Friday, July 16, 2010

Govt Vastly Undercounts Defaults

The Chronicle of Higher Education was able to obtain 15-year default data for all federally guaranteed higher education loans and the results are very poor, especially for two-year colleges and most especially for for-profit schools.  Let's hope Congress, the Obama administration and DOE crack down HARD on the for-profit higher ed cesspool that victimizes countless students – many of these operators are no better than the subprime wolves.  Here are the highlights…er, I mean low-lights from the article:


·         15 years into repayment, two out of every five loans (40%!) made to students who attended two-year for-profit colleges are in default.


·         For loans made to community-college students, the 15-year default rate is 31%.


o   However, only 10% of community-college students took out federal Stafford loans—the most common type of federal education loan—in the 2007-8 academic year, and most borrowed less than $10,000, according to the College Board. At for-profit colleges, 88% of students took out Stafford loans, and nearly 20% of associate-degree recipients graduated with more than $30,000 in debt.


·         For-profits accounted for 16% of all the loans (other than consolidated loans) issued from 1995 to 2007, but 34% of the defaults.


·         30% of loans made to students attending four-year for-profit colleges have defaulted within 15 years of entering repayment, more than twice the default rates at public and private nonprofit four-year colleges, which are 15.1% and 13.6%, respectively.


·         But the group also said that only 15% of the variation in two-year colleges' default rates could be explained by measurable demographic differences—evidence, the analysts wrote, "of the influence institutions have over whether students stay in good standing on their loans."


·         The short-term rate also undercounts defaults because it puts borrowers who have received deferments and forbearances on their loans into the repayment category, even though they may have never made a payment on their debt and are likelier than other borrowers to default later on. The proportion of students that are not included in the default calculation (deferment and forbearance) have grown from only 10% of total in 1996 to 26% of total in 2007.


·         The proportion of borrowers in such plans grew from 10% in fiscal 1996 to 22% in fiscal 2007, as lenders and colleges have pushed students into deferment or forbearance to keep default rates down, so as to avoid federal penalties.


Government Vastly Undercounts Defaults

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