Almost 650,000 federal student loan borrowers have defaulted on their debt, new data shows. A handful of for-profit schools are a big part of the problem.
UPDATED: September 25, 2014
More than one out of eight students who had a federal student loan and left college or graduate school in 2011 has since defaulted—a total of almost 650,000 Americans, the U.S. Department of Education reported today.
In all, 13.7% of the 4.8 million federal student loan borrowers who graduated or dropped out of a higher education program in 2011 have gone at least nine months without making a payment on that debt.
That number is alarming to many analysts because new flexible repayment programs have made it much easier to repay federal student loans. Some of the government’s new income-driven repayment plans, for example, cap payments at 10% of a borrower’s discretionary income.
Students and parents should be wary of colleges with high default rates, advises Debbie Cochrane, research director of The Institute for College Access and Success. “At schools with both high borrowing rates and high default rates, too many students are clearly leaving school worse off than before they entered,” she says.
A handful of for-profit colleges are responsible for a disproportionate number of the defaults, according to the new government statistics.
The Education Department says it will stop making loans to students at the 21 colleges with the worst default rates. (It will cut off schools with a three-year default rate above 40%, or three consecutive three-year default rates above 30%.) Twenty of those schools are for-profit colleges.
Many of the colleges with the highest default rates are trade schools, and many are comparatively small. The Coast Career Institute, a California-based trade school with a 56% default rate, for example, currently reports having only 169 students. Eleven of the 21 colleges with the worst default records are beauty or barbering schools. On average, 19% of students at for-profit schools who left school in 2011 have defaulted.
What’s more, several other government agencies are looking into whether some for-profit colleges are trying to attract students using false or misleading marketing. Allegations of fraud leveled by the California attorney general have forced for-profit Corinthian College to shut down.
Overall, the default rates for public colleges was 12.9%. The default rate for private, non-profit colleges was 7.2%. But the four colleges with the largest numbers of defaulters were for-profit schools. They produced a combined total of more than 75,000 defaulters in the past three years.
The University of Phoenix, a for-profit company and the nation’s largest higher education system, with 242,000 students, accounted for more than 45,000 of the defaulters in the most recent three-year group. That represented 19% of all of the Phoenix students whose bills started coming due in 2011.
Spokesmen for Phoenix and an association of for-profit schools note that their default rates have been declining. The University of Phoenix’s three-year default rate for students who graduated or dropped out in 2010 was 26%, for example.
The largest producer of defaulters among public schools was Ivy Tech, a community college in Indiana, where 23% of the student borrowers who left there in 2011 have since defaulted on their student loans. On average, 20% of community college borrowers have defaulted over the past three years. Community college officials note that their students generally tend to borrow less than others because the schools charge lower tuition.
These five schools have the highest numbers of defaulters among those who left school in 2011, according the Education Department.
|College||Type||# of federal student loan defaulters, 2011-14||% of borrowers who defaulted on federal loans due in 2011|
|1||University of Phoenix||For-profit||45,123||19%|
|2||ITT Technical Institute||For-profit||11,260||22%|
|5||Ivy Tech Community College of Indiana||Public community college||7,237||23%|
Update: This post has been updated to add more information about schools with the highest default rates and to correct the Department of Education’s policy on loans for schools with high default rates.