The number of college graduates/dropouts who defaulted in the first two years of repayment rose from 7 percent to 8.8 percent, the Department of Education has announced. Borrowers who attended for-profit colleges and public colleges (which cater to low-income students) drove those numbers up:
The cohort default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.
The rates announced today represent a snapshot in time, with the FY 2009 cohort consisting of borrowers whose first loan repayments came due between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2010. More than 3.6 million borrowers from 5,900 schools entered repayment during this window of time, and more than 320,000 defaulted. Those borrowers who defaulted after the two-year period are not counted as defaulters in this data set.
Education Secretary Arne Duncan's response:
“These hard economic times have made it even more difficult for student borrowers to repay their loans, and that’s why implementing education reforms and protecting the maximum Pell grant is more important than ever,” said U.S. Secretary of Education Arne Duncan. “We need to ensure that all students are able to access and enroll in quality programs that prepare them for well-paying jobs so they can enter the workforce and compete in our global marketplace.”
These numbers could be a wooden stake in the heart of the for-profit college industry, which became the vampiric behemoth it is today thanks to federal aid and shitty occupational licensing laws that require hair stylists, interior designers, and florists to spend tens of thousands of dollars learning their craft. Why Duncan is insisting that more money be funneled to schools that will turn around and jack up tuition and fees, as opposed to lambasting state legislatures that require poor people to attend for-profit colleges before they can transcend the grease-caked plexiglass ceiling of customer service, is beyond me.
Consider Rick Perry's regulation-free dustopia, where becoming a barber requires 150 hours of instruction at a federally subsidized for-profit college. Two of the schools from which the Department of Education will deprive aid as a result of the new default numbers teach hair-styling. One of them is in Texas. That's money down the damned drain.
But I digress.
Default rates are up for everybody else, too, yet this report will probably not hurt public and private non-profit colleges. To qualify for negative attention from the feds, a school's default rate has to hover between 25 and 40 percent for three years running. The worst non-profits are close to that, but there are fewer of them (averages!). That will likely change. Graduates (or dropouts) whose first loan payment is due between October 2009 and September 2010 have equally bad job prospects as the preceding class. Just as many are finding it difficult to land jobs that are commensurate with their level of education, and the cost of that education.
Also keep in mind that this is the default rate for a small segment of outstanding student loans. This report doesn't include defaults after the first two years of repayment, which means people who default through years one, two, and into three aren't recorded. Also, federally subsidized loans allow for up to 60 months of forbearance over the life of the loan, which means there could be quite a few out-of-work or under-employed 2008 graduates who have yet to make a payment, but aren't technically defaulting.
For more, see: "Moody's Sounds the Alarm on Student Borrowing" and Reason.tv's "The Case Against College Entitlements."