Archived Information

Student Loan Default Rates Increase

Borrowers At For-Profit Schools Represent Large and Growing Share of Loan Defaults

Contact:  
Jane Glickman, (202) 401-1307


U.S. Secretary of Education Arne Duncan today announced that the FY 2008 national cohort default rate is 7.0 percent, up from the FY 2007 rate of 6.7 percent. The default rates increased from 5.9 to 6 percent for public institutions, from 3.7 to 4 percent for private institutions, and from 11 to 11.6 percent for for-profit schools.

The default rate announced today -- the most recent data available -- is a snapshot in time, representing the cohort of borrowers whose first loan repayments came due between October 1, 2007 and September 30, 2008, and who defaulted before September 30, 2009. During this time, almost 3.4 million borrowers entered repayment, and more than 238,000 defaulted on their loans. They attended 5,860 participating institutions. Borrowers who default after their first two years of repayment are not measured as defaulters in today's data.

"This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times. That's why the Administration has expanded programs like income based repayment and Pell grants to help students in financial need," said U.S. Secretary of Education Arne Duncan.

"The data also tells us that students attending for-profit schools are the most likely to default," Duncan continued. "While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole," Duncan continued.

In award year 2008-09, students at for-profit schools represented 26 percent of the borrower population and 43 percent of all defaulters. The median federal student loan debt carried by students earning associate degrees at for-profit institutions was $14,000. The majority of students at community colleges do not borrow.

This rapid growth of enrollment, debt load, and default rates at for-profit schools in recent years prompted the Obama Administration to embark on a year-long negotiation with the higher education community to develop a set of proposals that strengthen the integrity of the federal student aid programs and ensure that taxpayer funds are used appropriately. Thirteen issues, addressed in a proposed regulation published on June 16, aim to protect students from misleading and overly aggressive recruiting practices; provide consumers with better information about the effectiveness of career college programs; and ensure that only eligible students and programs receive aid.

Another proposed regulation, published on July 26, further aims to protect students from debt they cannot repay by requiring for-profit institutions to better prepare students for "gainful employment" or risk losing access to federal student aid. Both student debt levels and incomes after program completion are taken into consideration. The Department is now developing final regulations on these issues, which it expects to publish in the coming months.

Under current rules, all schools with default rates of 25 percent or greater for three consecutive years face loss of eligibility in the federal student aid programs. This year, two schools are affected by this provision: Charleston School of Beauty Culture, Charleston, W. Va.; and Human Resource Development & Employment-Stanley Technical Institute of Clarksburg, W.Va. Schools with a default rate greater than 40 percent in the latest year may lose eligibility to participate in the federal loan programs, and this year three schools are subject to this provision: Cuttin' Up Beauty Academy, Denver; Academy of Healing Arts, Las Vegas; and Clinton Junior College, Rock Hill, S.C.

The Obama Administration has reformed the student loan program to save over $60 billion and use private-sector companies chosen competitively and paid based upon performance to collect student loans. However, the data released today predates the implementation of that reform. FFELP continues to comprise approximately 77% of the total borrowers in repayment; defaults in FFELP comprise approximately 85% of the total borrowers in default. Defaulted borrowers in FFELP increased 8.0%.

Borrowers who need assistance in repaying their student loans can visit www.federalstudentaid.ed.gov or can contact the holders of their loans to learn about repayment options. For help locating their loan holders, borrowers may access www.nslds.ed.gov or may contact the Education Department's Federal Student Aid Information Center at 1-800-4-FEDAID (1-800-433-3243).

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NOTE TO EDITORS: Information on the national student loan default rate, as well as rates for individual schools, states, types of postsecondary institutions, and other sectors of the federal loan industry are available at www.FSADataCenter.ed.gov/cohort.html.
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