Education Department Releases Student Loan Default Numbers

The Education Department has released new data on the percentage of students at more than 5,000 colleges and universities who defaulted on student loans over a three-year period.

The preliminary data appear to be in line with a congressional report out last summer showing that students who took out federal loans to attend for-profit colleges have higher default rates than those who attended public or private non-profit schools.

Colleges where default rates are too high can become ineligible for federal student loans and Pell Grants. Under current law, sanctions are applied based on two-year default rates. The Education Department calculated three-year rates to help schools prepare for a change in federal law that goes into effect in 2014, according to Dan Madzelan, acting assistant secretary for post-secondary education. Under the new law, colleges with three consecutive years of default rates of 30% or more can be sanctioned.

No college will be penalized based on the latest release of three-year rates, which for many schools are higher than the two-year rates. The data was released to help institutions understand where they stand and what the change may mean for  them, he adds.

Meanwhile, Terry Hartle, a lobbyist with the American Council on Education, cautions that default rates are not good indicators of institutional quality.

Several studies show that low-income students and those from families who lack higher education are more likely to default on their loans. Student-loan defaulters "can tarnish their credit reports, make it difficult for them to obtain employment, and jeopardize their long-term financial well-being," says an August report by the U.S. Government Accountability Office, the investigative arm of Congress.

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