January 30, 2008Student loans: a bunch of 'em don't get paid backNearly 3.5 million federal student loans came due for repayment in 2005. By the end of the year, nearly five percent were in default for non-payment. That's bad enough, but it's actually a gargantuan improvement over 15 years earlier, when nearly one in four of the same loans were in default. Check out the default figures for over 5,000 U.S. colleges for 2003 through 2005 now in the DataSphere. The data comes from the U.S. Department of Education. You can make a number of assumptions from those figures. Some people had legitimate hardships and couldn't pay (although deferments are an option in some circumstances), while others no doubt just shirked their responsibility. But, as the U.S. Department of education sees it, those numbers reflect not only on the borrowers, but on the colleges who awarded the loans in the first place. Colleges who have default rates over 25 percent for three years, or over 40 percent for the most current year, can lose their eligibility to award the federal loans as well as federal Pell Grants. Without these financial aid options, it must put colleges in a bind to get many desirable students in and their tuition paid -- and to keep their student bodies economically diverse. Without these most common of aid options, who would be left but those with the family wherewithall to pay? Virginia actually fairs pretty well. In 2005, Virginia colleges had 74,217 loans in repayment, and 4.1 percent in default -- below the national average. Virginia Tech's default rate was 1.1 percent, while UVa's was a half a percent. National College in Salem, the employer of my old friend and one-time public relations nemesis Chuck Steenburgh, who told me about this data, had a 2005 rate of 2.5 percent. The worst rates seemed to be among schools that I was a little surprised could award student loans: beauty schools, technical programs and career colleges. The highest default rate in Virginia in 2005, for example, happened to belong to a school right here where I sit in Roanoke: BarPalma Beauty Careers Academy. At 18.7 percent, that school is joined by other small proprietary schools with high default rates, like the Aviation Institute of Maintenance in Virginia Beach and Miller-Motte Technical College in Lynchburg. So go poke around, see what you can learn about the college where you went, where you're headed -- or where your kid is headed. And drop me a comment, too. What do these rates really say, if anything, about the schools themselves? |
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Comments
[January 31, 2008 10:49 AM]
David StarrI think one needs to be careful not to make broad assumptions about trade schools.
If one agrees that not everyone belongs in college or needs to go to college to be successful, than one has to accept that post-secondary alternatives to college must exist to help these people reach their potential and become productive citizens.
It's unavoidable that trade schools will appeal to individuals with fewer resources or with more tenous ability to keep up with the rigors of classroom training.
It doesn't mean the school is doing a bad job. That judgement has to be made on a case-by-case basis. There are any number of reasons why a school could have a high default rate. Its training could be too rigorous, for example.
[January 31, 2008 2:13 PM]
MattAn excellent set of thoughts, David. Thanks.
No need to disparage trade schools broadly, or even specifically based on these default rates, I agree. I merely note the phenomenon, and you've gone a long way to account for it.
Someone else here in the newsrooms added another thought: Is it possible that even successful graduates of career schools who become gainfully employed might not, at least initially, have the earning power to cover those loans? Just an additional thought for the stew.
It's hard to argue that the great variety of schools eligible to award these loans isn't a good thing. Moreover, it's hard to argue that it would be fair to make such aid available only to people seeking traditional college degrees, and not to those who choose a trade like mechanics, cosmetology or some other valuable and marketable skill.
[January 31, 2008 2:47 PM]
ChrisGreat article.
Here is the real kicker, default rates are and have been directly linked to graduation rates. The more likely a student is to graduate, the more likely the student is to pay back the loans. No matter the type of school or subject of study.
That said, trade schools also, as a whole, have the lowest graduation rate. At the very least a school is a responsible partner in helping the student graduate, where the school may not be directly responsible for the default rates, they should be held accountable to the graduation rates.
just a thought...
[February 1, 2008 9:48 AM]
Jeff A.Actually, career colleges have much, much higher graduation rates than community colleges, and even most four year universities, as is evidenced by data reported to the National Center for Educational Statistics. Default rates are more an indicator of the population served as a recent Indiana University study determined there is no correlation between default rates and institutional quality.
Career colleges serve mostly an adult, career-changing population who look for a fast way to get into a new, better-paying career. 70% of adults have had some kind of credit blemish, and many people going to a career college are entering with significant financial issues. But over 60% of those going to a career college graduate and find it is an excellent investment.
I would recommend taking a look at graduation rates at www.nces.ed.gov. Under the postsecondary surveys, the IPEDS data system has graduation rates. For example, Virginia Western CC has a graduation rate of 13.8%. Many community colleges in Virginia have rates