The federal government’s new system to calculate student loan default rates – while highlighting the problems of many for-profit colleges – also may pose risks for some minority-serving institutions (MSIs) that are seeing their rates increase as well.
The 2008 renewal of the Higher Education Act changed the way the government measures defaults by calculating the number of students who fail to repay loans in the first three years of repayment period. Prior to that law, the rates were based solely on those who default during the first two years of repayment.
While supporters say the new system provides a better snapshot of the default problem, new U.S. Education Department data show dramatic increases in default rates for many schools. Colleges will not face sanctions under the new system until 2014, but the latest data – listing the default rates of individual colleges under both systems – are drawing attention.
“Congress will need to look at this issue. The numbers are much different than people expected,” said Victor Sanchez, vice president of the United States Student Association (USSA).
At first glance, the data show the seriousness of the problem at for-profit colleges. As a sector, proprietary schools had a 25 percent default rate under the new system for students who began repaying their loans in 2008. With just a two-year snapshot, the sector’s default rate was lower at 11.6 percent.
Rates at public and private, non-profit colleges also are higher under the new system. Among all public colleges, three-year default rates were 10.8 percent compared with 6 percent under the two-year review. Private non-profits also saw their average rates rise from 4 percent to 7.6 percent.
Individual colleges eventually will face sanctions for three-year default rates of 30 percent or more, and data for the new system show some MSIs could be at risk.
