The federal government’s efforts to track student-loan-default rates and graduation rates are sending some students down the wrong path, according to a report released on Tuesday.
In the report, Education Sector, an education-policy group, calls on the U.S. Department of Education to pair the default rates and graduation rates, instead of releasing the numbers separately, to arm potential students with more-complete information.
The report, “In Debt and in the Dark: It’s Time for Better Information on Student-Loan Defaults,” by Education Sector’s research director, Andrew Gillen, also highlights colleges where default rates exceed graduation rates—a combination that it says should “set off a red flag in the minds of prospective student borrowers—and their parents.”
Looking at institutions where at least 30 percent of students borrowed and default rates exceeded graduation rates, the report identifies 265 “red flag” colleges, most of which are for-profit institutions and community colleges.
The report also urges the government to require more-detailed data about what kinds of students default on their loans, and to adjust colleges’ reported default rates based on family income and what percentage of an institution’s students receive Pell Grants. Adjusting how the data are collected and released would help students make better decisions about where to attend college, the report argues.
“Until we have better data on loan defaults, the federal government will continue to lend billions to students every year with little to show students, taxpayers, or policy makers about what happens when those students have to pay back that money,” the report says.
‘Red Flag’ Institutions
The default-rate data show a particularly harsh reality for some for-profit institutions and community colleges, which made up a majority of institutions where students were more likely to default on their loans than to graduate on time, according to Education Sector’s analysis.
For instance, at New River Community and Technical College, in West Virginia, 5 percent of students graduate on time and 25.7 percent of students default on their loans, according to 2009-10 Education Department data.
David S. Baime, senior vice president for government relations and research at the American Association of Community Colleges, said two-year institutions were unfairly singled out because students at those colleges take longer to graduate and often transfer out.
“The report’s approach is a little contradictory,” he said. “On the one hand, the authors accurately point out some of the striking limitations of much of the existing data on completion and default rates, and then, on the other, they proceed to use it to identify ‘red flag’ institutions.”
The report also comes as the Education Department considers adding standards for vocational programs, at for-profit and other colleges, where graduates have high debt-to-income ratios and slow loan repayments.
About 44 percent of the colleges where default rates exceeded graduation rates were for-profit institutions, according to the report.
But Steve Gunderson, president and chief executive of the Association of Private Sector Colleges and Universities, the main trade group for proprietary colleges, said that percentage is hardly indicative of the entire industry because it represents a much smaller fraction of the entire for-profit sector, which often serves at-risk and nontraditional students.
“Considering who we serve and how we serve them,” he said, “that’s not an indictable statistic.”