Student loan defaults may hurt schools

A graduation cap with money symbolizes student loans

TEXT OF STORY

Kai Ryssdal: The credit crisis has made students loans harder to get. And they have gotten harder to pay back, too. For graduates of for-profit schools, in particular.

The Department of Education released some new figures today on student loan default rates. Turns out students at for-profit colleges default at much higher rates than those at nonprofit schools do. And if those default rates get too high, schools can be shut out of federal education and loan grant programs. Marketplace's Nancy Marshall Genzer reports.


Nancy Marshall Genzer: About 21 percent of students at for-profit schools who started repaying their loans in fiscal 2007 defaulted. That compares with just under 10 percent for public, four-year schools.

Mark Kantrowitz came up with those figures, after crunching today's numbers. He's publisher of Finaid.org.

MARK KANTROWITZ: Today's figures are just preliminary for the last three years to give an early warning to these schools.

A lot of the for-profit schools offer training in a trade -- beauty schools, for example. They welcome low income students.

Harris Miller heads the schools' trade group, the Career College Association. He says it's no surprise their students default more.

HARRIS MILLER: Cause they don't have a rich mommy and daddy to back them up.

Miller says for-profit schools get 70 percent of their revenue from grants and loans. So it would be a big deal for them if they were barred from federal aid programs. Schools will be disqualified if they have a default rate of 30 percent for each of three years, or 40 percent for one year.

Dan Madzelan administers post-secondary education programs at the Education Department. He says the department released today's numbers to give schools an idea of where they stand.

DAN MADZELAN: There is no reason to panic, but schools ought to be aware of what looks like might lie ahead for them.

So schools will have a chance to shape up. Especially if being disqualified from federal loans and grants would put them out of business.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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