institutions. In the coming months, the Department will be disclosing additional data, such as the gainful employment measures, as part of President Obama’s ongoing commitment to boost college affordability and accessibility and make government programs more open, transparent and accountable to the American people.

Finally, in recent months several institutions – notably for-profit schools – have taken action to ensure that current and future students are well served. Several institutions have closed underperforming programs, upgraded their curriculum, begun offering free trial periods so students can try out a program before enrolling, raised admission standards, and boosted repayment rates through better loan counseling.

Borrowers who need assistance in repaying their federal student loans can visit or can contact the holders of their loans to learn about repayment options. For help locating their loan holders, borrowers may access or contact the Federal Student Aid Information Center at 1-800-4-FEDAID (1-800-433-3243).

Information on the national student loan default rate, as well as rates for individual schools, states, types of postsecondary institutions, and other sectors of the federal loan industry are available at:


A comparison of default rates for Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a particular federal fiscal year (FY), October 1 to September 30


1 Comment

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Hansoo Lee
Oct 3, 2011 18:07

We’ve seen this before with the mortgage crisis. Have you noticed the accreditation institutions, such as the ACICS, look a lot like the ratings agencies, S&P and Moody’s, with a heavy conflict of interest with the companies that they are supposed to regulate?

I look forward to the gainful employment stats that the gov’t plans to release. Higher ed institutions must be held accountable through gainful employment benchmarks.

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