New Measure of Student-Loan Defaults Could Threaten Hundreds of Colleges
More than 220 colleges have long-term student loan default rates so high that they would lose all federal student financial assistance under the terms of a new law that eventually will measure those rates over a three-year time scale, according to new Education Department figures.
Student-loan defaults are more common at for-profit colleges and other institutions that serve lower-income populations, and the move toward a stiffer default-rate measure has left many of those institutions warning of a growing harm to the students most in need. "The only thing that explains default rate is the socioeconomic background" of the student, said Harris N. Miller, president of the Career College Association, which represents for-profit institutions. "By using that as the metric of quality, you will always be discriminating against low-income students."
Most students are required to begin paying back federally subsidized loans six months after they graduate or otherwise leave school. A college can lose eligibility for both grants and loans if its default rate exceeds 40 percent among its former students in the first year after they're due to begin repayment. Colleges also can lose eligibility if the rate of borrowers defaulting within two years of their scheduled start of repayment is 25 percent or greater for three consecutive years.
A new law, the Higher Education Opportunity Act (HR 4137), approved last year by Congress, will change that last measure, effective in 2012, to begin counting borrowers who default within three years of their scheduled repayment. Using that three-year window, colleges would be ineligible if their borrower default rate is 30 percent or greater for three consecutive years. [Chronicle of Higher Education]
