Default U

Student loan default rates are much higher than government data originally suggest, reports Kelly Field for the Chronicle of Higher Education on July 11. “Unpublished data” obtained by the education news outlet from the Department of Education show that one in five government education loans that have entered repayment since 1995 have gone into default, she reports.

How bad, exactly, is this for the former students? “Borrowers who default on their student loans face significant personal and financial burdens,” writes Field. “They become ineligible for additional federal aid and may have their wages and tax refunds seized by the government.”

“Their negative credit records make it harder for them to obtain car loans, mortgages, and credit cards, and even apartments or jobs,” she continues. “When they can get loans, they pay higher interest rates.”

Field reports that the percentage of borrowers defaulting on their loans varies by the type of institution attended.

“While for-profits educate less than 10 percent of students, those colleges’ students received close to a quarter of Pell Grant and federal-student-loan dollars in 2008, according to the College Board,” reports Field. “And they accounted for 44 percent of defaults among borrowers who entered repayment in 2007, according to the Institute for College Access and Success, a nonprofit organization that advocates making higher education more affordable.”

“For-profits accounted for 16 percent of all the loans (other than consolidated loans) issued from 1995 to 2007, but 34 percent of the defaults,” she later adds. “Thirty percent of loans made to students attending four-year for-profit colleges have defaulted within 15 years of entering repayment, more than twice the default rates at public and private nonprofit four-year colleges, which are 15.1 percent and 13.6 percent, respectively” (emphasis added).

Indeed, the cost of student-loan defaults is growing. “At the end of the 2008 fiscal year, $39.1-billion worth of loans were in default, according to the Education Department,” reports Fields. “By the end of the 2009 fiscal year, that total had swelled to $50.8-billion, an increase of nearly 30 percent.”

Some members of Congress have recently set their sights on the for-profit education industry, which, according to Field, disproportionately serves minority and first-generation college students. She describes a recent Senate Committee on Health, Education, Labor & Pensions Committee hearing as “stacked with critics of for-profit colleges.”

A chart (pdf) produced by DeVry University, which sent a representative to the hearing, shows that the University’s clientele are disproportionately male (54%) and in 2008 had a “graduation rate for first-time, full-time” students of 31%.

Median loan debt (2009) for these students was $32,184 for a bachelor’s degree; DeVry reported a 7.9% “cohort default rate” for 2007.

“Under federal law, the Education Department is required to publish only a two-year cohort-default rate, which is the percentage of borrowers who default in the first two years of repayment,” reports Field. “However, because it takes so long for borrowers to default, the statistic really reflects only those who do so in the second year of repayment.”

On June 30, Democratic Senator Dick Durbin, Ill., attributed the expansion of for-profit institutions, in part, to “easy access to government loans” and “slick marketing and hard sells,” according to All Headline News coverage.

“At some publicly traded higher-education companies, the proportion of revenue coming from federal aid approaches 90 percent, the maximum allowed under law,” writes Field.

“In the 2009-10 academic year, the average for-profit institution charged $14,174 in tuition and fees, according to the College Board, and the average community college only $2,544,” she later adds.

The average tuition charged by a four-year public college in the same year was $7,020, and $26,273 at a private four-year college, according to the College Board.

The late Christopher Warden, author of Accuracy in Academia’s posthumously published text, Voodoo Anyone? How to Understand Economics Without Really Trying, drew viewers’ attention to the connection between federal financial aid and skyrocketing tuition costs. “Again you have a situation where the government is insulating the consumer from the price because he’s giving you money, the government’s giving you money,” he said at in his 2008 Author’s Night address at the National Press Club.

“So hey, it’s free! I want college,” he said. “Well, somebody has to pay for it at some point.”

You can listen to the rest of his lecture and many others on our YouTube channel.

Bethany Stotts is a staff writer at Accuracy in Academia.