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College default rates higher than grad rates

6:58 AM, Jul 2, 2013   |    comments
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More than 260 colleges and universities in 40 states, the District of Columbia and Puerto Rico have students who are more likely to default on their loans than full-time freshmen are to graduate, an analysis of federal data shows.

Hundreds of thousands of students are enrolled at the 265 schools, nearly half of which are operated by for-profit colleges, a USA TODAY analysis shows. About one-third of the schools they attended were are public community colleges.

"These colleges should set off a red flag in the minds of prospective student borrowers - and their parents," says Andrew Gillen, research director for Education Sector, a non-profit, non-partisan think-tank on education policy that gathered the federal data. "Many students at these colleges will no doubt take out loans, graduate and get good jobs. But the high default rates and lower graduation rates suggest that many will not."

At New River Community and Technical College in Beckley, W.Va., administrators attribute the 5% graduation rate and 25.7% default rate to several factors, including high unemployment and the residual effect of a period of years when loan amounts were inflated because an incorrect formula for awarding aid was used. That attracted a number of students who had "no intention of completing their education," says Barbara Elliott, director of public relations. Even for those who did earn a degree, "the payments were so high that they may have had trouble making them."

Kevin Modany, CEO of ITT Educational Services, which posted a 34.1% default rate across all of its campuses, says the 2009 data capture a tumultuous period during which the nation was in recession and a new federal law had gone into effect that changed how some student loans were serviced.

Of ITT campuses with graduation rates below 34.1%, he says, "our analyses have always led us to conclude that the primary determinant of whether a student will graduate from an associate degree program of study is the student's socioeconomic status. The higher the student's socioeconomic status, the greater the likelihood that the student will graduate."

The Education Sector report argues that default data would be more useful if it provided information about defaulters, such as whether they also received federal aid for low-income students and which fields they were studying. That would help students determine the likelihood they would default if they borrowed, Gillen says.

A report released in May by the non-profit Century Foundation urges greater federal support for public community colleges - with funding tied to student outcomes such as degrees earned, job placement rates and successful transfers to four-year colleges. Steve Gunderson, president of the Association of Private Sector Colleges and Universities, says federal data should reflect their students, many of whom attend part-time and have returned to school after taking a semester or more off.

Last week, the Education Department updated its College Affordability and Transparency Center website established in 2011 to highlight institutions where costs are rising fastest. Tim Ranzetta, a financial aid analyst in Palo Alto, Calif., says transparency is not enough. His proposal? Require flagged schools to post a disclosure: "Warning: This education can be hazardous to your health."

Mary Beth Marklein, Jodi Upton and Sandhya Kambhampati, USA TODAY

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