Student Loans Meet Recession

Q: For the first time in a decade, the rate at which borrowers defaulted on student loans rose slightly in the 2000 fiscal year, to 5.9 percent from 5.6 percent the year before, the U.S. Education Department announced on Thursday. Despite the increase, the default rate is still at a "historically low level," said Education Secretary Roderick R. Paige, who attributed the rise to the recession and to the September 11 attacks. "Student-loan repayment, like other consumer debt, is sensitive to changes in the economy," he said. "For this reason, we need to remain steadfast in our commitment to provide borrowers with flexible repayment options and to help them keep their monthly payments manageable." The last time the default rate rose was in the 1990 fiscal year, when it increased to 22.4 percent, from the 1989 rate of 21.4 percent. Among the 50 states in 2000, Alaska had the highest default rate, at 9.5 percent; New Hampshire had the lowest, at 2.4 percent. The default rate measures the percentage of borrowers who defaulted within 12 to 24 months of leaving one of 6,450 colleges. Institutions with high or chronic default rates may be banned from receiving federal student aid. The data always lag by two years. This year, five colleges, all for-profit institutions, had default rates that endangered their participation in at least one of the federal student-aid programs or that kept them on the banned list. The five colleges are: Aims Academy, in Dallas; American Business College, in Bayam??n, Puerto Rico; Capps College, in Mobile, Ala.; Interboro Institute, in New York City; and Metro Technical Institute, in Oak Park, Mich. Two of those colleges -- Aims and American Business -- also risk losing their eligibility to receive Pell Grants, the $11-billion need-based student-aid program that is the largest of its kind. Institutions with default rates of more than 40 percent in one year or 25 percent or more for three consecutive years may be dropped from one or more of the federal aid programs. In the last decade, nearly 1,200 colleges with high default rates have lost their eligibility for the programs. Institutions do, however, have the right to challenge the Education Department's data and to retain their eligibility while appeals are pending. Foreign institutions experienced the largest percentage increase in default rates among the major sectors of higher education, to 2.6 percent from 2.2 percent. Among American colleges, public institutions had the largest increase, to 5.9 percent from 5.6 percent. Of public institutions, the rates of four-year colleges rose to 4.8 percent from 4.6 percent, while two-year colleges climbed to 9.2 percent from 8.8 percent. The rates of for-profit colleges, which have historically had more defaulters than other postsecondary institutions, increased to 9.4 percent from 9.3 percent. Private colleges with academic programs that take less than two years to complete fared the worst, with their rate increasing to 14.9 percent from 13.4 percent. Secretary Paige also blamed the higher default rates on rising tuition prices. "College costs continue to increase, leading to ever-greater levels of student indebtedness," he said. "The Bush administration, working together with Congress, has succeeded in securing initiatives to make college more affordable

Student Loans Meet Recession

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