For-Profit Colleges' Tactics on Default Rates Called into Question

For-Profit Colleges' Tactics on Default Rates Called into Question

December 18, 2012

Last week, eight Democratic senators sent a letter to U.S. Education Secretary Arne Duncan, urging the department to investigate the methods allegedly employed by some for-profit colleges to artificially lower the rate at which their former students default on federal student loans.

The senators identify two practices on default rates that they describe as manipulations "harmful to students and taxpayers." One of the tactics entails "encouraging or even harassing borrowers" into using forbearances and deferments to delay default until after the period on which a college's default rate is based. The letter also points to evidence that some for-profit higher education companies manipulate how they categorize their campuses and programs in order to keep their default rates low.

The Education Department calculates a college's "cohort default rate" each year. Institutions that have high default rates are subject to sanctions and can eventually be barred from receiving federal student aid funds. For-profit colleges have said they do use some of those strategies to manage their default rates, but they reject assertions that such tactics conflict with the best interests of students, reports the Chronicle of Higher Education.

"For-profit schools should not be able to use administrative smoke and mirrors to circumvent regulations that protect students and taxpayers, and the department should take action to prevent these tactics," the senators state in the letter.

The letter calls on the Education Department to clarify their positions on what default-prevention strategies are appropriate and what constitute manipulation.

 

Related Links

Senate Letter to the U.S. Department of Education Secretary Arne Duncan

http://www.lautenberg.senate.gov/assets/default-manipulation.pdf

The Chronicle of Higher Education

http://chronicle.com/article/Senators-Call-for/136297/?cid=at&utm_source=at&utm_medium=en

Michelle Cormier Mott

Government Relations