Report: Black Colleges Continue to Reduce Student Loan Default Rates

Report: Black Colleges Continue to Reduce Student Loan Default Rates

Historically Black colleges and universities have come out ahead on a major test of their ability to reduce student loan default rates.
A new report from the U.S. Department of Education finds no Black college facing sanctions due to high default rates. While HBCUs have made progress on defaults for years, the issue took on added importance this year because Black colleges lost their automatic exemption from penalties.
Congress and the Bush administration let the long-time exemption expire on June 30, 2004. As a result, HBCUs can lose access to financial aid programs if they have had more than 40 percent of students in default for a given year or at least 25 percent in default for three consecutive years.
But all 101 HBCUs had 2002 default rates below the level that generates sanctions, the department reported.
“I believe all of us have put this issue behind,” said Dr. Wesley McClure, president of Lane College in Jackson, Tenn. With a default rate of nearly 21 percent as recently as 2000, the college had cut its rate by nearly half, to 10.6 percent. “I think we’ll be at 5 or 6 percent in a few years,” he told Black Issues.
McClure cited the college’s four-part default management program as critical to the improvement. Key sections of the plan include management of loan risks and more in-depth student counseling. Lane College also provides messages about repayment into many campus forums, even during chapel, he said.
“A high loan default rate can only undermine our mission,” he said. “Once a student takes out a loan, we have to treat him or her as a customer who we expect to make repayment.” He noted that enrollment at the college increased to 1,045 from about 600 seven years ago. But about 80 percent of students take out loans.
Lane College was on a list of 14 HBCUs that were singled out for high default rates five years ago as federal officials offered more help with default management. HBCUs still had an exemption from sanctions at that time, but Congress has not revisited the issue since it last approved changes to the Higher Education Act. Lawmakers are working on another renewal of HEA, but action on a bill is not likely until late next year.
Other HBCUs on the previous list of high-default schools also have made progress, Education Department data show. Texas Southern University’s rate has declined to 13 percent, while Central State University dropped from 16 percent to 12.5 percent. The rate for Wiley College in Marshall, Texas, fell from 10 percent in 2001 to 6 percent the following year.
Nationwide, the student loan default rate reached a record low of 5.2 percent for 2002, the Education Department reported. Default collections also increased 160 percent to $1.8 billion.
“Low interest rates and strong program management are some of the factors that have resulted in an all-time low in student loan default rates,” said Education Secretary Roderick Paige. In July, student loan interest rates declined to 3.37 percent, the lowest rate in 35 years.
Overall, the default rate for public two-year institutions was 8.5 percent, down slightly from 2000 and 2001. The rate for public four-year colleges and universities also declined to 4 percent.
Private four-year colleges had the lowest default rates of any major sector, with 3.1 percent. The rate for for-profit institutions was 8.7 percent.
The secretary also credited the department’s Federal Student Aid (FSA) office for the progress, noting that office officials have worked with partners to identify borrowers who may need repayment help.
“FSA’s efficiency and better business processes have decreased the cost to taxpayers of delivering student aid to our customers and have earned recognition from the public and private sectors,” Paige said.
In its report, the Education Department praised Black colleges for undertaking strong default management plans. Among other strategies, HBCUs have incorporated borrower education into orientation sessions and provided both entrance and exit counseling about student loan debt, the department said.
Tribal colleges also lost their exemption from default penalties this summer. However, no tribal institution faced possible loss of aid access due to high default rates. Nationwide, only one higher education institution, South Piedmont Community College in Polkton, N.C., faced possible sanctions for three-year default rates that exceeded 25 percent.
For more information about the new default rates, visit the Education Department Web site at <www.ifap.ed.gov/DefaultManagement/DefaultManagement.html>. The site allows users to find the default rates of individual colleges or all institutions within a state. 



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