For Profit Student Loan Default Rate Hits 25%

About one-quarter of students who took out federal loans to attend for-profit colleges defaulted within three years of starting repayment, according to a new federal analysis.

The 25 percent default rate in the for-profit sector, part of an Education Department report to be published Friday, was up from a 21 percent rate estimated in December 2009.

Loan defaults are on the rise throughout higher education because of economic troubles. The three-year default rate for public colleges is now about 11 percent, up from about 10 percent in the previous report. The rate for private nonprofit colleges is about 8 percent, up from about 7 percent.

Federal officials cautioned that the new data, which measured defaults over three years among a group of borrowers who entered repayment in fiscal 2008, are preliminary and are not being used for enforcement. Still, the figures underscore growing challenges facing the for-profit sector.

The Obama administration is considering new regulations related to student debt and loan repayment – an effort that federal officials say would help ensure students in for-profit colleges find “gainful employment.” Many leaders in the for-profit sector – including executives from the Washington Post Co., which operates the Kaplan line of for-profit schools – oppose the proposal.

But loan default measurements will be relevant even if the industry successfully blocks that proposal. Under federal law, schools must keep loan default rates below a certain level or they lose eligibility to participate in federal financial aid programs. A 2008 law ordered a switch, over several years, to a three-year default metric. For enforcement purposes, the government currently measures defaults over two years, which tends to yield a lower rate.

Harris N. Miller, president of the Association of Private Sector Colleges and Universities, said for-profit schools are “obviously concerned” about default rates and are taking steps to lower them.

Sen. Tom Harkin (D-Iowa), who favors tighter regulation of for-profit schools, said the new default data show that “serious questions have to be raised about the taxpayer investment in these companies.”

This article was originally compiled by Nick Anderson of the Washington Post. Before using private student loan companies to finance your or your child’s education, consider looking at theĀ best 529 plans.
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8 thoughts on “For Profit Student Loan Default Rate Hits 25%

  • I am not surprised, these students pay a lot for their education in the for profit schools and do not find the lucrative jobs as promised. So they default! I feel these schools are taking advantage of them. I personally discourage my students from going to these schools, instead encourage them to seek out community college or public trade schools.

    • You first sign loan papers when you enter school at 17 or 18. You have no clue about the repercussions of defaulting. Plus, new graduates are having a hard time finding jobs.

  • The even scarier part of this whole thing is that even though the loan is in default, the government will still get their money in the end. Federal student loans can not be discharged…so these people will end up having their wages garnished or other liens placed against them.

  • My mother-in-law worked as a dean at a university and recently told me about this law that is going into effect. Basically for for-profit college students who take out student loans, 80% of those students must be working within their major within 6 months after graduation. I’m just not sure how the universities are going to guarantee that 80% of their students will and can follow through with their professional plans. Life happens. People get married. Women have babies and decide to stay at home. People decide they don’t like working in their field and change directions.

    I really think that instead of this law, they need to offer mandatory courses throughout each semester on how to pay back student loans. It could start with just paying $20-$30 a month on future interest charges. This alone could cut the default rate in half if people just knew how to budget!

  • I have learned many important things via your post. I would also like to say that there may be a situation where you will apply for a loan and never need a cosigner such as a Government Student Support Loan. But when you are getting a borrowing arrangement through a conventional banker then you need to be made ready to have a co-signer ready to make it easier for you. The lenders will certainly base their decision on the few aspects but the biggest will be your credit worthiness. There are some lenders that will in addition look at your work history and make a decision based on that but in many cases it will hinge on your report.

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