College and University Blog

Student Loan Default Rates Sky-High Among For-Profit Colleges

For-profit colleges have been under scrutiny for their aggressive recruiting tactics and alleged violations of federal financial aid regulations, but new data shows that student loan default rates among students who attended for-profits are higher than ever.

On Thursday, February 3, 2011, the United States Department of Education released new data showing that many for-profit colleges leave large numbers of their graduates unable to repay their student loans.

25% of For-Profit College Students Default on Loans within 3 Years

The data, which covers all higher education institutions, found that 25% of for-profit college students whose loans came due in 2008 defaulted within three years. Comparatively, 10.8% of students who attended public colleges and 7.6% of students who attended private nonprofit colleges defaulted in the same timeframe, reports the New York Times.

Because current student loan default measurement standards only track borrowers during a two-year window, the official student loan default rate for students of for-profit colleges who entered repayment in 2008 was 11.6%. Congress has changed the measurement period in response to concerns that the two-year rate was not sufficiently capturing the depth of the loan-default crisis.

Colleges and loan companies were using “default management” techniques that pushed many borrowers with repayment problems beyond the two-year window to improve their default rates, the Chronicle of Higher Education explains.

“You would expect the three-year default rates to be somewhat higher because students have a longer period of time in which to default,” said a Department of Education official who discussed the default data with reporters before it was officially released. "But if the three-year rate seems disproportionately high compared to other sectors, then that may be a sign that institutions in that sector or a particular institution is managing its default rate aggressively.”

For-Profit Students Comprise Nearly Half of All Student Loan Defaults

Sky-high student loan default rates among for-profit colleges are a cause for concern. Although students enrolled at for-profit institutions comprised only 15% of all college students nationwide during that time period, students who borrowed to attend for-profit colleges were responsible for nearly half of all federal student loan defaults.

The Department of Education released three-year statistics for informational purposes only, so colleges would have an idea of trends that could affect their eligibility for federal student aid. The new stricter measurement standards will officially effect next year.

The first year in which a college could be sanctioned based on the new three-year loan data is 2014. Schools that have more than 30% of students defaulting on loans within a three-year timeframe over three consecutive years will be restricted from federal student aid, reports the Huffington Post.

For-Profit College Reps Feel Data is Unfair

How are for-profit colleges responding to the Department of Education’s revisions?

“Our schools are primarily educating working adults and lower income students, which is not true of traditional higher education,” Harris Miller, president of the Association of Private Sector Colleges and Universities, is quoted by the New York Times. “My expectation is that if you compared schools with our demographics, they would have similar rates, and I don’t understand why the Department of Education can’t break it down that way.”

Senator Tom Harkin, chairman of the Senate Health, Education, Labor and Pensions Committee, has been holding hearings on the commercial colleges. Harkin says that the new data makes it clear that students at those colleges are “dramatically worse off after they leave” than students at private or public nonprofit schools.

For-Profit Grads Owe More than Public and Private Grads

An increasing number of students seeking to improve their lives with a degree from a for-profit college are being trapped under a mountain of education debt. Ronnie Franklin, who graduated from RETS Technical Center in Boston in 2000, found himself living in a homeless shelter with his two sons in 2010. Now working as a house painter, he decided to attend community college yet does not qualify for a federal grant which would pay the way because he has defaulted on his student loans from attending RETS.

Franklin is not alone. According to the Washington-based nonprofit organization Education Trust, bachelor’s degree recipients from for-profit colleges have median student loan debt of $31,190. Students that earned bachelor’s degrees at private, nonprofit institutions have a median loan debt of $17,040 while 4-year public college graduates owe an average of $7,960, reports Bloomberg Businessweek.

Polishing their Tarnished Reputations

As their reputations continue to take a beating, two of the largest for-profit colleges are attempting to clean up their acts. According to Newsweek Education, in September 2010 the University of Phoenix stopped paying admissions officers based on the number of students they sign up, eliminating an incentive to mislead applicants or pressure them to sign paperwork. The school now requires prospective new students to participate in a three-week, tuition-free “orientation” course designed to help them decide whether they’re ready for the commitments that come with the college. Kaplan, one of Phoenix’s biggest competitors, also began a similar orientation course this past September.


Melissa Rhone+

Melissa Rhone earned her Bachelor of Music in Education from the University of Tampa. She resides in the Tampa Bay area and enjoys writing about college, pop culture, and epilepsy awareness.