By Christopher Magan and Lindsey Hilty
For Tim Balzer, graduate school has become a place of financial refuge. The 2002 Little Miami High School alum is accruing $37 in interest weekly on his more than $60,000 in student loans that so far have bought him two undergraduate majors, a minor and a master’s degree, all in theater and mathematics.
None has led to a job offer.
“A lot of us with student loans kind of refer to graduate school as a place where we hide from our student loans,” he said.
While in graduate school, loan payments are deferred, even if additional interest is accrued.
Balzer works part time at Costco while he tries to make payments on his loans, and though he continues to search for a full-time job, he may go back to graduate school again for a more marketable degree — something he wishes he would have considered before he went to a private school and studied subjects that did not lead to a direct career path.
While Balzer intends to pay back what he has borrowed in full, there is a growing number of students who are defaulting on loans, leaving taxpayers on the hook and some local schools at risk of losing federal funding.
In 2014, the U.S. Department of Education will use three-year default rates when considering eligibility for federal aid.
Schools with a default rate higher than 30 percent for three years would risk getting ousted from the student aid program, essentially a death notice for a school.
The new rules come as enrollment booms — particularly in the for-profit industry — and a growing number of students qualify for taxpayer-backed student loans. Last year, college loans surpassed outstanding credit card debt, and are approaching $1 trillion.
The default rate for 2009 was 8.9 percent, nearly two points higher than the year before, according to draft data released by U.S. Department of Education.
For-profit colleges account for nearly half of all defaults while representing 27 percent of borrowers and just 12 percent of total college enrollment, federal data shows. The number of for-profit students not repaying loans jumped 49 percent between 2008 and 2009, to 155,211 students in default.
Across all sectors of higher education, 15.2 percent of for-profit students were in default compared to 7.3 percent of public college students and 4.7 percent of students in private schools, the federal data shows. In all, 327,669 students defaulted in 2009, up from 238,852 in 2008.
Students get financial aid in a variety of ways depending on their eligibility. Federal Pell Grants, loans and other assistance first go to pay tuition and fees, but students often can borrow additional money to cover the costs of books, housing and living expenses.
For-profit officials say they are required to offer loans to students who qualify under federal rules.
Critics of the schools say the increasing number of students not repaying loans is evidence that some for-profits prey on low-income people, saddling them with debt for degrees that don’t lead to careers.
“It adds to the impression that the education is not worth the price students are paying for it,” said Kevin Kinser, a professor who studies for-profit colleges at the State University of New York-Albany. High defaults “may speak to quality,” he said.
A Cox Media Group examination found that three area schools — Central State University, Kaplan College and Lincoln College of Technology — would have default rates higher than 30 percent if the tougher standards were in place today, according to data gathered from the U.S. Department of Education.
Do demographics matter?
While schools like Lincoln College of Technology Franklin, formerly Southwestern College, offer assistance in interviewing and resume skills as well as college loan counseling, Executive Director Ron Mills said the economy and student demographics play a large role in default rates.
“Honestly, our biggest challenges are the people who don’t want to get a job,” he said. “We are a career college, and we’re held responsible and accountable for our placements.”
The school has a 65.3 percent placement, which he said is “pretty good given the economy.”
One challenge, Mills said, is that the government holds the schools accountable for loan defaults, but won’t limit the loans a student may take.
“We have a more high-risk student, and they are going to default at a higher rate,” he said. “We try to get students to minimize their loans, but if they know they have money available, they always want to maximize their loans.”
Institutions whose mission is to serve low-income and high-risk college students say losing eligibility for federal aid would close the doors of college for many, they say.
“It would be devastating,” said Phyllis Jeffers-Coly, dean of enrollment management at Central State. The Greene County school, a historically black university where more than 80 percent of the students qualify for federal Pell grants, is increasing student counseling and plans to hire an outside firm to help it come into compliance with the tightening federal rules.
“I understand the (U.S) Department (of Education) is attempting to raise the bar of accountability for all of us,” she said. “However, you have to look at the fact that middle class kids have an easier time navigating the college process than first-time students.”
A model that works
Sharon Winstead, supervisor of student services for Butler Technology and Career Development Schools, said the career school has a low default rate due to one-on-one interaction with students and the fact that students may borrow no more than $9,500 in student loans to pay tuition for programs less than two years in duration. In 2008, the default rate was 5.7 percent, she said.
“They don’t have a great deal of debt when they leave us,” she said.
Many are employed within six months when they have to start paying the loan. If not, they are counseled to ensure they know the consequences of defaulting and who to call if they get in a bind.
To avoid students who sign up for class with no intention of attending, loans aren’t certified unless the student starts school, she said. And, prospective students in default on a loan from another school will not be granted aid.
The Warren County Career Center does not yet have a draft three-year default rate report, because it just recently started to offer aid. But, Director of Adult Education Tom Harris said numbers are low.
“We interview each student very, very well just to make sure of their ability to pay — that their intentions are good. It’s not that we screen our students, but we talk to them and make sure they are coming in for the right reasons — that they want to get a job,” he said. “Our students that start with us typically stay with us.”
At Miami University, Brent Shock, interim director of financial assistance, said most students finish a four-year program, and default rates are below average. In 2008, the rate was 4.8 percent compared to a 7 percent national default rate. That rate is holding steady for 2009.
“Really, Miami would say our default prevention starts the moment our student applies for a loan,” he said, adding the default rate is one factor the university uses as a measure for its effectiveness. “It’s in Miami’s best interest to have a low default rate.”
For-profits facing mounting pressure
Student loan defaults reached a high-water mark in the late 1980s, prompting a series of reforms that allowed governments to seize income-tax refunds and carry out more aggressive collection measures. After a steady decline, default rates began rising again as the recession hit.
College dropouts, regardless of where they go to school, have higher default rates than those who graduate. But students who leave for-profit colleges without a degree default at much higher rates.
A recent study by the Institute for Higher Education Policy found half of students who dropped out of two-year for-profit schools, and 30 percent of those who attended four-year for-profits, defaulted — twice the rate for students who failed to graduate from public and private schools.
Facing mounting pressure, for-profit schools are becoming more aggressive about reducing their loan defaults. Kaplan, Miami-Jacobs and the University of Phoenix, for example, are only accepting students who pass a provisional enrollment period.
“We have worked hard on these initiatives; we know that they have had a positive impact,” said Ned Snyder, Miami-Jacobs campus director.
Ultimately, though, it is the students who have to repay the loans, and school officials say there is only so much counseling and education they can do to make that happen.
- How to Make College Affordable – Fees Doubling Every 12 Years (timesoftexas.com)
- Don’t Count on Settling Those Student Loans (timesoftexas.com)
- Relief for Student Loan Borrowers (timesoftexas.com)
- Are the Rising Costs of College Tuition Out of Control? (timesoftexas.com)
- Using the American Dream as Bait: Offering a Lifetime of Debt (timesoftexas.com)