For-profit college loan default rates soar

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Earlier this month, I warned readers not to enroll -- or encourage their children to enroll -- in for-profit colleges.

New student loan default rates from the U.S. Department Education highlights in more detail why these institutions are such a bad idea. According to a Wall Street Journal analysis of the data (subscription required), 21% of students who use federal loans to attend for-profit college go into default within three years. That compares to 7% at public four-year colleges and 16% at public two-year colleges.
In reality, it's much worse than that: in order to be considered in default, a student must make no payments for 270 days -- which is quite a long stretch within a three year period, meaning that many students who are way behind on their loans will not be in default within that three year period.

Even more stupidly, students who get deferrals from their lenders allowing them to delay repayment are included in the denominator of that figure but not the numerator. In other words, some of the students who are countered as having entered repayment actually haven't entered repayment, artificially dragging down the default rate. It makes absolutely no sense, but that's how the Department of Education calculates it.

The for-profit colleges are always quick to point out that their high default rates are a function of the students that attend their programs: many are low-income and are the first in their families to attend college, and would be a higher default risk even if they attended non-profit institutions.

There's some truth to that.

But the fact is that student who attend for-profit colleges are more likely to run into debt problems because the programs are more expensive and are less likely to offer need-based grant aid the way that public and private non-profit colleges do.

According to the Project on Student Debt
, 96% of 2008 graduates of for-profit colleges had debt -- compared with 62% at public universities and 72% at private non-profit institutions. Among those who borrowed, private for-profit grads left with $33,050 in debt compared with "just" $20,200 for graduates of public institutions.

Terry Hartle, a lobbyist with the American Council on Education, a trade group representing colleges including some for-profit institutions, told the USA Today that default rates are "are not good indicators of institutional quality."

Of course not. When you're making a decision about which institution will help prepare your student for a prosperous future, why would you worry about something as irrelevant as the percentage of students who are so broke within three years that they can't make their student loan payments?

Wait a minute. . .
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