Two-year default rate rises to 8.8%

College loan defaults rose from 7 percent to 8.8 percent in the first two years of repayment, the U.S. Education Department announced. Fifteen percent of for-profit students, 7.2 percent of public students and 4.6 percent of private nonprofit students were unable to pay their loans.

Education Secretary Arne Duncan blamed “hard economic times.”

“These numbers could be a wooden stake in the heart of the for-profit college industry,” writes Mike Riggs on Reason’s Hit & Run. Federal aid and occupational licensing laws (hair stylists, interior designers and florists need hours of training to get a job) created the “vampiric behemoth”  of for-profit education.

Why Duncan is insisting that more money be funneled to schools that will turn around and jack up tuition and fees, as opposed to lambasting state legislatures that require poor people to attend for-profit colleges before they can transcend the grease-caked plexiglass ceiling of customer service, is beyond me.

Two of the for-profit colleges that will lose eligibility for student loans specialize in hair styling, Riggs points out.

The two-year default rate underestimates borrowers who are in financial trouble. It doesn’t include defaults after two years or the many people using forbearance measures to postpone repayment.

Debt-burdened graduates of San Francisco’s California Culinary Academy are suing the for-profit cooking school, claiming they were misled about job prospects.

Career Education Corp., which owns the chain of 16 Le Cordon Bleu cooking schools, has agreed to offer rebates up to $20,000 to 8,500 students who attended the Culinary Academy between 2003 and 2008, reports the San Jose Mercury News.

In 2004, (Emily) Journey was a recent high school graduate, dreaming of opening her own bakery, when she enrolled in a 7-month program in pastry and baking arts at the San Francisco school. Recruiters convinced her it was a worthwhile investment and helped her borrow $30,000 to pay for it.

After finishing the program, the only job she could find paid $8 an hour to work the night shift at an Oregon bakery — “something anyone could have gotten without a culinary certificate,” she said.

Journey, who now lives in Bakersfield, has abandoned her baker’s dream and now plans to attend community college to become a nurse or dietitian.

Le Cordon Bleu schools in Pasadena and Portland also face lawsuits from former students who charge deceptive advertising on the schools’ job placement rates.

POSTED BY Joanne Jacobs ON September 13, 2011

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[…] years after leaving college, 8.8 percent of borrowers have defaulted on their student loans, up from 7 percent. That includes 15 percent of for-profit college […]

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