Nation’s Colleges Report Fewer Default Problems

Nation’s Colleges Report Fewer Default Problems
For the first time, no HBCUs are on the education department’s ‘watch list.’

Student loan default rates have dropped to their lowest level ever, says a new U.S. Department of Education report that also finds considerable progress in default reduction among historically Black colleges and universities.
For the first time, no HBCU is on the education department’s “watch list” of institutions that could lose access to aid because of high default rates. For much of the 1990s, HBCUs had a blanket exemption even though a number of institutions had rates high enough to face sanctions.
Just two years ago, 13 HBCUs were on the “watch list,” department officials said. But based on the newly released 1999 data, all Black colleges have default rates acceptable to the federal government.
“The HBCU community is taking this very seriously. They have focused on best practices and what works,” says William Hansen, deputy secretary of education.
Education department leaders also said Black colleges adopted comprehensive default management and prevention programs crafted with input from experts. “The higher education community has come together around these schools,” says Greg Woods, director of the office of student financial assistance programs. Effective practices have included debt counseling for students during and immediately after their school careers.
“This year’s rates show that accountability for results works,” says Education Secretary Roderick Paige, a former HBCU college dean.
One of the major success stories was at Mary Holmes College, a two-year Black college in Mississippi. Default rates at the school have declined by 400 percent during the past four years, the department said. As recently as 1997, the college had a default rate of 26 percent; its rate for 1999 was less than 10 percent.
Another HBCU, Jarvis Christian College in Texas, saw its default rate drop by 300 percent during the past four years, Woods says.
Nationwide, the cohort default rate for 1999 was 5.6 percent, the lowest ever since the department began tracking the issue intensively in 1990. Only seven schools faced possible sanctions for high default rates, including one community college and six proprietary institutions.
By comparison, 1,100 postsecondary institutions lost access to federal aid programs because of high default rates during the past 10 years. In 1990, loan default rates were 22 percent, a finding that led to the ongoing effort to curb defaults.
Colleges can face sanctions if they have default rates of 25 percent for three consecutive years or have one year in which their default rate tops 40 percent.
Hansen says credit for the lower rates goes to department officials, colleges and universities, and financial institutions, all of which have increased their oversight of the problem and have proposed effective solutions. This year alone, wage garnishments, use of income tax rebate checks and other collection tools have helped the program gain back $2.5 billion of loan costs. “This is a team effort,” he says.
Despite the progress, however, loan default problems remain. Because of fast-increasing college tuitions, the total cost of loan defaults is higher now than it was a decade ago. During the past eight years, the total volume of loan defaults has increased from $12 billion to $25 billion. Not surprisingly, college students are borrowing three times as much money for college now than they did in 1990.
“Accountability also means keeping college costs down,” Paige says. “Continued tuition increases are leading to higher levels of student debt and hinder our efforts to keep down default costs and to make college more affordable.”
The recent decline in the U.S. economy also may affect students’ ability to repay loans, officials say. For more information about the default information, including rates by individual schools, visit the education department’s Web site at <www.ed.gov/offices/OSFAP/defaultmanagement/cdr.html>. 



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