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Friday, September 17, 2010

College student loan default rates are going up!

Here is the press release about student default rates for college loans.

Here are a few observations about the release:

1) Although the data reflects the year 2008 (loans became due between Oct 1, 2007 and Sep 30, 2008) the Department of Education does not get around to announcing the results until September 13, 2010. You can count on the Federal government solving yesterday’s problems with this lightning fast analysis.

2) The default rates increased from 5.9 to 6 percent for public institutions, from 3.7 to 4 percent for private institutions, and from 11 to 11.6 percent for for-profit schools. But these default rates only reflect how many borrowers did not make the required payments on their loans in the first two years when the payments were due. This is like only counting loan default rates for mortgages if the borrower defaults in the first two years? Are you kidding me? Why would the government manipulate the findings like this? Obviously the default rate would be substantially higher if we consider if the loans get paid back in total over time versus the payment terms of the contracts.

3) The data does not show the amount of the loans being defaulted on. So student A may be graduating from Las Vegas Academy of Healing Arts with a certificate in Massage Therapy and that school has a 40% default rate but the graduates on average borrowed $10,000. So on average the government loses $4,000 per student loan (40% times $10,000). Where student B may be graduating from Rutgers with a BA in Sociology with a default rate of 10% but an average student debt of $100,000. So in the second case the average default cost per student is $10,000 (10% times $100,000). So let’s look at the total and average cost per student in these subsidies - not just the average default rates.

4) The conclusion stated in the government’s press release is that “This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times.” Could it be more a matter of too few engineering and science graduates and far too many folks studying at the Las Vegas Academy of Healing Arts?

5) As much as anything we need to break down the data in many more ways (by degree, by SAT scores upon entering the school and by overall cost of the education). Better yet let’s get the government out of the college student loan business all together.

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