At Some Schools, More Students Default Than Graduate

Right on the heels of the Stafford Subsidized Loan rate increase comes more distressing news from student education finance. Mary Beth Marklein, Jodi Upton and Sandhya Kambhampati report in USA Today that in 265 colleges spread out over 40 US states, the District of Columbia and Puerto Rico, more students default on their student loans than actually graduate with a degree.

Nearly half of the schools are operated by for-profit companies, long derided by some legislators and education critics as being beholden to their shareholders instead of their students. Community colleges, frequently the first choice of low-income and minority students, make up about one-third of the list. The findings are based on analysis of college student data collected by the US Department of Education.

“These colleges should set off a red flag in the minds of prospective student borrowers — and their parents,” says Andrew Gillen, research director for Education Sector, a non-profit, non-partisan think-tank on education policy that gathered the federal data. “Many students at these colleges will no doubt take out loans, graduate and get good jobs. But the high default rates and lower graduation rates suggest that many will not.”

The analysis covers data only from schools where at least 100 students began loan repayments in 2009 and that enrolled at least 250 students over the 2009-10 academic year. While the Education Sector report, titled “In Debt and in the Dark,” included a list of 514 schools with problematic default-to-graduation ratios, USA Today narrowed the list down to 256, choosing only to focus on schools where at least a third of the students have an outstanding student loan.

Leaders of community and for-profit colleges long have argued that graduation and default rates have more to do with the challenges faced by their students, who are among the neediest and most likely to struggle academically, than with the quality of their institutions. Also, each number counts different populations and applies only to subsets of students — those who borrow and those who began at the college as first-time, full-time students. Nevertheless, the two data sets are the federal government’s “best estimate” for identifying, and holding accountable, schools that are eligible to receive federal student aid, Gillen says.

After last summer’s Senate investigation of the for-profit education industry found that for-profit schools typically had lower graduation rates than not-for-profit schools, the Obama administration sought to restrict federal education funding going to schools in the sector. However, some of the provisions, which were set to go into effect last July, were thrown out after a federal judge found them to be illegal.

The regulations, which were scheduled to go into effect this Sunday, said that job training programs needed to meet one of three standards in order to continue qualifying for government funds: 35% student loan repayment rate, loan payments not to exceed 12% of yearly earnings, or 30% of discretionary income, whichever is lower.

In his decision, Judge Rudolph Contreras of Federal District Court in Washington called the rules discriminatory, arbitrary and punitive.