The Department of Education released new student loan default rate information in September and it’s not pretty! The overall two year cohort default rate increased to 9.1% (FY 2012 data). This official two year rate requires the Department to track borrowers for a very short two year period and doesn’t even count borrowers in forbearance or deferments. To help provide a more balanced picture, Congress now requires the Department to release three year rates as well. These rates are even more alarming, with an overall rate for all higher education sectors of 13.4% and a particularly troubling 22.7% rate at for-profit schools. The three year for-profit school default rates are twice those of public colleges and three times those of nonprofit colleges. According to The Institute for College Access and Success, nearly half (47%) of federal student loan defaulters attended for-profit colleges, which enroll only 13% of students.
The government has draconian powers to collect federal student loans, including the power to seize tax refunds, portions of Social Security payments, and wages. The government can do all of this without going to court and getting a judgment. To compound the pain, there is no time limit on these collection powers.
These troubling default trends should cause concern for policymakers in both parties as well as higher education officials, taxpayers, and of course students and their families. Unfortunately, despite the grave importance of this issue, as we discussed in our July report, there is very little objective study of why borrowers default and what can be done.
On first glance, it seems encouraging that the Chronicle of Higher Education is sponsoring an event next week on student loan default aversion. According to the invitation, this event is intended to be a lively discussion addressing the question, “How can students reap the benefits of higher education without the fear of financial devastation in the event of a default?”
Digging a bit deeper, David Halperin reported that this discussion appears to be yet another industry-bought event, in this case paid for by Career Education Corporation (CEC), one of the country’s largest for-profit college chains. Among other problems, many of the company’s schools are plagued with notoriously high default rates and job placement rate scandals. Joining CEC is the Education Finance Council, a trade association that represents non-profit student lenders. According to Halperin’s investigative report, CEC and EFC are paying the Chronicle to sponsor the event.
Taking corporate money to sponsor a supposedly neutral, open-ended discussion is troubling enough, but nothing new these days. There are countless examples of media outlets accepting these types of sponsorships. In the higher education world, it is more than just sponsorship as the Washington Post is the for-profit industry. The Post derives most of its revenue from Kaplan Inc., one of the largest for-profit school companies.
Most important, according to Halperin, there are no critics of the for-profit industry and student lending industries invited to speak. So who chose the speakers for the event? Give the Chronicle some credit for honesty—The Associate Publisher Michelle Thompson told Halperin that “CEC is selecting the program.”
Halperin sums up the main problem: “…it does raise concerns when a media outlet, in exchange for a sponsorship fee, allows an outside party to determine the program and speakers for public discussion of issues in which that outside party plays a controversial role.”
We urgently need to debate the difficult questions raised in our July report about student loan defaults: Which borrowers are more likely to default and why? Why do students at certain schools have so much more trouble repaying loans than others? Why are the collection powers so extreme and how does this prevent debt-burdened students from getting a fresh start? Is pursing these borrowers to their graves cost effective in the long-term?
All of these questions are critical, but sadly unlikely to be addressed in a meaningful way at an event paid for by industry and stacked with speakers from industry or sympathetic to industry. We can do better for struggling student borrowers.
