In an effort to get a handle of the problem of student loan default, the U.S. Department of Education has published its report on three-year student loan default rates for the first time.
According to the data, the three year rate of student default for the Fiscal Year 2009 was 13.4%, a decrease of .4% from the pilot report published last year. The report finds that for-profit private universities had the highest rate of student loan default at 22.7%, while at public institutions the default rate was 11%. Private non-profit schools produced the lowest rate of default at 7.5%.
In a statement accompanying the release, U.S. Secretary of Education Arne Duncan said that the new data was collected and published as part of the effort to reign in the student loan problem plaguing students and colleges. In addition, the numbers will also allow the government to hold schools that show high year-after-year default rates accountable for their results. If a high number of students at a particular school default at greater-than-average rates, it could signal that the school leaders are not being responsible in their efforts to minimize the loan burden on their graduates.
The Department is in the process of switching from a two-year cohort default rate to a three-year measurement as required by the Higher Education Opportunity Act of 2008. The national two-year rate rose to 9.1 percent for the FY 2010 cohort, from 8.8 percent in FY 2009.
The provision was included because it provided a better view of the problem, since many stop paying off their student debt beyond the original two-year window. This is especially true with for-profit colleges where a large percentage of graduates continue to make payments until the third year.
The two-year cohort default rates (CDRs) announced today represent a snapshot in time, with the FY 2010 cohort consisting of borrowers whose first loan repayments came due between Oct. 1, 2009, and Sept. 30, 2010, and who defaulted before Sept. 30, 2011. More than 4.1 million borrowers from nearly 6,000 schools entered repayment during this window, and almost 375,000 defaulted for an average of 9.1 percent.
When releasing the new report, the DOE also announced that two schools will be sanctioned this year due to having a student two-year loan-default rates in excess of 25% for the third consecutive year: Centro de Estudios Multidisciplinarios in San Juan, Puerto Rico and Tidewater Tech in Norfolk, Virginia. Unless they manage to bring down default rates, they could be disqualified from accepting federal student aid funds.