Report: Feds Downplaying Student Loan Defaults One in every five government loans that entered repayment in 1995 has gone into default, according to a recent report released by The Chronicle of Higher Education. The Department of Education is undercounting student loan defaults, Chronicle reporter Kelly Field tells NPR.
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Report: Feds Downplaying Student Loan Defaults

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Report: Feds Downplaying Student Loan Defaults

Report: Feds Downplaying Student Loan Defaults

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ROBERT SIEGEL, Host:

Well, by one measure, the business is evidently failing quite often. The Chronicle of Higher Education has compiled a report on how often students default on government loans. Chronicle reporter Kelly Field has found that the default level is higher than previously thought and highest among students at for-profit institutions. Welcome to the program.

KELLY FIELD: Thank you.

SIEGEL: Generally, how many people who've taken out student loans default on them?

FIELD: Well, what we found was that 15 years after starting repayment, one in five student loans were in default.

SIEGEL: One in five.

FIELD: That's right.

SIEGEL: Generally.

FIELD: That's correct. And the numbers were even higher for for-profit institutions.

SIEGEL: How much higher?

FIELD: At for-profit institutions they were as high as 40 percent.

SIEGEL: Twice as high as the number at large for students.

FIELD: That's correct.

SIEGEL: Now, what's different here is the scope of the data that The Chronicle of Higher Education that you got. In the past, what were people working off when they tried to measure the rate of student loan defaults at for-profits or conventional schools?

FIELD: Sure, well, the Education Department each year publishes a rate of the number of borrowers that have defaulted within two years of graduating. I asked for a lifetime data and was able to get data going back 15 years. So we found that the rate is significantly higher than what the Education Department has reported, and that they're really undercounting the number of defaults that are occurring.

SIEGEL: Now, I know that there's a rule from the U.S. Department of Education that an institution can't depend on federal loans or aid for more than 90 percent of its revenue. You have to - some of them - one that we did a story on, Kaplan University, was at, I think, 85 percent. Is there a limit of how many of your students can default on their loans before you run afoul of the U.S. Department of Education?

FIELD: There is. You can't have more than 40 percent in a single year or more than 25 percent over a three-year period.

SIEGEL: And these numbers look like some institutions are getting close to that number?

FIELD: Well, historically they haven't been close because they've only measured a two-year window, but next year they're switching to a three-year window which will capture many more defaults and more institutions will be pushing up against that limit.

SIEGEL: The for-profits are typically more expensive than, say, a community college.

FIELD: Yeah. For-profits are considerably more expensive. In the current academic year, the average for-profit institution charged $14,000 in tuition and fees, compared to about $2,500 for the average community college.

SIEGEL: When someone defaults on a student loan, it's terrible for the borrower's credit history and that loan could follow them past bankruptcy for the rest of their lives. It's bad for the taxpayers since you never see the money. We're on the hook. We've guaranteed that loan. What does it do to the for-profit college, or for that matter, the public community college if the student defaults on the loan? They've already got the money.

FIELD: Right. They aren't responsible for paying any of the debt. The only consequence they would suffer is if their default rates are high enough for them to lose the eligibility to award student aid.

SIEGEL: The U.S. Department of Education has addressed the problem of student debt levels for students who have been to for-profit colleges. What have they done exactly?

FIELD: Yes, in addition to the default-rate calculation, they're proposing to penalize schools where the students carry high debt-to-income ratios and have low loan repayment rates. So the institutions with the worst loan repayment rates and the highest debt-to-income burdens would be ineligible to receive federal student aid.

SIEGEL: What all this information does is it confirms things that people have suspected about student defaults. But do you find surprises in it yourself? Are you surprised by the size of the disparities?

FIELD: I was somewhat surprised by it. You know, this really shows that students are really suffering the consequences of student loan default. Even years after they graduate, you know, default rates continue to climb over time. And that the cost to taxpayers is really much greater than anyone ever thought.

SIEGEL: Kelly Field, thank you very much for talking with us.

FIELD: Thank you.

SIEGEL: Kelly Field, a senior reporter in Washington for The Chronicle of Higher Education.

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