Students Loans

LITTLE ROCK, Ark.—Arkansas Baptist College got a dire warning from the Education Department last year. So many students had defaulted on their loans that the college was at risk of losing access to federal aid. That threat is one of the biggest weapons the agency has to police the performance of colleges and universities. But the warning to Arkansas Baptist also came with an offer of help, says Yvette Wimberly, a dean at the college.
For the next six months, the Education Department told the college how to look for errors in its student-loan data. Arkansas Baptist identified at least three students who were murdered after they left the college. Fixing that and other data problems cut the default rate enough to save Arkansas Baptist. Critics say the Education Department’s willingness to help colleges clean up their numbers shows how reluctant it is to shut down the worst-performing colleges. Keeping troubled colleges alive is more controversial than ever, since federal student-loan debt has doubled to $1.2 trillion since 2007. “They can help a school fix their default rate, but do they actually help fix their students’ economic well-being?” says Nick Hillman, an assistant education professor at the University of Wisconsin in Madison who has studied student-loan default rates. “That’s what it should be all about.” Related Should Anyone Be Eligible for Student Loans?(Dec. 6, 2015) U.S. Student-Loan Forgiveness Program Proves Costly (Nov. 20, 2015) Debt Relief for Students Snarls Market for Their Loans (Sept. 23, 2015) Student Loans Could Use Some Market Discipline (Sept. 18, 2015) Grad-School Loan Binge Fans Debt Worries(Aug. 18, 2015) Who’s Most Likely to Default on Student Loans? (Feb. 19, 2015) Government officials say they do everything in their power to hold colleges accountable. Ted Mitchell, undersecretary at the Education Department, says the agency also wants to make sure that a college’s student-loan data are correct before punishing it. “For this to be a fair process, these sanctions must be based on accurate information,” he says. Under a process created by Congress, colleges can lose federal aid if their default rate hits 30% for three years in a row—or exceeds 40% in a single year. In most cases, a student loan is in default if the borrower has gone more than 360 days without making a payment. Borrowers are allowed to delay payments under some circumstances, such as illness or unemployment, though the interest owed on their loans keeps accumulating. Since October 2001, just 17 educational institutions—all of them trade schools—out of a total of about 6,000 failed to meet loan-default requirements and then were banned from getting federal aid, the Education Department says. At 108 four-year colleges, at least half of all students hadn’t paid even $1 of what they owe within three years of leaving college, according to an analysis by The Wall Street Journal of the latest government data. Those colleges got more than $10 billion in federal student loans and grants last year. Some help With help from the Education Department, Arkansas Baptist reduced its three most recent yearly default rates below 30%. Last year’s 26% default rate still ranked in the highest 1% of the 1,615 colleges in the Journal’s analysis. Arkansas Baptist’s nonpayment rate on student loans was 88%, the highest of any four-year college in the U.S. More than four out of every five students drop out. Fitz Hill, president of the historically black private college, says the numbers look bad mostly because Arkansas Baptist enrolls poor students.