Student Loan Defaults Reach Highest Level In More Than A Decade

Students at for-profit colleges are more than twice as likely to default on federal loans as their peers at public institutions, according to new data released Monday by the Department of Education that also shows the highest percentage of students defaulting on loans in more than a decade.

The overall student loan default rate increased from 7 percent last year to 8.8 percent -- the highest rate since the government released similar data in 1999. An outsized share of that increase came from the for-profit college sector, which had both the highest percentage of defaults and the greatest increase in defaults, compared to public universities and private nonprofit schools.

Defaults at for-profit schools jumped from 11.6 percent to 15 percent this year, as opposed to an increase of 6 percent to 7.2 percent at public institutions and 4 percent to 4.6 percent at private nonprofit schools, raising questions about the degree to which for-profit schools are preparing students for careers that will allow them to pay off debts.

Because the government must track loan repayment over two years, Monday's data represents the first full assessment of students' ability to repay college loans in the Great Recession. And the numbers were bleak: the overall student loan default rate increased at the highest rate in two decades.

"We do think the economy is a big factor in the growth of these student loan default rates," said James Kvaal, a deputy undersecretary of education. "Another trend worth highlighting is the growth in for-profit colleges. Many of those colleges offer excellent, innovative programs, but we do also see disproportionate default rates among students who are enrolled in those programs."

For-profit colleges have been conspicuous beneficiaries of the economic downturn, as many of the publicly traded corporations that own such institutions expanded enrollments rapidly as legions of unemployed Americans looked to college as a way to improve their fortunes.

The high number of student loan defaults at for-profit institutions has prompted heightened government scrutiny in recent years, amid evidence that some schools aggressively market their programs to students but fail to deliver on the promise of careers. For-profit schools typically cost nearly twice as much as public colleges and universities, and students on average graduate with much higher student loan debt.

Because of the high costs, students at for-profit colleges borrow at much higher rates than those who attend public or private nonprofit schools. According to an analysis of federal education data by The Institute for College Access and Success, 92 percent of students at for-profit colleges took out student loans in the 2007-'08 school year, compared to 27 percent of students at public colleges and 60 percent at private nonprofit colleges.

For-profit colleges have also aggressively targeted minority students. Black and Hispanic students make up 28 percent of undergraduate students nationwide, but they represent nearly half of all students in the for-profit college sector.

"When you see 15 percent of borrowers at for-profit colleges are defaulting, its important to remember that almost all students at those colleges are borrowing, so that shows a much more significant problem in that one sector," said Debbie Cochrane, program director at the Institute of College Access and Success.

Nearly half of all student loan defaults measured by the Department of Education could be attributed to students at for-profit colleges, even though students at such schools represent less than 28 percent of all borrowers.

The federal government measures student loan default rates as a way to gauge student success, and to determine whether certain schools should be eligible to receive federal student aid dollars.

Student loan debt is among the most difficult to discharge, persisting beyond even bankruptcy. Borrowers in default on student loans can be subject to wage garnishment as well as deductions from federal income tax refunds, and they are ineligible to receive federal student aid in the future.

"What is really sad about this is that most of these people are done -- this is their last chance, because they have now defaulted," said Anthony Carnevale, director of Georgetown University’s Center on Education and the Workforce. "That will follow them to their grave. You can default on your house, but you can’t default on a student loan."

The Department of Education data released Monday is a snapshot of students over two years: the government tracked those who began repaying loans between October 2008 and September 2009, and measured whether they defaulted on those loans before October 2010. A loan is considered in default if no payment has been made after 360 days.

In a statement, Brian Moran, the head of the Association of Private Sector Colleges and Universities, which represents for-profit colleges, said he was "disappointed" to see the data but noted, "we believe that the default rates will go down when the economy improves and the unemployment rate drops."

"Despite today's disappointing news, we should remain focused on the overarching missions, which is to help individuals rise as high as their talent, ability and ambition will take them," Moran’s statement read.

Under current regulations, schools that have student loan default rates in excess of 25 percent for three consecutive years can face sanctions or lose access to federal student lending programs. Five schools were subject to sanctions this year, four of which were for-profit schools.

Beginning in 2014, the Department of Education will start to analyze student loan default rates over three years, as opposed to the current two-year window. Data from the Department of Education shows that many more students default in the third year after entering loan repayment. And some schools have actively managed their default rates by putting students into loan deferment or forbearance plans that prevent defaulting within the two-year window, but do little beyond that timeframe.

"That’s a good thing if that helps those students manage their student loan responsibilities, but in some cases it may serve just to delay the default and increase the amount of the loan," said Kvaal, the deputy undersecretary of education.

Comments

[Randy Bayles Hubbell]

08:44 PM on 11/04/2011

When then President George W. Bush was elected to office in 2004, he advised Americans that we needed degrees to make more money; thus, advising people to go earn a degree in college. I followed his advice and now find myself overwhelmed in $55,000.00 in debt, a monthly loan payment of $227.09, where only $5.00 to $20.00 goes to principle, while holding a Bachelors of Science in Business Degree that has shown me no advantages, opportunities, and prosperity. It is my hope that this petition brings to light the reality of what many of us are experiencing.

Please sign my petition:
http://www.change.org/petitions/stop-price-gauging-graduates-with-student-loan-interest

[axt113]

10:11 PM on 09/18/2011

http://signon.org/sign/want-a-real-economic?source=mo&id=31019-9543047-IY_VKMx

Petition to forgive student loan debt

[bd7769]

02:31 PM on 09/20/2011

why I paid mine, why should they get a free ride?

[axt113]

03:44 PM on 09/20/2011

You're assuming everyone who has the loans can pay the loans, plenty of new college grads are unemployed or underemployed.

Its great you were able to pay yours, not everyone can do the same

[William Velasco]

07:42 PM on 09/15/2011

Congress needs to pass H.R. 2028: Private Student Loan Bankruptcy Fairness Act of 2011. Prior to the President George W. Bush’s signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, private student loans were not included in the exception for bankruptcies. And before that, even government student loans were once not exempted from discharge in bankruptcy. Such laws that exempt student loan debt from inclusion in bankruptcy proceedings will perpetuate enslavement of our younger generation to their creditors; it isn’t right. The only winners in student loan defaults are student loan lenders, such as Sallie Mae – which was once a government entity prior to 2004. Essentially, when bankruptcy is no longer an option, the economy is dwindling, salaries are low, and student loan payments are high, what is one to do when unreasonable fees are added and the balance of student loan principals never seem to shrink?

This story only covers government student loan debt – which is, according to this story, at a rate of 8.8 percent default. I can only imagine to the rate of private student loan default, which I would suspect to be much higher!

[Felix99]

08:30 PM on 09/28/2011

You've said it all, William!!! Far too many students are now indentured with very little chance of ever gaining their freedom -- all thanks to a federal government that just doesn't seem to give a darn!!!!

[iGrad]

02:31 PM on 09/15/2011

At iGrad, we're committed to providing a comprehensive financial literacy platform to ensure the financial success of students and recent grads alike.

For taking the time to share 1-2 minutes of your student loan experiences with us, we'll send you a gift card: http://www.igrad.com/articles/?smart-borrowing-video-contest

[stargazer13]

01:25 PM on 09/14/2011

well there is always self education !

all it cost ? is time and determination :)

[jwalter]

03:44 AM on 09/14/2011

Student loan crisis here we come! Thanks again to the Federal Government.
The more money they give out in student loans, the higher the tuition costs rise. You can't blame for-profit schools because state schools do it too.

[PoliSci2008]

06:54 PM on 09/14/2011

I do blame the colleges. Professors, whether tenured or not, all want the 6 figured pay, but they only work 3 days a week.

[bd7769]

02:32 PM on 09/20/2011

I didn't know they had a union

[dsa1115]

12:02 AM on 09/14/2011

Most Americans are unaware that student loan debt now exceeds total credit card debt in this country. This is the next financial crisis to hit.

[Mister Grumpy]

08:00 PM on 09/13/2011

Colleges routinely exaggerate the success rates of graduates finding a job in their chosen profession. A college in Illinois is currently under investigation for doing exactly that on its website. Students default on the loans when they can't find a decent paying job.

[PoliSci2008]

06:32 PM on 09/14/2011

Exactly. And the risk of default is greater due to the hefty loan amount that these young men and women carry today.

Doesn't it astound you that our government is willing to pay to train, room & board young men & women with no directions to kill and end up as government paid law enforcer, but not willing to pay for the education of an ambitious student who will eventually end up in a profession that contributes to the economy?

[brandon20678]

07:58 PM on 09/13/2011

College is not required but optional if you can't afford to go to MSU than start at a community college. If you can't afford a community college than find your local Skill trade Center. We have to stop this entire belief that going to a Top college guaranteed you a high paying job, yes for some but not for all. I wanted to go to MSU but I can only afford to go to a local college and I still have the same opportunities as someone else. 1 more semester left of school and I already have a job lined up working for Citizens bank in Michigan as a business analyst. Yes I'm grading from Baker College with my B.A. in Management and only 3K in student debt. The job I have now for entry level starts off at 45K a year.

[Mondayboy]

02:43 PM on 09/14/2011

Good for you. Btw, it is graduating and not grading.

[wizardofsnog]

04:02 PM on 09/13/2011

I think our only hope is to challenge the validity of the contracts. Claim lack of full disclosure, No one was informed of the possibility of financial enslavement for the rest of our lives.

[RLaitres]

04:18 PM on 09/13/2011

Rather, I would question what those so-called "for profit" colleges and universities are all about. Are they primarily interested in educating their students or in "making money." It has become quite clear that the latter is the case. Heck, even some of our public and private colleges and universities have as well. Such is what happens when "money" and not people become most important.

[Barbara DeZan]

04:59 PM on 09/14/2011

When one takes out a loan of any kind, one is required to repay the loan.

With student loans being decades old, the contract is well laid out.

If you want money from Papa, you gotta return it.

[wizardofsnog]

04:01 PM on 09/13/2011

Your payment is X amount of dollars. The first part of it is used to pay that months collection Fee. If any is left over, the second part is used to pay that months interest. If anything is left over, the third part is used to pay some of the principal off.

If you are in default, you must pay 90 percent of the basic monthly amount just to stop the loan from growing. If you pay less than 30 percent, all you do is pay someone to take money from you as none of it goes to interest or principal.

Is it no wonder so many people in default give up even TRYING to get their loans out of default?
I have a friend who has had 15 percent of her paycheck taken for 7 years, and not one penny has gone to paying off interest or principal. This is because she is a disabled veteran, who works part time. She is forced to live a 3rd rate standard life style, because her non court garnished payment is less than the monthly collection fee and her loan total is now 3 times its original value. She has no hope of ever paying it off unless she wins the lottery. That fact is so depressing to her, that she is undergoing depression therapy and tends to be suicidal.
And she is not alone.

She and others like here in default status NEED some relief.

[Mike HeXt]

03:12 PM on 09/14/2011

I had this happen for almost 2 years. Has your friend tried to get into the income based repayment program with the federal loans? email me at [e-mail]. a friend did a write up of how to do it. It saved my life. Those collectors that are garnishing her are probably working for a subsidiary of Sallie Mae and are going to keep the money under them as long as they can.

[Barbara DeZan]

05:01 PM on 09/14/2011

Baloney.

It's an excuse.

When you borrow money anywhere, you are expected to repay it...on time....

Blame the borrower who took out more than he can chew..... If you don't want debt, don't borrow. Nobody twists your arm.....

[wizardofsnog]

03:46 PM on 09/13/2011

Job Placement and Job pay expectations have always played a big role in recruiting students to the For Profit schools. Any student from before the 1992 reforms should be able to file a claim and if they can prove they never worked in their field of study and are in default, should be given special bankruptcy exemption and allowed to clear their history and start fresh.

It is high time we stop associating these victims of the predatory trade schools, as the same kind of attitude that we show people who commit mass murder, who prey on Children or commit treason.

The people who were tricked into attending for profit trade schools based on information about future job prospects and pay rates, Prior to the 1992 reforms when the schools were FIRST starting to be held accountable, should be given special exemption and allowed to get their defaulted loans discharged, as many of those schools no longer exist, and thus are not available to be sued in court.

[Barbara DeZan]

05:04 PM on 09/14/2011

Baloney again.

If you borrow money for ANYTHING you are required to pay it back.....

When you borrow from the taxpayers, you cannot write it off by bankruptcy....which is why the law was changed years ago.....

BTW: Nobody is "tricked" into school. Their modus operandi is clearly stated, clearly laid out in the contract you sign. If you are too stupid to read and understand it...then take it to a lawyer or your MaMa to explain it to you.

Nobody affixes your signature except you....and if you do it without knowing what you are gettin in to.....that's on you.

[wizardofsnog]

03:36 PM on 09/13/2011

OK. Finally some action against the for profits for the way they recruit students with their job placement and job prospect BS. The precedence has been set. Now lets see if we can use this as a major tool to help get relief for the students who were put into default status, because of the same tactics used by trade schools prior to the 1992 reforms, back when students had some consumer protections on their loans, which congress removed without good reason.

[Barbara DeZan]

05:05 PM on 09/14/2011

Students weren't "put" into default status.

They "put" themselves there by not paying the piper.

[libertyinsight]

02:49 PM on 09/13/2011

The real question is why are so many students forced to go so deep in debt to pay for college. Check out this article, Student Loan Debt Slaves.
http://libertyinsight.com/2011/01/13/student-loan-debt-slaves/

[Sunset Pixie]

03:04 PM on 09/13/2011

What a load of bunk. There's several leaps of logic in that article.

Take it from someone who actually works in education finance, the primary problem involving the rise in tuition is the ever increasing reliance on tuition, endowments, gifts to the university system, and alum donations. The government -- both at the state and federal level -- has systematically removed itself from supporting the state universities through payments and research grants forcing the over reliance on the above sources of funding and the selling of the university to perspective students.

The best thing that could happen would be for the fed -- and it can only be the fed -- to step in, clamp down on the extravagance produced by the need for the university to market itself, and subsidize the crap out of the state system while instituting tuition controls.

[RLaitres]

04:27 PM on 09/13/2011

Guess "privatization" of everything is not that great, now is it? isn't that what happened to another organization as well, the United States Postal Service, where "privatization" was supposed to result in great savings and greater efficiencies? Now where are we? Well the postage skyrocketed, and with poorer service. What about the airlines where flight attendants might be attired more properly if they were outfitted in leather and carrying a whip to "keep those animals in line."

[francfist]

02:08 PM on 09/13/2011

My atty mentioned to me recently that there is a bill getting ready to go before Congress that will put student loans back into the debts that CAN be discharged in bankruptcy proceedings again. Business will not be in favor of this and will no doubt instruct their paid lackeys in Congress not to vote for it, but maybe enough pressure exerted by enough American citizens might be enough to sway more politicians into voting for this. They do know they are not popular right now.
By the way, I read one growing business in the US. is the private security business. I guess some of the rich are hiring bodyguards - almost like they think it may be getting dangerous for them out there. One can only hope.
And perhaps the manufacturing sector could use a factory making real products like pitchforks and guillotines. An economy that is based on financial services, the selling of pieces of paper they "say" are valuable doesn't seem to be working out very well for the vast majority of us, but if you check, a few percent are doing extremely well - especially considering the rest of us are in a recession. Even Congress has voted themselves raises the last few years because they have done such a bang-up job repairing the damage done to our country. Right?

[Barbara DeZan]

05:14 PM on 09/14/2011

About that bill?

Your "atty" is talking out of his netherparts.

The reason student loans were taken out of the bankruptcy process in the first place starting in 1975 when more and more graduates were do it. Hundreds of thousands, millions of taxpayer money gone. Even those who could repay, didn't.....

S 3219 introduced last year by Durbin, if passed, would let PRIVATE loans be discharged....not those funded by the gov't or guaranteed by the gov't.

When you borrow from TAXPAYERS you will pay it back, one way or the other.