For-profit schools default rates higher--US Ed Dept

Fri May 20, 2011 7:42pm EDT

* For-profit school default rates 15.2 pct for 2009

* Private schools 4.7 pct, public schools 7.3 pct

* "Gainful employment" rule expected soon

WASHINGTON, May 20 (Reuters) - Students who attended for-profit schools defaulted on their tuition loans at considerably higher rates than students who went to private or publicly-funded colleges and universities, according to U.S. Education Department data issued on Friday.

The figures come as the department nears release of a rule expected to deny federal loans for programs where a high proportion of former students are failing to repay.

Students who attended for-profit schools and began repaying their loans in fiscal 2009 have defaulted at a rate of 15.2 percent, the government said. That compared with 7.3 percent for former public school students and 4.7 percent for private schools.

The 2009 data is a draft, and tracks students who defaulted on or before the government's fiscal 2010 year ended Sept. 30.

The overall default rate for loans taken out to attend all types of colleges and universities trended higher from 2007 through 2009, probably reflecting the deteriorating job market over that time.

Defaults for all institutions were 6.7 percent for students who began repaying in fiscal 2007, rose to 7.0 percent in 2008 and hit 8.9 percent for 2009, the Education Department said.

Harris Miller, head of the Association of Private Sector Colleges and Universities, said the economy was largely to blame for the poor repayment rate since for-profit school students are less likely to have family support when times are tough.

A critic of the for-profit sector said the data showed it was not just the economy. "They account for a disproportionate share of the defaults," said Pauline Abernathy, an official at the Institute for College Access and Success.

The Obama administration and the for-profit education industry have spent the past 12 months in a pitched battle over rules designed to curb student loan abuses and raise education standards.

The most controversial of these, a "gainful employment" regulation, is expected to be finalized shortly by the Education Department.

In its original form, the rule would make a school program ineligible to accept federal loans as payment from students if fewer than 35 percent of former students are paying them back after three years or if other standards are not met.

In response to the government crackdown, some schools are being more selective in their enrollments, attempting to weed out students who are more likely to drop out and default on loans.

Apollo Group (APOL.O), the sector leader, Strayer Education (STRA.O) and Washington Post's WPO.N education unit Kaplan Higher Education have all cut enrollments recently. (Reporting by Diane Bartz; Editing by Tim Dobbyn)