For-profit colleges top the list of California institutions with the highest rates of federal student loan borrowers who defaulted within three years of beginning payment, according to new data from the U.S. Department of Education.
The state's trend mirrors the national outlook. Overall, a quarter of borrowers who went to for-profit colleges and entered repayment on their loans in 2008, defaulted within three years, Inside Higher Ed reports.
That's a higher rate than any other sector. Some 18 percent of borrowers at two-year public colleges defaulted within three years. At public institutions overall, 10.8 percent of borrowers defaulted. At private institutions, 7.6 percent defaulted.
Default rates are important because they give prospective students a sense of whether they are entering a program that they will be able to pay off. Defaults also cost taxpayers money.
In California, the top 10 colleges with the highest three-year default rates were all for-profits. The list includes three campuses of Everest College – owned by one of the nation's largest proprietary school companies, Santa Ana-based Corinthian Colleges, Inc.
Nearly half of borrowers at Everest's Los Angeles campus defaulted within three years. At Everest's San Bernardino campus, 46 percent defaulted, and 43 percent defaulted at the Hayward campus.
The three-year figures released last week are trial rates that the U.S. Department of Education is providing to colleges so they can plan for future changes in the way the government holds high-default institutions accountable.
Under current law, the department looks at the number of student borrowers who default after two years, not three. Colleges with high default rates risk losing access to federal loan programs. But under the Higher Education Opportunity Act, the government will begin looking at the rate for students who default within three years – and will start sanctioning colleges based on these rates in 2014.
The idea behind this change was that a three-year window would give a more accurate picture of loan defaults. It takes several months of missed payments to enter default.
The trial three-year rates give colleges advance notice if they might be in the danger zone. The figures won't have a direct impact but give a sense of what could happen in a few years.
"We hope institutions find the release of these trial rates useful as they consider not only the impact of the move to a three-year rate but also as they think about interventions they might take to help their students avoid the consequences of defaulting on their student loans," William Taggart, the department's chief operating officer for federal student aid, said in a written statement.
The extended time window sheds the light more sharply on some institutions. Everest's San Bernardino campus had the highest two-year rate in the state, as we reported in the fall. But the three-year window adds more Everest campuses to the top 10 list in California. In fact, Everest campuses had some of the highest default rates in the nation, Inside Higher Ed reported.
At the Institute of Technology in Clovis, 46 percent of borrowers defaulted within three years. That means that out of the 1,696 students who started repaying their loans from this college in 2008, some 787 of them defaulted by the time September 2010 rolled around.
The college's largest programs include medical assistant; heating, air conditioning, ventilation and refrigeration maintenance technology; culinary arts; and pharmacy technician. Total tuition and fees – not including living expenses – were $15,442 this academic year. The culinary arts program takes 14 months and costs $30,833.
In addition to the Clovis campus, the Institute of Technology has four locations in Citrus Heights, Modesto, Redding and Stockton. It is run by BrightStar Education Group, founded in 2004 by Arlington Capital Partners.
In an e-mailed response to California Watch, BrightStar CEO James Haga attributed the Institute of Technology's high default rate to the stagnating economy, particularly in the Fresno, Modesto and Stockton regions.
For perspective, however, the Fresno campus of nearby Heald College, which offers associate degrees in similar fields about five miles from the Institute of Technology's Clovis campus, saw 33 percent of student borrowers default within three years – still a high figure, but 13 percentage points lower than the Institute of Technology.
Haga also said an outside vendor the company hired to help manage the default rate did not live up to expectations. Early last year, the Institute of Technology doubled the size of its career service departments and added alumni service representatives and student success coaches, he said. In-house outreach specialists work with delinquent borrowers and those nearing default more proactively. Students who drop out are encouraged to return to the school or start a new program elsewhere.
As a result, Haga says the institute will soon post a record-low federal loan default rate both for the two- and three-year windows.
"This has not been easy but we’ve learned what I hope others will as well," Haga said. "A college must not only educate a student they must be willing to build a lifelong relationship with them."
Here's a look at the top ten California colleges with the highest rate of student borrowers who default on federal loans within three years of starting repayment. Keep in mind that unlike the official two-year rates, these figures aren't subject to appeals. Also, colleges with 30 or fewer borrowers who entered repayment would see a slight adjustment in their official rate. These would include Pacific Coast Trade School in Oxnard, the Academy of Barbering in Northridge and the American College of Healthcare in Riverside.
Source: U.S. Department of Education