College Loan Defaults Jump to Highest Level in 13 Years

The rate that borrowers defaulted on their federal student loans rose to 8.9 percent, the highest level in 13 years, the U.S. Education Department said today.

The 2009 rate, which covers defaults in the two years through Sept. 30, 2010, rose from 7 percent a year earlier, according to data posted on the agency’s website. The default rate at for-profit colleges, such as University of Phoenix owner Apollo Group Inc., rose to 15.2 percent from 11.6 percent.

The rate applies only to the first two years that students are required to make payments on their loans. The above-average default rates among students at for-profit colleges has led the Obama administration to increase regulation and Congress and state attorneys general to conduct investigations.

"What we’re seeing is the continual effects of a troubled economy coupled with a growing problem of defaults among for- profit colleges." said Justin Hamilton, a spokesman for the Education Department. "It’s another example of why we need to do a better job of making sure students are getting what they pay for: preparation for a good-paying job."

Apollo, the largest for-profit college company, fell 32 cents to $40.97 today in Nasdaq Stock Market trading. The stock has declined 26 percent in the past year.

Borrowers attending for-profit colleges defaulted at more than twice the 7.3 percent rate of those at public colleges and three times the 4.7 percent rate at private nonprofit institutions, according to the government data. The default rates among those at public colleges rose 1.3 percentage points from the previous year, while the rate for students at private nonprofits rose by less than a percentage point.

For-profit colleges have higher default rates because their students tend to be poorer, said Harris Miller, president of the Association of Private Sector Colleges & Universities, a Washington-based trade group.

"It’s not our tax status, it’s our sociodemographics" that explain the difference in default rates, Miller said today in a telephone interview.

The figures released today are draft rates, and colleges will have the chance to review and challenge the results before official rates are released in September, the agency said.

The draft rate is the highest since 1996, according to the Education Department. During that period, the default rate was 9.6 percent.


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