WASHINGTON, D.C. – The federal student loan default rate for borrowers who entered repayment in 2009 shot up to 8.8 percent from 7 percent for the previous year’s cohort—a disquieting trend that Obama administration officials attributed to the state of the economy and expansion of the for-profit college sector.
“We think there are two trends behind this default rate that are worth highlighting,” James Kvaal, deputy undersecretary at the U.S. Department of Education, said Monday during a press call.
“One is that borrowers are struggling in the economy,” Kvaal said, noting what he referred to as the “strong relationship” between student loan default rates and unemployment rates, which have remained above 9 percent for most of the past two years.
Kvaal also said the increase in the number of defaulters was due to the growth in the number of for-profit colleges, whose students tend to default on their federal student loans more often than those who attended private non-profit or public institutions.
According to data released Monday by the Education Department, the number of for-profit schools increased from 2,118 in 2008 to 2,147 in 2009—a rise of 29 schools—whereas public colleges increased by only nine schools to 1,627, and private colleges increased by four schools to 1,706 during the same period.
“Many of those (for-profit) colleges offer excellent, innovative programs,” Kvaal said in what has become the administration’s standard way of not branding the entire sector as being ineffective, “but we also see disproportionate federal default rates among students enrolled in those programs.”
Indeed, the default rate at for-profit colleges shot up higher from the 2008 to 2009 cohorts than it did for the same cohorts at other colleges. Specifically, the default rate at for-profits went from 11.6 percent for the 2008 cohort to 15 percent for the 2009 cohort, whereas the default rate only went from 6 percent to 7.2 percent at public institutions, and from 4 percent to 4.6 percent at private, non-profit institutions.
