Fewer college grads are defaulting on their student loans. That’s the good news.
But there were still 611,000 new borrowers who entered default within three years of leaving school, according to an annual report released by the Department of Education Wednesday.
“We’re very pleased that cohort default rates are going down, but there’s still a long way to go,” Education Secretary Arne Duncan told CNNMoney.
The federal loan default rate stands at 11.8% for borrowers who were required to start making payments during the 12 months prior to October 2012. That’s down from 13.7% the previous year.
The rate doesn’t include borrowers who have been able to defer payments. (Students can sometimes do so by claiming financial hardship or enrolling in grad school.) And it doesn’t include those who are “delinquent” because of being more than 31 days late. Students have nine months before entering default.
Students who borrow money to attend a for-profit schools are far more likely to default on their loans. Those colleges tend to be pricey and have been accused of specifically recruiting low-income students.
The recession drove many people who couldn’t find jobs to for-profit schools, but there has already been a decline in enrollment numbers.
The Obama administration has been trying to crack down on these for-profit schools. The University of Phoenix has lost half its students over the past five years, and the school is under investigation for the way it recruits students. Corinthian Colllege recently shut down after facing federal investigations and a $30 million fine for overstating job placement rates for graduates.
Still, the University of Phoenix receives more federal funding than any other college. It got $3.5 billion during the 2012 school year, according to the Department of Education.
The department’s report on default rates is one way it’s trying to rein in federal funding to under- performing schools. Institutions where a high percentage of borrowers are in default are in jeopardy of losing out on federal aid, including Pell grants. This year, two public community colleges, one private non-profit institution, and 12 for-profit schools are in jeopardy.
Umpqua Community College (OR)
Eastern West Virginia Community & Technical College
Ohio State College of Barber Styling (OH)
Guti, the Premier Beauty and Wellness Academy (FL)
Capstone College (CA)
L T International Beauty School (PA)
Florida Barber Academy (FL)
Jay’s Technical Institute (TX)
Memphis Institute of Barbering (TN)
Northwest Career College (NV)
Northwest Regional Technology Institute (PA)
Coast Career Institute (CA)
San Diego College (CA)
Profile Institute of Barber-Styling (GA)
United Tribes Technical College (ND)