The Education Department is releasing data today on the percentage of students at more than 5,000 colleges and universities who defaulted on student loans over a three year period.
The data, which are preliminary, appear consistent with a congressional report out in August showing that students who took out federal loans to attend for profit colleges have higher default rates than those who attended public or private non profit schools.
Colleges where default rates are too high can become ineligible for federal student loans and Pell Grants.
Under current law, sanctions are applied based on two year default rates, typically published each September. The Education Department calculated three year rates to help schools prepare for a change in federal law that goes into effect in 2014, says Dan Madzelan, acting assistant secretary for postsecondary education. Under the new law, colleges with three consecutive years of default rates of 30% or more can be sanctioned.
No college will be penalized based on today’s release of three year rates, which for many schools are higher than the two year rates. “This is purely information,” Madzelan says. “We think it is a good idea for institutions to begin to understand what the change … means for them.”
Terry Hartle, a lobbyist with the American Council on Education, cautions that default rates “are not good indicators of institutional quality.” But, he says, “As students accumulate ever higher levels of debt, it is important that they have access to this information.”
A number of studies show that low income students and those from families who lack higher education are more likely to default on their loans. Student loan defaulters “can tarnish their credit reports, make it difficult for them to obtain employment, and jeopardize their long-term financial well being,” says an August report by the U.S. Government Accountability Office, the investigative arm of Congress.
Default rates for institutions, along with information about the percentage of students who borrowed, will be available at about 11 a.m. ET today at www.fsadatacenter.gov.
Debbie Cochrane, program director of the non profit Project on Student Debt, urges consumers to consider the data in context. “A 30% cohort default rate (has a) very different (meaning) at a school where 90% of students borrow compared with a school where 5% borrow.”
