fry Posted December 14, 2009 Report Share Posted December 14, 2009 From the WSJ: Students who took out government loans to pay for their education at for-profit colleges had a 21% default rate in the first three years they were required to make payments, about three times the level of four-year public and nonprofit institutions, according to a Wall Street Journal analysis of government data scheduled for release Monday. The disclosure of the new default rates comes as the Department of Education has proposed rules to restrict recruitment practices at all colleges. Major for-profit schools, some of which have multimillion-dollar advertising budgets, have been accused of using aggressive marketing tactics. Critics allege the high defaults occur because schools enroll unqualified students who get little benefit from the education and therefore can't pay back the government. Twenty-two campuses of the Everest College chain, a unit of publicly-traded for-profit Corinthian Colleges Inc., had three-year default rates of 30% or higher. One of its schools, Everest Institute in San Antonio, Tex., had a default rate of more than 40%. The Everest schools offer programs in areas including medical assisting, massage therapy and criminal justice. The Kaplan unit of Washington Post Co. had seven campuses at or above the 30% mark and ITT Technical Institute, owned by the publicly-traded ITT Educational Services Inc., had one campus that exceeded the 30% threshold. Of the 5,600 schools whose data are being released Monday, 316 had default rates of 30% or more, and three-quarters were for-profits, the Journal analysis found. Unlike traditional schools, which are operated by governments or nonprofits, for-profit colleges distribute income to shareholders and range in size from mom-and-pop businesses to large publicly traded firms. Recently, the for-profits have branched out from offering just career-training certificates to granting bachelor's and professional degrees. Starting in 2014, because of concern about rising defaults, schools with rates exceeding 30% for three years -- or 40% for one year -- can lose federal financial aid, which can put schools out of business. For-profit schools rely heavily on federal aid programs. Dan Madzelan, acting assistant secretary for postsecondary education, said the data are unofficial and won't result in sanctions. The information covers borrowers who entered repayment in the 2007 fiscal year and defaulted by the end of fiscal 2009. Mr. Madzelan said schools would have time to get their default rates down, and the government "isn't interested in shutting down schools." For-profit schools said the higher default rates reflect the lower-income students and working adults who attend. They note that community colleges, with a similar clientele, have above-average defaults. By the Journal's calculation, community colleges had a 16% default rate. Officials at the for-profits also said a new government program that lets student repay based on their income should lower defaults. In a draft of a Securities and Exchange Commission filing, Corinthian says its average three-year default rate for the 2007 cohort was just less than 30%, one campus exceeded 40% in that time and five exceeded 30% for all three years for which the government released data. Corinthian says it is in compliance with the two-year rates and that it has instituted new efforts to reduce defaults. It said the default rates "are not necessarily indicative of what its three-year [default rate will] be once its default-management program is expanded to accommodate the new rule." Kaplan made a similar statement, adding that a technical problem hurt its default-management efforts and a new pilot program, including student counseling, had cut two-year defaults 25% in some schools. "We are confident that these changes will significantly improve our default rates," the company said. ITT declined to comment. For-profit schools are favorite targets of short-sellers, or investors who try to profit on bets that stocks will fall, and many have focused on default rates. For-profit schools receive more than $16 billion annually in federal student aid, and taxpayers are on the hook for loan losses. The official government default rate measures those that occur only in the first two years that students are required to make payments. Schools with default rates of 25% or more under that benchmark lose eligibility for federal financial aid. But government officials, including those at the U.S. General Accountability Office, worry that the window is too short because defaults are counted only if students don't pay for 270 days, and students can also receive deferments from lenders. The new data show that the three-year rate is indeed much higher than the two-year rate for all schools, especially in the case of for-profits, which have long had a higher default rate than traditional schools. In the cohort of all students who were required to begin repaying in 2007, 7% defaulted in the first two years of repayment, compared with 12% after three. At for-profits, the rate rose from 11% to 21%. Side note: Default doesn't mean the students won't have to repay the loans, it just means they've missed payments and are in collections. Also the government guaranteed student loans are not dischargeable in bankruptcy. There ain't no free lunch. And...the Aviation School of Maintenance, with eight facilities nationally, had a default rate of about 36%. Quote Link to comment Share on other sites More sharing options...
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.