Comments on Defaults Nearly Double

• flip side
• Posted on December 14, 2009 at 9:30am EST

• From the institutional side, I feel like I should point something out. Yes, the longer out you track defaults, the higher the percentages will go. On a long enough timeline, that number would increase exponentially. However, I think it is only fair to note that these informational 3-year rates are based on numbers that have not been worked.

  As the article states, for the past 20 years, schools have been watching (and, hopefully, helping) students avoid default for 2 years. To arbitrarilly throw a 3-year number at the public and say, "See how bad it could be?" is irresponsible. Those numbers have not been worked.

  At some point, people need to be responsible for themselves. If Jane Student decides, 2.5 years after graduation, to do drugs, get fired, and ends up defaulting on her student loans, why should the institution be harmed? Sadly, we live in a time when no one is held accountable for anything they do, nor are they responsible for their shortcomings. Someone can't pay their mortgage? Blame the bank. Someone can't pay their student loans? Blame the school.

• Posted by Backwards on December 14, 2009 at 10:15am EST

• Now that the Department of Education will be taking over the student loan industry, and typically private lenders and servicers provided default prevention initiatives, will the Department take some resposibility to assure these students understand how to pay their loans? Lenders were penalized for high default rates, why now that lenders are out of the picture are we penalizing the school instead of the lender (the DoE)?

• Tax
• Posted by Taxpayer Jonny on December 14, 2009 at 10:15am EST

• Whether these schools "manage" the defaults to 2 years or 3 years, the key issue is that the taxpayer ultimately gets stuffed with the bill. These schools should have to give the money back rather than simply babysitting the students until no one is looking. What a scam!

• Questions about new default rate
• Posted by John Lee , President at JBL Associates on December 14, 2009 at 10:15am EST

• Default is not the same measure as loan non-performance, which is used more generally in the banking industry. Last time I looked at this, about half of the student loans that went into default reentered repayment at a later date; often when a student wants to buy a car or a home and finds out he or she has a bad credit rating. Many students default because the lender has lost track of them and the student has not received information about repayment. Should the educational institution be punished for student borrowers who cannot be found?

  Defaults will rise in a bad employment market. Michigan has an unemployment rate that is twice that of Maryland; so we would expect schools and colleges to have a higher default rates in Michigan than do those in Maryland. Will there be any correction for this?

• Posted by DS on December 14, 2009 at 12:00pm EST

• Backwards, you're well named - schools have always been penalized for high default rates (ask those hundreds of proprietary trade schools shut down in the 90's for that very reason), but lenders? Yes, lenders with very high rates faced some penalties, but one of the very attractive taxpayer-funded perks for lenders all along has been that when a student defaults, they still get almost all of their money. That's some "private sector" - government bailouts and no risk.

  As for your argument that the FFELP industry does such a superior job with default prevention, how do you explain the fact that the Direct Lending program currently has a lower default rate?

• Seeking clarity
• Posted by Beth on December 14, 2009 at 12:00pm EST

• I am new to this subject, as our community college just started offering these loans this year. I expanded the chart at the end of the story to look at all of them and found a couple of community colleges in my home state of Illinois. When I look at the numbers, it almost seems that the wisest thing to do is to make sure LOTS of your students borrow from the feds. A couple examples on the chart hit the target percent with just 1-2 borrowers defaulting. If a community college is affordable for nearly everyone, but a few need more support, is it really an "apples to apples" comparison if 2 people (versus) 200 default on their loans? Isn't it likely that the college has provided those students all they could, and the students made poor financial choices? I am someone who struggled for years to pay off college debt -- but I paid it off. I never held the college responsible for my poor choices of career or lifestyle that made payoff difficult. I think, as previous posters have commented, that students must be held accountable.

• The meaning of the rates
• Posted by Debbie Cochrane at Project on Student Debt, Institute for College Access & Success on December 14, 2009 at 12:00pm EST

• It's important to remember that cohort default rates have very different meanings and implications depending on how many students at that school are borrowing. A 35% CDR says a lot more about a college where all students borrow than it does about a college where very few students do.

  While all colleges should do what they can to help students avoid defaulting, few public two-year colleges have much to worry about with regards to their cohort default rate. Many of the ones on the list embedded in the article appear to have very low rates of borrowing, and would therefore avoid sanctions.

• For profit school
• Posted by Previous Private School Employee on December 14, 2009 at 2:30pm EST

• When private career schools that are traded on the NYSE, and the board of directors receive high bonus checks for overall profitablity - stop increasing tuition dollar every time the feds increase PELL and, STAFFORD eligibility - this problem will lessen.

  There are hundreds of small "mom and pop" for profit schools that work diligently to admit, train, and assit with job placement across the country. These small private schools will suffer.
  
  Large big box stores have hurt the small family business.

  Large chain schools have and will continue to hurt the icons of the private school industry.

  Happy graduates who find employment pay student loans. Let's look at graduate rates and placements rates - THEN compare those students to default rates.

  How about schools using ABILITY to BENEFIT - to enroll (those who are not a HS grad or GED receipient yet can gain access to programs via a 12 minute test)???? What is their graduation rate and placement rate.

  Bottom line - we need a full picture before we throw the baby out with the bath water.

• Posted by eddiemeboy on December 14, 2009 at 4:30pm EST

• DS in answer to your question there are several reasons why DL has a lower rate. But first I have to point out that I don't believe the data that the department release is even close to accurate. There was a huge decline in the number entering repayment in the program(combined DL and FFEL) the number should have inched up a little as the cohort of borrowers was from a time when number were expanding not declining. I suspect that this is in large part due to the number of consolidations that were done during the cohort period. The underlying loans were given the same date entered repayment as the consolidations effectively removing them from the cohort and placing them in a later cohort. Consolidations almost always assure that the loan can't affect the cohort because the borrower is brought current and there is not enough time in the cohort for them to default. As this is an anomaly to the lenders there is no equalization in DL so the FFEL community was not fairly represented. But for giggles, lets just agree that the numbers were better. DL is largely comprised of large universities that historically have lower default rates. FFEl has a much higher percentage of proprietary and 2 year institutions and the reason is clear: They do a much better job helping schools that have default rate issues. If you really want to see the difference just look at what the Department offers for Late Stage Delinquency assistance it is pathetic. Now look at what many of the FFEL GA's offer and you can see the Department has no real interest in aversion activities. Additionally, just look at the latest servicing contract the contract is a take it or leave it bare minimum payment do you think any DL servicer is actually going to do more then the bare minimum? Default Rates will explode when DL is in full control I would bet my house on it.

   

• Here Comes the "Personal Responsibility" Blather...
• Posted by Jason Paskowitz , New Jersey State Lead at StudentLoanJustice.org on December 30, 2009 at 10:45pm EST

• Attention FlipSide and other apologists for the student debt industry: Many millions of people go into default on student loans and not because we're on drugs or lazy. Some people have substantial medical issues. Others go through periods of chronic un- or underemployment. These are not matters of failure to take "personal responsibility."

  After years of activism on this issue, it still amazes me the venom, vitriol, nastiness, and persistence to the point of irrationality in student loan collection.