Student Loan Defaults Rise, Especially At For-Profits

More and more students are unable to repay the student loans they got from the federal government. The Department of Education says 7 percent of students defaulted in the most recent period — the highest number in more than a decade.

For the period that ended last September, 238,000 students were behind in their federal student loans.

James Kvaal, a deputy undersecretary at the Department of Education, says as the economy sputters, students are struggling to pay back what they borrowed.

"The period we are measuring here is between 2007 and 2009, which obviously was a period of a lot of economic turmoil," Kvaal said.

But Kvaal says something else is going on as well. The number of students in for-profit colleges and universities also has been climbing over the same period.

Now, one in four students taking out a student loan is enrolled at a for-profit school — anything from a small trade school to a giant like the University of Phoenix. But those same schools account for nearly half of all defaults.

Put another way, students at for-profits are twice as likely to default as students at nonprofits. Kvall says that's reason for concern.

"If there's a particular institution that's generating a large number of students who are defaulting, it does raise questions about whether that institution is giving students more debt than they can handle," he said.

So, the department is proposing to cut off access to student loans for colleges that graduate a lot of students who default. Those who watch the sector say it should be no surprise that students at for-profits are defaulting.

"For-profit colleges tend to enroll a higher-risk demographic, low-income students, independent students, single parents — all of which are predictors to some extent of default," said Mark Kantrowitz, publisher of Finaid.org.

That's what the industry lobbying group said Monday in response to the default numbers. But the industry says it should be rewarded for performing a kind of public service, taking on students who can't get into traditional schools or who work while studying and need flexible hours.

Some of the schools with the worst default rates are trade schools, like the Charleston School of Beauty Culture in Charleston, W.Va. Its owner, Judy Hall, says her barber and cosmetology school is helping poor students find jobs.

"Job market is very good for students both in barbering and cosmetology. ... Our placement rate is great," she said. "It's like 95 percent."

But Hall says her students come in with financial problems, and many just can't handle the debt they wrack up paying her school's $9,000-a-year tuition. Hall says she's been spending money trying to educate students, but some don't seem to understand that this is a loan, not a grant, and must be repaid.

Deborah Cochrane of the Institute for College Access and Success says many students at for-profits should be at much cheaper community colleges.

"Whereas only about 13 percent of students at community colleges are even taking out student loans, about 97 percent of students at for-profit two-year colleges are taking out federal student loans," she said.

But many for-profit students say they could not get the education they wanted at overcrowded community colleges. This issue shows just how much pressure students feel to improve their resumes for the tight job market. But if they can't foot the bill, they face years of pain if they default.

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