The Government Finally Has Good News About Student Loans

Fewer borrowers are chronically unable to pay back their student loans than in past years, new government data show.

The rate at which students defaulted on their college loans—meaning they couldn’t make payments for about a year—fell to 13.7 percent this year from 14.7 percent the year before, according to a report released Wednesday by the Department of Education. The Department looked at borrowers who started repaying their loans three years earlier.

“While it’s good news that the default rate decreased from last year, the number of students who default on their federal student loans is still too high,” said Secretary of Education Arne Duncan in a statement.
 

Defaulting on education debt doesn’t affect just students. Schools with a lot of students who default risk losing access to federal money for tuition aid. In its announcement, the department listed colleges newly in danger of getting cut off. Of the 21 at-risk institutions, 20 are for-profit schools. Half are either beauty or barber schools.

What the government considers too many student defaults, however, has also recently gotten fuzzier. Six years ago, Congress passed a law making it tougher for colleges to qualify for federal aid by looking at student defaults over a longer stretch of time. On Tuesday, however, the Education Department quietly announced it would give a reprieve to some colleges that would have failed the stricter standards, set to take effect this year.

In cases in which students had multiple loans, the department said it would not count students who defaulted on one federal student loan but had at least one other loan in relatively good standing toward their school’s default rate.

A Department of Education spokesperson said in a call with reporters that the mathematical maneuvering took fewer than two dozen schools, including some for-profit colleges, out of danger.

Yesterday, Secretary Duncan told leaders of historically black colleges and universities that none of their institutions would become ineligible for federal aid as a result of tighter lending policies. The announcement was good news for the institutions, which have been deeply and disproportionately affected by the department’s recent efforts to hold colleges accountable for the loan troubles faced by students.

“Because of the tremendous effort we made together, no HBCUs will be subject to statutory default rate sanctions this year,” Duncan said at the annual conference of HBCUs in Washington, D.C.

It isn’t clear whether HBCUs were spared penalties because the government adjusted their rates or because the schools implemented policies that lowered their default rates. Last year, more than a dozen HBCUs looked to be at risk of losing eligibility because they did not meet the new standards.

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