For-Profit College Default Rates Are Really Bad

People who attend for-profit colleges default on their student loans at very high rates. Only 36 percent of students involved with these companies repay their loans on time, compared to 54 percent of students at public colleges and 56 percent of students who attended private colleges. For-profit colleges account for 43 percent of all student loan default rates

It may actually be worse than that. According to a piece by Joanne Jacobs at the Hechinger Report:

Under a new formula set to take effect next year, the loan-default rate would double to 25 percent at for-profit colleges…. The new standard also raises default rates for public and private nonprofit institutions, but not as dramatically.

Under the three-year measure, for-profit colleges would account for 47 percent of defaults.

Under current rules, colleges only track defaults on student loans during a two year period. Under the new formula, colleges will track their borrowers for three years after they begin to repay their loans. The new formula will capture a larger segment of those for whom making student loan payments are financially difficult.

Of course, it’s worth pointing out that the lives and career prospects of graduates of proprietary institutions didn’t actually get worse; the Department of Education just changed the formula. Still, in capturing more people the new formula seems like a better way to measure success, and failure.

Colleges that have elevated student loan default rates over several years will be disqualified from participating in federal student aid.

About 90 percent of for-profit education companies’ income derives from federal student aid.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer