Senators Ask For-Profit Colleges About Student Loan Default Rates
Students defaulting on loans at for-profit colleges over the past years has gained government interest. Agencies have threatened financial penalties against institutions that are manipulating loan default numbers. The institutions have developed a system of call centers that advise students at risk of defaulting to file official extensions that keep the government from accurately monitoring lending practices. The Senate education committee has been reviewing internal documents that outline the plans of many institutions.
For-profit colleges are protecting their federal financial aid dollars, which account for nearly three-quarters of their revenue, by reducing the amount of students that default on loans within the first two years. However, critics argue that the delay tactics do not help students avoid defaulting on loans. The plans detailed in emails and internal company documents recovered by the Senate show colleges went through great lengths to contact students directly and through use of private investigators.
Kent Jenkins, a spokesman for Corinthian Colleges, acknowledges the company used resources to control the decline of default rates, but only with the students best interest in mind. Other institutions also support the tactics used to keep students current on loans. Mark Brenner, a spokesman for The Apollo Group, which owns the University of Phoenix, said “It is 100 percent our belief that the best approach, if possible, is to get that student into active repayment. It’s better for the student and it’s better for the taxpayer.”
Senate staffers say the problem shows more than three-quarters of defaults are avoided by delaying the processes instead of paying them. Federal data shows defaults at for-profit colleges spike after the two-year window monitored by the government. Senators sent requests to the Department of Education to immediately identify when schools are improperly averting defaults and to clarify “what default aversion policies are appropriate and what policies essentially constitute a default manipulation.”