For-profit career colleges have had a rocky history, being met with skepticism and criticism from traditional academic institutions, as well as undergoing a great degree of government scrutiny over the years, as some institutions have been revealed to engage in a variety of questionable practices.  So, when the Government Accountability Office announced an investigation of proprietary institutions that participate in federal student financial aid programs, few in the education industry were surprised.  The results of these investigations were released on Monday, and they indicate that in at least some cases, distrust towards career colleges may still be warranted.

For-profit colleges have higher student loan default rates than any other sector of higher education, with two-year cohort default rates topping 11 percent according to recently released annual Department of Education data, and four-year default rates clearing 23 percent according to the GAO report.  By comparison, state colleges have two-year default rates of 6 percent and 9.5 percent respectively, with the default rates for private colleges falling even lower.

While acknowledging that much of this discrepancy is likely due to the different student populations these institutions serve, the GAO found that part of this high default rate could be connected to questionable admission and aid application practices at for-profit colleges.  Under current federal law, in order for students to qualify for financial aid, they need to demonstrate “ability to benefit” from higher education.  This means that they must have either earned a high school diploma or GED or passed a test indicating they are prepared for college-level instruction.  Some of the proprietary colleges investigated by the GAO encouraged students to purchase high school diplomas from diploma mills to circumvent the testing process.

It appears that in at least one case, employees of a career college helped prospective students cheat on an ability to benefit test, even changing their answers after the fact to ensure their scores were high enough.  GAO investigators posed as sudents at a school in the Washington, DC area and attempted to deliberately fail this test.  According to the report, they were given some of the answers to the test and also saw evidence of the school tampering with their scores to ensure that they passed and qualified for aid.

These practices allow students who wouldn’t otherwise qualify for federal aid access to college instruction and money for school, but also can saddle students who are likely to be unable to complete and benefit from college coursework with large amounts of student loan debt.  The Career College Association, which represents proprietary colleges, assures that these practices are not widespread and that strict standards are in place.  However, the GAO still urges the federal government to provide more oversight of ability to benefit testing and financial aid disbursement at for-profit colleges.

If you’re considering attending a career college, be sure to make sure its practices are legitimate and you are likely to enhance your earning potential by completing a degree or certificate there.  Do your research about the school’s reputation, the program’s reputation and job and salary prospects for graduates of your prospective program.  Also, be wary about borrowing and make sure you don’t get into a position where you’ve taken out too many federal or private loans to be able to pay them back.  Attending a career college can help you land a better job or a higher salary, but this report indicates that there are still schools with dodgy practices out there, so diligence is still required when choosing a college.

Posted: under College News, College Search, Financial Aid, Student Loans.
Tags: choosing a college, college news, College Search, default, Financial Aid, Student Loans

Comments (0) Sep 22 2009

According to newly released data, default rates on federal student loans continued to climb in 2008, reaching a nine-year high of 6.7 percent, most likely as a result of the recession.  The annual cohort default rate, released by the Department of Education on Monday, covers federal student loans that went into repayment between October 2006 and September 2007 and had gone into default by September 2008.

The 2007 cohort default rate was 1.5 percentage points higher than the rate for the previous year, as significant increases took place across the board.  Defaults were higher in the bank-based Federal Family Education Loan (FFEL) Program than in the Federal Direct Loans Program, which is typically the case, but the discrepancy between the two grew this year.  A total of 7.2 percent of loans in the bank-based system were in default, compared to 4.8 percent of the loans in the Direct Loans program.  The numbers for 2006 were 5.3 and 4.7 percent, respectively.

Much of this discrepancy can be attributed to a higher percentage of students at proprietary schools participating in the FFEL Program, as these schools carried a default rate of 11.1 percent, compared to rates of 6.0 percent and 3.8 percent at public and private colleges.  Still, the lower default rate in the direct lending program is likely to be brought up as Congress debates moving all lending from FFEL into Direct Loans.

Default is defined as failure to make payments on a student loan according to the terms of the master promissory note the borrower signed, and federal student loans are considered in default only after several months of missed payments.  This means that 6.7 percent of students in this cohort had stopped making payments for 270 days or more within 1-2 years of their first loan payment coming due.  It’s likely that the cohort default rate numbers released paint an optimistic picture of the number of borrowers currently having trouble making payments on student loans.

New repayment options may help troubled borrowers, though, and several have been introduced in recent months.  One is the federal Income-Based Repayment Plan, which allows students to make payments they can afford and forgives all remaining debt after 25 years.  Borrowers worried about repayment can also look into loan forgiveness programs offered in exchange for public service, which have been expanded under the Higher Education Act and national service legislation.

The best way for students to avoid the prospect of defaulting on loans is to limit borrowing as much as possible.  Put some serious effort into a scholarship search, and consider affordability when doing your college search, as well.  Practices such as keeping your options open and landing a scholarship can go a long way towards reducing your loan debt and your risk of being unable to pay once you graduate.

Posted: under College News, College and the Economy, College in Congress, Student Loans.
Tags: College in Congress, college news, College Search, default, Direct Loans, FFEL, financial tips, loan repayment, Scholarship Search, stafford loans, Student Loans, Tips

Comments (0) Sep 15 2009