Washington
Representatives of more than 50 for-profit colleges and universities descended on the Capitol on Tuesday to lobby Congress to reject a proposed change in federal law that could make dozens, if not hundreds, of proprietary institutions ineligible to award federal student aid.
The proposal, which is included in legislation to reauthorize the Higher Education Act that the U.S. House of Representatives could take up as early as next week, would modify the way the Department of Education calculates “cohort default rates,” or the rates at which student-loan borrowers who leave college in a given year default over a subsequent period.
The department now calculates the rate based on the number of defaults two years after a cohort enters repayment. Under the proposed change, it would calculate the rate based on a three-year period.
That seemingly technical revision is significant because the department bases an institution’s eligibility for federal student aid, in part, on the number of students that default at the institution. Institutions with default rates of less than 10 percent are entitled to certain benefits that ease the administration of student aid, such as the right to disburse loans for a semester in a single installment; those with default rates of greater than 25 percent for three consecutive years, or 40 percent for a single year, lose their eligibility to award federal student aid.
If the two-year window is replaced with a three-year window, default rates would go up and more colleges would exceed those thresholds.
An unofficial Education Department estimate based on the 2004 student cohort found that if the default window had been extended to three years, the cohort default rate at proprietary institutions would have nearly doubled, to 16.7 percent, while the rates for public colleges would have increased from 4.7 percent to 7.2 percent, and the rates for private colleges would have gone from 3 percent to 4.7 percent.
Getting a Grasp on Defaults
Supporters say the change will provide a more complete picture of student-loan defaults, giving policy makers and institutions a better sense of who is defaulting and when, and ultimately helping colleges and the government drive down defaults.
Rep. Timothy H. Bishop, a New York Democrat who co-sponsored the amendment that would make the change, said the department’s analysis shows that lawmakers have “been lulled into a false sense of security” regarding default rates.
“The two-year window does not give one a sufficient picture of what’s really happening with student loans,” said Mr. Bishop, who spent 29 years as a college administrator at Long Island University’s Southampton College.
Mr. Bishop’s amendment is supported by the “Big Six” higher-education associations, including the American Association of Community Colleges.
But for-profit colleges are fighting the change, complaining that they are being penalized for accepting a large number of low-income students—students who are statistically more likely to default on their loans. The for-profit colleges argue that institutions shouldn’t be blamed for defaults that occur three years after a borrower graduates, when students have severed their ties to a school.
“We object to the singling out of schools that take on the risk and accept lower-income students, and saying the failure of those students to pay is an indicator of institutional quality,” said Harris Miller, president of the Career College Association, in a conference call with reporters on Tuesday.
During the call, the association released details of a report that it said proved its case. The report, which the association commissioned from the Indiana University School of Education, found that research conducted over the last 30 years has shown little correlation between default rates and institutional quality. Rather, default rates are based largely on socioeconomic factors, academic success, and postgraduate income, the study found.
Seeking Allies
To build broader support for their fight, proprietary colleges are emphasizing the effect that the change could have on traditional institutions, particularly community colleges and historically black colleges and universities, both of which enroll large numbers of low-income students.
The colleges have found an ally in William (Bud) Blakey of the Thurgood Marshall College Fund, which provides aid to students at historically black colleges. Mr. Blakey, who is the fund’s Washington counsel, has lobbied members of the House education committee and the Congressional Black Caucus to strip the change from the bill, saying he wants Congress to do a thorough analysis of the consequences the change could have before it acts.
But not all historically black colleges oppose the change. On Tuesday, the chair of a group of presidents and chancellors of 20 land-grant historically black colleges and universities sent a letter to the leaders of the House education committee supporting Mr. Bishop’s amendment. The letter, which was cosigned by the American Association of State Colleges and Universities, said that the change would “provide more meaningful and accurate information that will help institutions, lenders, and the Department of Education help students avoid loan default.”
“Default is avoidable, and we know that student borrowers usually default because they aren’t aware of all the student-loan repayment options afforded to them under the law,” the letter said.
