Reprieve on Default Rates

Career College Central Summary:

  • Colleges with large populations of low-income students have for months worried that their former students' high rates of default on student loans would eliminate their access to student aid under stricter federal standards that fully take effect this year.
  • But the Obama administration, which is to officially announce the default rates for all colleges on Wednesday, is now giving some institutions a break.
  • The U.S. Department of Education said Tuesday that it would simply leave out some defaulted loans when calculating the default rate of the colleges facing a loss of federal student aid.
  • That “adjustment” to the default rate calculations, according to the announcement, helped an unspecified number of colleges avoid the penalties they would otherwise have faced this year for having default rates above the threshold set by Congress.
  • Lawmakers changed the standard in 2008, but this is the first year that colleges face penalties for three-year default rates, as opposed to two-year rates.
  • Community colleges and some historically black colleges and universities had pressed the Education Department for relief from the new standard.
  • On Tuesday, Education Secretary Arne Duncan said he was pleased that no historically black colleges and universities would face penalties for their default rates this year.
  • Fourteen historically black institutions had default rates above the 30-percent threshold last year.
  • It is not clear from the department’s announcement whether it only removed defaulted loans affected by “split servicing” from the calculation or dropped a broader category of loans.
  • Further, it was unclear whether the reprieve applied to any for-profit colleges, which typically have among the highest default rates.

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