Officials Find Errors in Previously Reported Loan Default Rates

The U.S. Department of Education says it made a mistake in the way it calculated rates of federal student loan borrowers who defaulted within three years of beginning payment, accidentally amplifying the rates by including too many borrowers in the calculation.

The draft data the department had published in February inadvertently included borrowers who defaulted on their loans about three months past the three-year window, said Department of Education spokeswoman Sara Gast. The agency’s April 21 announcement was first reported by the Chronicle of Higher Education.

The recalculated figures still show the for-profit college sector has higher rates of borrowers who defaulted within three years than other sectors. However, the new numbers slightly alter the slate of the top 10 colleges in California with the highest three-year default rates, which California Watch reported Feb. 7.

The top 10 list still includes two campuses of Everest College – owned by one of the nation’s largest proprietary school companies, Santa Ana-based Corinthian Colleges, Inc. At Everest’s San Bernardino campus, the new data shows that 45 percent of borrowers defaulted within three years, down from the 47 percent erroneously reported in February.

The list includes a few new schools, such as the Bridges of Beauty Academy in Barstow – tucked halfway between Los Angeles and Las Vegas. The school enrolled 28 students in 2008-09 in programs for cosmetologists, manicurists and estheticians. Two of five student borrowers who entered into repayment defaulted on their loans within three years.

The school’s accrediting agency, the National Accrediting Commission of Cosmetology Arts & Sciences, put the academy on probation [PDF] in November 2010 for reasons that remain unclear.

The accrediting commission does not disclose why schools are on probation, said Demara Stamler, the group’s director of accreditation. Neither the president nor the manager of Bridges of Beauty could be reached for comment on Friday.

The accrediting body most commonly puts schools on probation because they don’t meet the group’s standards for financial practices and management, Stamler said. Probation could also indicate that a school’s completion, licensure or placement rates have fallen below acceptable levels, she said.

The announcement by the Department of Education prompted the Association of Private Sector Colleges and Universities, which represents for-profit colleges, to issue a statement saying the agency "should avoid a rush to judgment" against proprietary schools.

"We are very disappointed that the Department of Education has released erroneous data that harms students and schools," the statement said.

Gast said the department regrets the calculation error but that the big picture remains the same. Proprietary schools still have the highest rates of default, at 22.4 percent, compared to 6.7 percent for private non-profit colleges and 9.7 percent for public colleges.

"We’re very sorry about any inconvenience that this caused," Gast said.


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