The number of borrowers defaulting on federal
student loans has jumped sharply, the latest indication that rising college
tuition costs, low graduation rates and poor job prospects are getting more and
more students over their heads in debt.
The national two-year cohort default rate rose to
8.8 percent last year, from 7 percent in fiscal 2008, according to figures
released Monday by the Department of Education.
Driving the overall increase was an especially
sharp increase among students who borrow from the government to attend
for-profit colleges.
Of the approximately 1 million student borrowers at
for-profit schools whose first payments came due in the year starting Oct. 1,
2008 — at the peak of the financial crisis — 15 percent were already at least
270 days behind in their payments two years later. That was an increase from
11.6 percent among those whose first payments came due the previous year.
At public institutions, the default rate increased
from 6 percent to 7.2 percent and from 4 percent to 4.6 percent among students
at private not-for-profit colleges.
"I think the jump over the last year has been
pretty astonishing," said Debbi Cochrane, program director for the
California-based Institute for College Access & Success.
Overall, 3.6 million borrowers entered repayment in
fiscal 2009; more than 320,000 had already defaulted last fall, an increase of
80,000 over the previous year.
The federal default rate remains substantially
below its peak of more than 20 percent in the early 1990s, before a series of
reforms in government lending. But after years of steady declines it has now
risen four straight years to its highest rate since 1997, and is nearly double
its trough of 4.6 percent in 2005.
Troubling as the new figures are, they understate
how many students will eventually default. Last year's two-year default rate
increased to more than 12 percent when the government made preliminary
calculations of how many defaulted within three years. Beginning next year, the
department will begin using the figure for how many default within three years
to determine which institutions will lose eligibility to enroll students
receiving government financial aid.
The figures come as a stalled economy is hitting
student borrowers from two sides — forcing cash-strapped state institutions to
raise tuition, and making it harder for graduates to find jobs. The
unemployment rate of 4.3 percent for college graduates remains substantially
lower than for those without a degree. But many student borrowers don't finish
the degree they borrow to pay for.
The Department of Education has begun an
income-based repayment plan that caps federal loan payments at 15 percent of
discretionary income. And new regulations the Obama administration has imposed
on the for-profit sector have prompted those so-called proprietary colleges to
close failing programs and tighten enrollment. Both developments could help
lower default rates in the future.
Administration officials took pains to praise the
for-profit sector for recent reforms, but also said flatly that those schools —
along with the weak economy — are largely to blame for the current increases.
Among some of the largest and better-known operators, the default rate at the
University of Phoenix chain rose from 12.8 to 18.8 percent and at ITT Technical
Institute it jumped from 10.9 percent to 22.6 percent.
"We are disappointed to see increases in the
cohort default rates for our students, as well as students in other sectors of
higher education," said Brian Moran, interim president and CEO of APSCU,
the Association of Private Sector Colleges and Universities, which represents
the for-profit sector. He said for-profit schools were taking remedial steps,
including debt counseling for students, to bring down the rates.
"We believe that the default rates will go
down when the economy improves and the unemployment rate drops," he said.
ITT, owned by ITT Educational Services, did not
immediately respond to requests for comment.
Chad Christian, a spokesman for Phoenix, owned by
Apollo Group, Inc., said colleges throughout the country are seeing increased
default rates due to the economy.
"We are committed to helping our students
understand and manage financial aid debt levels," Christian said.
The department emphasized that it eventually
manages to collect most of the money it's owed, even from defaulters. But
that's part of the reason federal student loan defaults are so hard on
borrowers — they can't be discharged in bankruptcy. Defaulting can also wreck students'
credit and keep them from being able to return to school later with federal
aid.
"There are very few avenues for escaping
that," Cochrane said. Also, "many employers these days are starting
to check credit so it can hurt your job prospects."
According to calculations by TICAS and using the
latest available figures, in 2008 average debt for graduating seniors with
student loans was $20,200 at public universities, $27,650 at private
non-profits and $33,050 at private for-profits.
Copyright
2011 The Associated Press.
