* Student loan default rates rise
* For-profit sector has highest default rate
* Education Dept moving to tighten standards
WASHINGTON, Sept 12 New U.S. Education
Department figures show rising default rates on student loans
with the sharpest increase among students at for-profit trade
schools and colleges.
For students in the for-profit sector, the default rate for
those who should have started paying back loans in the 2009
fiscal year rose to 15 percent from 11.6 percent for those
whose payments began in 2008.
Overall, student default rates rose to 8.8 percent from 7
percent for students at all types of post-secondary schools,
the department said.
High default rates can penalize schools under a government
crackdown on poor graduation rates in some programs.
The toughest rule would ban schools from taking students
with federal loans if at least 35 percent of graduates and
dropouts of programs are not paying back their loans, or meet
A trade group of 1,500 for-profit schools, the Association
of Private Sector Colleges and Universities, is challenging
that rule, among others.
APSCU argued that the default rates announced on Monday
were misleading, partially because of steps taken by the
schools to address problems in recent months, calling the data
"looking in the rear view mirror."
"We believe that the default rates will go down when the
economy improves and the unemployment rate drops," the group
said in a statement.
The default rate rose from 6 percent to 7.2 percent for
public schools and from 4.0 to 4.6 percent for private colleges
and trade schools, the department said.
The high default rates at for-profit schools have prompted
the Education Department under President Barack Obama to crack
down on the sector, arguing that some of the schools fail to
educate students while burdening them with heavy debts.
Share prices in the industry have suffered during the
Education Department crackdown. The S&P education index
.GSPEDUS peaked at 124.69 in 2009. It was down 1.5 percent to
66.35 in Monday afternoon trading.
Some schools have already tightened their enrollment
standards in a move to reduce defaults and improve graduation
The latest data is from students that the department calls
the the fiscal 2009 cohort, essentially people who graduated or
dropped out and whose first loan repayments came due between
Oct. 1, 2008, and Sept. 30, 2009. They are only counted as
defaulting if they stopped making payments before Sept. 30,
Despite industry efforts, the department is pressing on
with the process of tightening standards -- including
requirements that schools disclose graduation rates and job
placement rates to new students and banning commissions for
recruiters, among other rules.
For-profit education companies include Apollo Group
(APOL.O), the largest operator in the sector, Career Education
Corp (CECO.O) and the Washington Post Co WPO.N, parent of
Kaplan Higher Education.
(Reporting by Diane Bartz; Editing by Tim Dobbyn)