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New Data Reveals Sky-High Default Rates at Career Colleges

Published:  December 15, 2009

A day after the U.S. Department of Education released three-year cohort default rates for federal student loans, for-profit college leaders and lobbyists are breathing a sigh of relief. Apparently their investors are too, judging by the rise in some of the education companies' stock prices yesterday. While the news was certainly not good, it wasn’t as bad as most of them had feared. After all, few of the largest publicly traded for-profit school chains (besides Corinthian Colleges, Kaplan University, and a couple of others) had campuses with default rates high enough to eventually put them in jeopardy of losing access to federal student aid.

But policy makers should not take false comfort in these numbers, as they clearly show the serious risks that many low-income and working-class students are taking by enrolling in for profit colleges. As we have seen, many of these students are left with little to show for their effort but a heap of debt that they can’t pay off.

Here’s a look at some of the most disturbing default rate numbers that were revealed yesterday:

21.2 percent: The proportion of for-profit college students who entered repayment on their federal student loans in the 2007 fiscal year (beginning in Oct. 2006) and defaulted within three years. That's compared to 6 percent of students who attended private colleges, 7 percent who attended public four-year colleges, and 16 percent who attended community colleges.

44 percent: The proportion of borrowers who defaulted on loans that entered repayment in the 2007 fiscal year after attending for-profit colleges. In other words, proprietary schools account for an incredibly disproportionate number of defaulters, considering that they enroll only 7 percent of all college students. In contrast, community colleges educate almost 40 percent of all students but account for only 20 percent of those who default on their federal student loans, according to an analysis of the data conducted by the Project on Student Debt.

65 percent: The proportion of proprietary schools that have three-year default rates of 20 percent or more, according to an analysis of the data by Student Lending Analytics. That's compared to 4 percent of private colleges, 3 percent of public four-year colleges, and 22 percent of community colleges.

16 percent: The proportion of for-profit colleges with three-year default rates of 15 percent or less. That's compared to 86 percent of private colleges, 74 percent of public four-year colleges, and 36 percent of community colleges, according to the Student Lending Analytics' analysis. 

75 percent: The proportion of the approximately 315 colleges that had three-year default rates of 30 percent or more that came from the proprietary school sector. These schools could face sanctions in several years if they do not improve their rates. 

For-profit college lobbyists argue that their institutions' high default rates have little to do with the quality of the schools or the way in which they are being managed. “The only thing that explains default rate is the socioeconomic background” of the student, Harris Miller, the president of the Career College Association, told The Chronicle of Higher Education earlier this week.

While socioeconomic factors have a strong correlation to a student’s likelihood of defaulting on a student loan, it is certainly not the only factor. Otherwise, all colleges serving the same demographic of students would fare poorly. But they don’t -- not even among Miller’s proprietary school members.

The three-year default rate data show that some for-profit colleges are doing a better job than others. At Higher Ed Watch, we were particularly impressed to see that none of Career Education Corporation’s schools approached the 30 percent default cut-off rate, and many of them fell far below it. The once-troubled corporation is under new management, which genuinely appears to be trying to clean up the company's act.

Unfortunately, the improvements that CEC is making seem to be more the exception than the rule -- as the three-year default rate data shows that many of the largest proprietary schools continue to load up their students with unmanageable levels of debt for training that will leave them stranded. Hopefully, the Education Department and prospective students can use this data to do a better job of sorting out which schools improve people's lives and which ones do damage to them.

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