Some for-profit colleges have default rates of more than 25 percent.
Colleges and universities of every kind have seen student loan default rates jump this year, with for-profit schools that have recently come under government scrutiny recording the sharpest increase in defaults.
For-profit colleges and the industry’s lobbyist groups criticized a new report from the U.S. Department of Education (ED), released Sept. 12, that showed 15 percent of for-profit college students have defaulted on their school loans, marking a four-percent increase.
The report focuses on students who should have begun repaying their academic loans in 2009. Overall, the national student loan default rate rose from 7 percent to 8.8 percent.
Officials at for-profit college have long said that their schools – many of them with large online programs – serve low-income groups hoping to earn a degree while working and raising a family. During bad economic times, officials said, high default rates should be expected among those students.
But with for-profit default rates doubling that of public colleges and tripling the rate of nonprofit institutions, industry critics said the government data is more proof that for-profits are expensive and appeal to students who can’t afford the hefty payments.
“The weak economy does not explain the tremendous variation in default rates by type of school,” said Debbie Cochrane, program director at the Institute for College Access & Success (TICAS), a group that operates the Project on Student Debt, which aims to raise awareness of excessive college debt. “These data make clear that students who attend for-profit colleges are at much greater risk of defaulting than students who attend other colleges.”
Brian Moran, interim president and CEO of the Association of Private Sector Colleges and University (APSCU), said that by focusing on student default rates, ED officials are “moving forward by looking in the rear view mirror.”
“We believe that the default rates will go down when the economy improves and the unemployment rate drops,” Moran said, adding that many for-profit college students have “fewer economic and social advantages” than students at public and nonprofit schools.
Some of the most high-profile for-profit colleges experienced the largest student loan default rate increases. The default rate at ITT Technical Institute, which serves more than 80,000 students nationwide, more than doubled, going from 10.9 percent to 22.6 percent, according to the ED statistics.
The University of Phoenix now has a loan default rate of 18.8 percent, up from 12.8 percent when compared to students who began repaying loans in 2008.
The for-profit industry is suing the federal government after ED officials announced in June new regulations meant to ensure that students aren’t graduating from for-profit colleges unqualified for the professional world and burdened with excessive student loan debt.
A college must fail all three of the government’s “performance requirements” in three out of four years before the institution can no longer receive federal loans, according to ED’s new regulations, which take effect in 2015.
Five colleges are in danger of losing eligibility for federal student aid problems after three consecutive years of recording student default rates of 25 percent or more, or 40 percent in the past year. Schools in danger of losing federal aid include Missouri School of Barbering & Hairstyling in St. Louis, Tidewater Technical in Norfolk, Va., and Sebring Career School in Houston.
Allies of for-profit colleges have jumped to the industry’s defense as the Obama administration implements its new “gainful employment rules.”
Carrie Lukas, a blogger for the Independent Women’s Forum, defined the government regulations as an “attack on business” that could further damage a hurting economy.
“Profit has motivated some of our most important education breakthroughs and created numerous companies that have helped millions get an education. What’s the problem with that?” Lukas wrote. “The attack on for-profit colleges is yet another misguided government attempt to control what choices people have. It should be none of their business how any education institution compensates recruiters or how valuable the education provided is, so long as no one is committing fraud.”
Nonprofit and public colleges have largely escaped public criticism, Lukas wrote, despite rising default rates and pricey tuitions at some of the most esteemed institutions in the country.
“It seems a bizarre distinction that we are supposed to object to some entrepreneur trying to make a buck by teaching clients needed skills, but celebrate supposed nonprofits like Harvard that demand $40k a year from students and shower those dedicated non-profit professors with generous salaries, lifetime employment protection, and a near royal lifestyle,” she wrote.