Collateral Damage

Career College Central summary:

  • Students at a community college in rural Texas may lose access to federal aid because of a student-loan default measure Congress expanded mostly to address "for-profit" institutions. Frank Phillips College is among several two-year colleges whose leaders are worried about how their institutions will fare with this fall’s release of the first batch of sanction-bearing numbers under the revised federal-loan default rate.
  • The U.S. Department of Education now tracks defaults among federal loan recipients for three years after they leave college. Two-year rates had previously been the standard. But the U.S. Congress inserted the expanded “cohort default rates” into the 2008 reauthorization of the Higher Education Act, which is the law that governs federal financial aid.
  • Student advocates had pushed for the three-year rates. They argued that the new measure would do a better job of gauging students' indebtedness and the value of the education they received. Default rates are higher under the expanded rates, particularly among for-profits.
  • For example, last year’s release, which was based on loan repayments that were due in 2011, showed an average default rate of 21.8 percent in the for-profit sector, compared to 13.6 under the two-year metric. The three-year rate was 13 percent at all public institutions (including four-year institutions) and 8.3 percent at private, nonprofit institutions. Two-year rates were 9.6 at publics and 5.2 percent at privates. Sanctions will kick in with this year’s release of three-year rates.

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