• August 30, 2015

In Rising Student-Loan Defaults, More Fodder for Fight Over 'Gainful Employment' Rule

The percentage of borrowers defaulting on their student loans has risen for a third year in a row, reaching an 11-year high of 7 percent, according to U.S. Education Department data released on Monday.

As usual, the "cohort default rate" for 2008, the most recent data available, is highest at for-profit colleges, averaging 11.6 percent, a 0.6-percent increase over the previous year. The rate for public colleges is 6 percent, up from 5.9 percent. For private colleges, the rate is 4 percent, up from 3.7 percent.

The numbers represent the share of students who entered repayment in the 2008 fiscal year and defaulted by the end of last September.

In a news release, Education Department officials used the data to make their case for a crackdown on for-profit colleges. This past summer the department issued a package of proposed rules aimed at protecting students and taxpayers from the consequences of student-loan defaults, particularly at proprietary institutions. Final rules are due by November 1.

"While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not," Secretary of Education Arne Duncan said in the news release. "Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use."

Lobbyists for for-profit colleges say the recent rise in defaults is a reflection of the weak economy, not the quality of their institutions. In a news release, the Career College Association argued that default rates should not be used "as a proxy on the value of our schools or the education we provide."

"In a climate marked by near double-digit unemployment, it is not surprising that former students continue to find it more difficult to repay their student loans," said Harris N. Miller, the association's president.

Under federal rules, colleges with default rates greater than 25 percent for three consecutive years, or 40 percent for a single year, can lose their eligibility to award federal student aid.

This year two colleges exceeded the first cap: the Charleston School of Beauty Culture, in Charleston, W.Va., and Human Resource Development & Employment-Stanley Technical Institute, in Clarksburg, W.Va. Three colleges had rates of greater than 40 percent: Cuttin' Up Beauty Academy, in Denver; Academy of Healing Arts, in Las Vegas; and Clinton Junior College, in Rock Hill, S.C.

Monday's data release fell less than a week after the end of a public-comment period on the most controversial of the department's proposals designed to protect students and taxpayers, known as the "gainful employment" rule. The department received close to 85,000 comments on that rule, which would cut off aid to programs whose students have the highest debt burdens and lowest loan-repayment rates. For-profit colleges say the rule would ravage their revenues and force them to close thousands of programs serving low-income and minority students.

The government's annual cohort default rate is a snapshot in time, reflecting the share of students who default on their loans within two years of leaving college. As such, the data capture only a sliver of the defaults that occur over the life of a loan, a recent Chronicle analysis found. According to that analysis, one in every five government loans that entered repayment in 1995 has gone into default.


1. fireflygirl - September 13, 2010 at 05:07 pm

I really don't like seeing these statistics, but I know it's also due to the economy. This is not entirely indicative of the quality of education provided to students at for-profit universities versus public and private schools. I think it's more indicative of society's value of these different educational systems. In an economic downturn, employers can be more selective in their decision because they are getting so many more applicants. And while they may not want to admit it, something in the back of their mind might whisper: "ABC For-Profit College versus XYZ University...hmmm..."
Until these schools are viewed as providing the same level education as public and private colleges and universities, there will still be this stigma and differing levels of value. It's not necessarily a matter of generating jobs, it's a matter of changing biased opinions.

2. 11274135 - September 13, 2010 at 06:06 pm

Just a cautionary tale. Some years ago (late 90's), our public non profit university and our community college district, working with and supported by major electronics companies, developed high quality and fairly expensive semi conductor manufacturing programs to prepare students to meet the hiring demands of the industry at different levels of entry. We got quite of few students into the pipeline attracted by jobs assured by the hiring industries. It seemed like a perfect setup. Before the first group could graduate from the university (less than 4 years) virtually all of those jobs had been offshored, one of the companies was on the ropes, and the students who graduated or remained at various places in the pipeline were left high and dry. Expensive facilities sat idle. I don't think anyone went into this deal intending to mislead anyone. But this is going to happen where stability of employment is not a major goal of the economy. Of course, anyone who is now attracting students by promising them high paying jobs in semi-conductor manufacturing in a charlatan.

Generally, it may be possible to make direct connections between certain jobs and school based courses of preparation that are up to six months long (maybe), but generally connections that are too direct are most likely going to be difficult to honor.

3. atana09 - September 13, 2010 at 07:11 pm

The economy is a major factor in the increase in default rates. However that problem is also conditioned by how policy's had been set regarding defaults. In the not too distant past the regulations regarding defaults were set to ensure that the student borrower stood no chance whilst the lenders could make a killing either from the borrower (via grossly enhanced fees) or from doctoring the federal funds from 'remediation of defaults' or federal sureties. Now this system has been somewhat superseded those rules are fading, but there are still those caught in that system.
However what is interesting about the current data is how it is being interpreted within the USDOE. In the Spellings era, and prior, default data was largely used to propagate draconian debt laws favoring lenders. In Arne Duncan's venue there seems to be more interest in critical evaluation of how academe, and some of its less admirable components may be contributory elements to the default rate. The for profit schools, especially the looser organized trade academies, may be the test case for policies which will place academe under a more stringent standard for accountability regarding the end product of degrees and actual utility.
The 'gainful employment' provision may be a harbinger of more pressures yet to come. And the more traditional higher education systems may soon find that defending 'lifelong learner' and other such rationalizations will be much harder.
The problem of the default rate since 1995 going into a one in five default is not entirely unexpected. Simply because the whole debt for education system has resulted in a unsustainable personal and social burden. It will be the defining dilemma for academe of this generation as the debt for education system by which it has operated for the better part of a generation is soon going to implode because it was not sustainable (for either students or academe) over the long term.
The appalling default rate may finally be the impetus to reform how this country funds higher ed, but alas a entire generation was fed into that maw before we realized that creation was a beast.
Somewhere between a jubilee (unlikely) or systemic collapse (increasingly probable) our educational policy setters had better come up with a more rational system than the mess we have today.

4. texasmusic - September 13, 2010 at 08:13 pm

I'm constantly amazed by the assumption in every story I see on this topic that everyone graduates and THEN gets into trouble. I almost never see data that seems to point in the direction of students who can't finish school, for whatever reason, and then have a bunch of debt and nothing to show for it...and yet, still (mostly) can't do anything about it if they can't pay. Except...not pay. And even that isn't an option because 60 years later, you'll find your Social Security check still being garnished. (This assumes Social Security will still exist at that point, of course.)

5. merita - September 13, 2010 at 09:11 pm


You're absolutely right. Anyone who has dealt with student loan defaults will tell you that it is the dropouts and the just-barely-gradded that drive up your CDR. This bias is even more pronounced because CDRs are weighted on a per-student basis, rather than a per-dollar basis, so early dropouts might contribute greatly to your CDR, without contributing much at all to the dollar volume of defaults. Its actually the students who don't finish school with "a little bit of debt" (not "a bunch of of debt") who kill you. BTW, they also don't tell you about how the move from FFELP to Direct Lending has wreaked havoc on default rate management, but that's a story for next year, I guess.

6. davidbinder - September 13, 2010 at 09:26 pm

What is interesting is that none of the five "for profit" institutions listed in the article are regionally accredited (or ACICS or DETC accredited). What would be more meaningful would be to break the data down by accreditor. Perhaps the problem is focused in certain types of for-profit institutions. Perhaps, for example, accredition for beauty schools and the like should not qualify an institution to be eligible for federal financial aid.

For-profit, public, and private are too broad of categories to be meaningful. None are sufficiently homogeneous to make much of the data presented. Drilling down to find out what types of institutions within those categories have unacceptable default rates would provide information that could be used to make effective policy decisions. Regardless, the issue needs to be properly specified if we are going to find an answer.

7. proproprietary - September 14, 2010 at 07:23 am

Funny, no mention of default rates for Historically Black Colleges and Universities.

8. feudi - September 14, 2010 at 07:55 am

Some very thoughtful comments posted here today. I agree that the problem is systemic and that in student loans, we are seeing the next bubble of toxic assets ready to burst. Unemployment among recent college grads is approaching 20% nation-wide which will only exacerabate the coming collapse. It is instructive to see what sectors of the for profits have the highest default rates. The beauty and cosmetology school are always at the top of the list followed closely by other trade schools. Maybe it's time to prioritize what skill sets the taxpayers are willing to fund. Personally, I cut my own hair...

9. haohtt - September 14, 2010 at 09:58 am

Arne Duncan's statement that students graduating from for-profit colleges and universities receive "degrees and certificates that they cannot use," is backed by NO research ro data of any kind. This is spoken by the man who presided over one of the biggest educational distasters in the country--the Chicago Public Schools. According to data reported in the Chicago Tribune (certainly not a right-wing publication), only 1/2 of CPS graduates go on to college and most of those are unprepared for college-level work. If Mr. Duncan were to apply his standards for "gainful employment" and degree/diploma usefulness in a non-hypocritical way, he must be in favor of withholding the billions in taxpayer funding to the Chicago Public Schools.

10. 11119765 - September 14, 2010 at 10:00 am

**SIGH** "It's the lenders fault - thank goodness they are gone." Two years from now what will be the new refrain? Both the FFEL and DL programs have the same delinquency, default and lower payment option rules and these same lenders and servicers that used to work in the FFEL now are servicing the DL loans. I wonder who will be the next target for why people are defaulting - oh wait - they already found one - the for-profit schools!!!

11. iaclep - September 14, 2010 at 10:17 am

What is most interesting about these statistics is that they track the background of students from the various sectors of higher education. With disproportionately higher percentages of students from at-risk backgrounds in for-profit education, this sector has the highest rate of defaults - not a surprise. For-profit schools with their flexibility and accesssibility make access easier for non-traditional, working adults from at-risk backgrounds. What is also no surprise from these statistics is that, in a recession, default rates are higher. Neigher the rise in default rates nor the higher rates among at-risk students from for-profit schools should surprise us. And neither outcome makes a sound argument against the for-profit sector of higher education.

12. prof_truthteller - September 14, 2010 at 10:51 am

It would be helpful to see another line on the graph that tracks the employment rate or other measures of economic health, inflation, GDP, productivity, etc. However, don't fault the DOE for not providing that in their press release. That would be the job of an investigative journalist.

I'd also like to see it somehow tracked against how many students use financial aid. I'm guessing that the low default rates for private colleges are because most students (or their family) just have to pay tuition and fees on their own.

But I would also guess that the rates are lower in both public and private as opposed to for profit must have something to do with the quality of the education provided, and the reputation and/or ranking of the college that is the result of that quality.

Employers will want employees who can read, write, think, speak, reason and figure. Lacking those skills, mere training for a job or career is problematic. Lacking those skills, people are easily gulled into believing that some quickie two year degree can put them on track to the American Dream.

Sure, high schools are supposed to do that. We can endlessly argue that one- fact is, they don't. As many as 40% of the incoming students at my college are unprepared for college work, and thus, unprepared for the workplace, unprepared to be fully franchised citizens. Without some serious remedial work to provide them these critical life skills, they will be spend their lives lost in the world of the legal or social welfare system.

13. murleenray - September 14, 2010 at 11:21 am

I would like to see the statistics for "subsidized" vs. "unsubsidized" loans. Certainly, having a load accrue interest during the years that a student is not paying on a loan only adds to the burden on the backside. In this economy, the promise of employment is rediculous. But, having looked at the difference in cost between private, public, and for-profit for my own education, the only "sensible" choice was public. I considered my options and realized that it made more sense to put my tuition on a credit card, with monthly payments, than it did to defer loan repayment until I was out of school. The interest on the credit card was lower than the student loan rates, AND the balance wasn't growing into monsterous proportions in the background. I agree that we have a system that is going to crash; the collapse has already begun.

14. mdgill - September 14, 2010 at 02:09 pm

Here's what this graph says to me: In the late 90's, the rush to for-profit educational tech causes high default rates to start. The problems are met with solutions that cause an almost 50% reduction in default in only five years. The year 2000 sees a tiny bump in defaults in the wake of the Asian Financial Crisis and dot.com bust. The recent upsurge in default rates clearly reflects the current Global Economic Crisis.

I am not wholly opposed to the idea of Gainful Employment rules, but a comparison of trends between for-profit, public, and private colleges would be more helpful.

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