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Student Loan Default Rate Soars at For-Profit Schools

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Student loan default was the highest in more than a decade for fiscal 2009.

CREDIT: istockphoto

More people are defaulting on student loan payments than in the past decade—with the largest spike in default rates coming in the high-cost, low-benefit for-profit education industry.

According to new data released today by the Department of Education, 8.8 percent of all student loan borrowers in fiscal 2009 defaulted on their loans, an increase from just 7 percent of borrowers in fiscal 2008. The figures are for those whose initial loan repayments were due between October 2008 and September 2009 and had defaulted by this September 2010.

What’s most troubling is the impact of for-profit colleges on the national student loan default rate. A whopping 15 percent of student borrowers at for-profit institutions—or one in six—failed to repay their loans, up from 11.6 percent. At some for-profit schools, default rates exceeded 20 percent.

In hard numbers: Out of about 3.6 million students who entered repayment during the window, 320,000 defaulted after two years—81,000 more than in fiscal 2008, with more than half from for-profits.

“These data make clear that students who attend for-profit colleges are at much greater risk of defaulting than students who attend other colleges,” said Debbie Cochrane, program director at the Institute for College Access & Success (TICAS), home of the Project on Student Debt, in a release [PDF]. “That’s not just because the default rates of borrowers is so much higher, but also because students at for-profit colleges are so much more likely to borrow in the first place.”

(On CampusProgress.org: Read More About Abuses in the For-Profit Industry)

The most recent data placed other higher-education sectors at much lower default rates: 7.2 percent for public and 4.6 percent for private.

A leading official in the for-profit industry told the Associated Press that institutions are working to help students, including by offering debt counseling, and shifted blame onto the weak job market.

"We believe that the default rates will go down when the economy improves and the unemployment rate drops,” said Brian Moran, the interim president and CEO of the Association of Private Sector Colleges and Universities, a group that represents for-profit schools.

But during a press conference on Monday, James Kvaal, deputy under secretary of education, pointed at the growth among for-profit educators as one of two major factors for the overall uptick.

And for-profit students aren’t only defaulting at nearly twice the national average; they also borrow more—and more frequently—from the government to attend college.

At for-profit schools, 92 percent of students borrowed through student lending and were saddled with an average of $33,000 in debt. That’s compared with 27 percent of students at public schools (borrowing $20,000 on average) and 62 percent of those enrolled at private colleges, who graduate with $27,000 in average debt.

Education Sector notes that the data is even more troubling when factoring in that many students default after two years and that, for some students, a "two-year window" for default only correlates with the first year of repayment.

“We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace,” Education Secretary Arne Duncan said in a statement.

Unfortunately, that’s an area in which for-profit colleges have often failed.

{Screw U: How For-Profit Colleges Are Ripping Off Students—And Denying Them A Better Future)

The Department of Education recognized this failure and implemented the less-than-perfect final version of a gainful employment rule in June. Students’ borrowing is one of two main factors for determining whether schools will be eligible for federal aid under the new rule.

Recently, for-profit institutions have seen a marked decrease in the number of students enrolling, according to a report by the Wall Street Journal.

For their own sake, we can only hope students continue to wise up and stay away from the often deceptive, inadequate for-profit colleges and the seemingly unmanageable debt their students incur.

Raw data from the Department of Education is available here.

Brian Stewart is the Communications Director at Generation Progress. You can follow him on Twitter @brianstewart.

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