HBCUs Making Progress on Loan Default Rate

HBCUs Making Progress on Loan Default RateNo Black college or university in 2002 is subject to federal sanctions for student loan default rates, a sign that HBCUs are making major progress in counseling and monitoring its student loan borrowers, the U.S. Department of Education says.
HBCUs “have deployed innovative approaches towards default management and reduction,” the department says in a new report — practices that include student counseling, improved tracking of borrowers and more partnerships with expert financial organizations.
Speaking to HBCU leaders in mid-September, a senior Bush administration education official trumpeted the colleges’ progress on the issue.
During the late 1980s, “some people said HBCUs couldn’t lower their default rates,” said Jeffrey Andrade, deputy assistant secretary for postsecondary education. “The HBCU community has proved those people wrong.”
Nationwide, only five institutions — mostly for-profit trade schools — are now subject to sanctions due to high default rates for 2000, the year covered by the most recent report. Colleges risk the loss of access to federal grant and loan programs for three-year default rates exceeding 25 percent or one-year default rates in excess of 40 percent.
Federal law generally exempts HBCUs from sanctions even if their rates are above the target for penalties. But this exemption ends in 2004. Even without the exemption, however, the department said no HBCU would have faced sanctions this year.
School-by-school data shows major progress by some colleges. For example, Miles College in Fairfield, Ala., had a 4.6 percent default rate in 2000 — down from nearly 20 percent in 1999 and 22 percent in 1998.
Elsewhere, Allen University in Columbia, S.C., saw its rate decline from more than 21 percent in 1998 and 1999 to just 9.7 percent in 2000. Hampton University had a 6.6 percent rate in 2000, a slight decline from the year before and a decline of nearly 2 percentage points since 1998.
Some HBCUs experienced increases in default rates in 2000, though they remained far below the threshold for sanctions. The 11.6 percent rate for Tuskegee University was up slightly during the past two years. Virginia State University had an 18.3 percent default rate in 2000, nearly 7 percentage points higher than the rate of the previous year.
Many institutions also have wide year-to-year fluctuations in default rates, since the number of borrowers entering repayment may vary considerably from one year to the next. Alcorn State University had a default rate of nearly 15 percent in 2000, after posting rates of 14 percent in 1998 and 8.2 percent in 1999. At Mary Holmes College in West Point, Miss., default rates from 1998 through 2000 ranged from 9.5 percent to nearly 18 percent.
Among all institutions, the loan default rate remained below 6 percent for the second consecutive year, reflecting a significant decline from the 22 percent rate recorded back in 1990. “The national student loan default rate continues to remain at a historically low level,” said Education Secretary Dr. Roderick Paige.
The 2000 rate of 5.9 percent was slightly higher than the rate for the previous year, and officials said the uneven economy warrants close attention to defaults. Paige said the department must “remain steadfast” in efforts to keep defaults at a manageable rate.
By sector, public colleges and universities had a 5.9 percent loan default rate in 2000, compared with 4.8 percent at private colleges and 9.4 percent at proprietary institutions. Four-year institutions generally had lower rates than other institutions. Public and private four-year institutions had default rates of 4.8 percent and 3.8 percent, respectively.
For HBCUs, the next major default issue may be the sunset of the exemption from penalties. Unless Congress and the administration extend the exemption, the policy will end in June 2004. 



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