Default Rates Highest at Proprietary Schools

December 2, 2013

By Jeannette Porter

Of the more than 4,500 American post-secondary schools with more than 25 students getting federal student loans, Henri’s School of Hair Design in Fitchburg, Mass., is a cut above the rest when it comes to loan defaults.

According to data released by the U.S. Department of Education in September, Henri’s School had a 44 percent default rate for loans in the FY2011 cohort — that is, loans that were due to be repaid between Oct. 1, 2010 and Sept. 30, 2011.  (The school had 56 loans in the FY2011 cohort, and 17 of them were in default.)

In contrast, Secretary of Education Arne Duncan announced that the national FY2011 cohort default rate was 10 percent, according to the accompanying press release.

The top eight defaulters with more than 25 loans were all proprietary schools.  In fact, proprietary schools accounted for the greatest proportion of schools with defaulting students — 36 percent.

The Government Accountability Office issued a 2009 report noting that “students from proprietary schools have higher default rates than students from other schools at 2, 3, and 4 years into repayment.”

“Academic researchers have found that higher default rates at proprietary schools are linked to the characteristics of the students who attend these schools,” the GAO stated.

“Specifically, students who come from low income backgrounds and from families who lack higher education are more likely to default on their loans, and data show that students from proprietary schools are more likely to come from low income families and have parents who do not hold a college degree.”

The greatest number of loans in default at institutions with more than 25 loans — 47 percent of all such defaults — were from public schools.  More than 2.5 million such loans were made to public school students, constituting 49 percent of all such loans.

This article is a “Data Drop brief” — a quick-hit posting based on analysis by students in MASC 644 Computer-Assisted Reporting. This exercise focused on using Microsoft Access, a database manager, to select records from a large data set and sort them.