Student Loan Defaults Rack Up in Pennsylvania

By Olson, Thomas | Tribune-Review/Pittsburgh Tribune-Review, January 31, 2010 | Go to article overview

Student Loan Defaults Rack Up in Pennsylvania


Olson, Thomas, Tribune-Review/Pittsburgh Tribune-Review


Students at for-profit schools in Pennsylvania defaulted nearly three times more often on federally guaranteed loans than students at traditional colleges and universities, a Tribune-Review analysis shows.

Almost one of every five students in 112 for-profit schools in Pennsylvania defaulted during the three years ended in September. About one in 14 students at 195 traditional schools in the state quit repaying their loans, statistics compiled by the Department of Education revealed.

One of the worst default rates belongs to the Kaplan Career Institute, Downtown. About 38 percent, or 395 students, defaulted on their loans, the second worst rate in the state. The school offers classes in health care, law and business.

Kaplan Inc. spokeswoman Michele Mazur said none of the company's schools, including the one Downtown, has been dropped from the government's loan program.

Nationally, students defaulted on $11.5 billion in loan payments owed directly to the government in the year ended Sept. 30, figures show. That's up from $10.3 billion in fiscal 2008.

"This doesn't surprise me, given the state of the economy," said Jay Sukits, a former loan analyst, now assistant professor of business administration at the University of Pittsburgh's Katz Graduate School of Business. "But $11.5 billion is not a small number. It's pretty huge, and it's taxpayer money."

The Department of Education began tracking default rates -- loans that go bad within three years after repayments begin -- to gauge which schools should qualify for federally supported student aid. Institutions with too many deadbeat students risk being kicked out of the program.

Low-interest Stafford loans are backed by the federal government. That means taxpayers pick up the tab when students quit repaying the loans, which are originated by the educational institutions. They are funded by either a bank or the government.

"That's the real atom bomb here, that your students with federal aid could no longer be accepted to your institution," said Harris Miller, president of the Career College Association, Washington, which represents 1,400 for-profit schools.

Last year, the government dismissed two for-profit schools whose default rates exceeded 40 percent: Healthy Hair Academy of Dallas and Jay's Technical Institute of Houston.

"For-profits spend a lot of time on marketing, and they want to grow," said Richard Garrett, senior research analyst at Eduventures Inc., a higher-education research and consulting firm in Boston.

One way to do that is to push loans -- especially when the economy is in recession and students rely more on federal funding.

"All the research shows you're going to have higher default rates at institutions that admit students from lower-income backgrounds than ones with upper-income backgrounds," Miller said. "The only institutions that admit many students from lower-income backgrounds are community colleges, minority institutions and our schools. …

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