Recent college graduates appear to be struggling to repay student loans, according to the latest figures from the U.S. Department of Education (DOE).
The national default rate for fiscal year 2008 -- the most recent period for which statistics are available -- is seven percent, propelled higher by an 11.6 percent default rate for for-profit schools. In comparison, the default rate at public colleges and universities is six percent and four percent for private, non-profit schools.
The default rate is a snapshot in time, representing the borrowers whose first loan repayments came due between October 1, 2007, and September 30, 2008, and who defaulted before September 30, 2009. During this time, almost 3.4 million borrowers entered repayment, and more than 238,000 defaulted on their loans.
They attended 5,860 participating institutions. Borrowers who default after their first two years of repayment are not measured as defaulters in today's data.
Students are struggling
"This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times. That's why the administration has expanded programs like income based repayment and Pell grants to help students in financial need," said U.S. Secretary of Education Arne Duncan.
Duncan also expressed concern about the high rate of default among students attending for-profit schools, whom he says are the most likely to be unable to repay.
"While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not," Duncan said. "Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole."
Over the summer the Obama administration proposed new rules to regulate federal aid to for-profit schools, arguing most of the money was going to the institutions' bottom line. Last month the The Senate Committee on Health, Labor, Education and Pensions held hearings on recruitment practices at these institutions.
Complaints mount
The federal government is turning its attention to these institutions as complaints mount. A recent General Accountability Office (GAO) report was sharply critical of recruiting practices at some for-profit colleges, saying some recruiters lie and urge aid applicants to commit fraud. In recent months ConsumerAffairs.com has received a number of complaints about the issues the committee is addressing.
Jodi of Brigham City, Utah, said she applied to the University of Phoenix in May of 2009 and was told to apply for financial aid. Jodi wanted to avoid getting buried in debt and was hoping to receive a generous Pell Grant to help with the school's $8,000 tuition.
Jodi said that as classes were about to begin, the recruiter called and told her that, based on her score, she would probably qualify for aid, and to go ahead and begin classes, even though nothing had been determined.
"I asked her what would happen if I didn't get aid, and she replied again that things looked really good for me and to go ahead and start because the first block was taken care of," Jodi told ConsumerAffairs.com.
Surprise!
Jodi said once she started classes she learned that her Pell Grant amounted to only $1200 and the rest would have to be covered in student loans. When she attempted to drop out, Jodi says she was told there would be a big financial penalty. She said she also learned that the loan money had already been disbursed, without her permission.
"First of all, when a person applies for credit, they should not be forced to accept the highest amount offered," Jodi said. "I told Janet (the recruiter) during the week of June 8 that if I didn't get a lot in Pell that I couldn't accept the loan. She said my aid would be fine. They should not be allowing anyone to begin classes at their school without the student seeing what aid they can get."
For-profits lead
In its latest report on loan defaults, DOE notes that students at for-profit schools represented 26 percent of the borrower population and 43 percent of all defaulters. The median federal student loan debt carried by students earning associate degrees at for-profit institutions was $14,000. The majority of students at community colleges do not borrow.
Under current rules, all schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility in the federal student aid programs. This year, two schools are affected by this provision: Charleston School of Beauty Culture, Charleston, W. Va.; and Human Resource Development & Employment-Stanley Technical Institute of Clarksburg, W.Va.
Schools with a default rate greater than 40 percent in the latest year may lose eligibility to participate in the federal loan programs. This year three schools are subject to this provision: Cuttin' Up Beauty Academy, Denver; Academy of Healing Arts, Las Vegas; and Clinton Junior College, Rock Hill, S.C.
