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News Wrap: Federal Student Loan Default Rate Jumps to 8.8%

Impute to the transcript: to.pbs.org In other news Monday, the Determined of Education reported that the default fee on federal student loans jumped ...

Selecting a Career College: Top 10 Questions To Ask

I was thinking more about the need for greater transparency in the college selection process this morning.  Rather than rely on external forces to force this issue upon schools, there is always the power of the consumer to make things happen.  If consumers demand more information than institutions eventually have to accede to these demands or lag behind their competition.  So, with that spirit in mind, I have developed a Top 10 list of questions that consumers should ask prior to selecting a career college.  This list was developed having spent hours scanning complaint boards to see what items came up most frequently.  If a school is not comfortable answering many of these questions, claims not to have the information available, or won't provide answers in writing you may want to look elsewhere.  Remember that you are making a significant investment of both dollars and time so do the legwork to make the best choice.  Good luck!

What accreditation or licensing does the school have? (from Dept. of Ed site ) To find out if a school is accredited by a nationally recognized agency, check to see if the accrediting agency is included in the U.S. Department of Education's List of Nationally Recognized Accrediting Agencies . Contact the state licensing agency where the school is located to find out if it is operating legally in the state, using the Directory of Higher Education Officials . Will credits that you earn in this program transfer to another institution? (from Dept. of Ed site ) To learn more about transferring credits from one school to another, take a look at " The Student's Guide to Transfer of Credit " by The Distance Education and Training Council.   What are the tuition, fees and other expenses that student should expect to pay (known as cost of attendance) for the program? Get this in writing What is the school’s refund policy in the event that you are not satisfied with the program? Be sure to get this in writing.  You do not want to find out later that you are paying for a class that you dropped after three weeks.  What is the financial aid package that the school has put together for you? Be sure to get everything in writing and to take your time reviewing it.  Do not allow yourself to be rushed into making this important decision.   Important:  Be sure you understand the difference between grants (free money) and loans (unsubsidized and subsidized Stafford loans) which WILL NEED TO BE REPAID. Avoid private loans at all costs as they carry much higher interest rates and have less flexible repayment options.   Be sure that all of your federal grant and loan options have been maximized.  What is the average amount of loans that students borrow at the institution? You will want to have a sense of how much you will need to borrow in order to complete the program...you don't want to realize that you have overborrowed after you graduate What is the school’s lifetime default rate, which is the percentage of borrowers who have not been able to stay current on their loan?   You can find some default information by typing in the school name on this website:  http://www.ed.gov/offices/OSFAP/defaultmanagement/cdr.html What is the school’s completion rate for your field of study or trade (i.e. how many of those that start the program complete it within a given time frame)? What is the job placement rate and average wages earned by graduates of the program you are interested in over the past three years? Remember that your purpose of enrolling in this program is to get a return on your investment...this is very important information to have. What is the quality of the educational facilities where you will be trained?   Be sure to visit a class while it is in session to check on the quality of teaching too. 

Extra Credit :

Ask for references of recent graduates that you can speak to about their experience. Go to google.com and search on the name of the career college that you are considering and “complaints” to find out any issues that previous students may have had at the institution you are considering. 

Also: If you want to transfer credits, also call the schools you'd like to transfer to and ask if they accept credits from your school. Your recruiter may be lying.

Also: If you're going to a career school, you're likely to have a career in mind. It would help to call someone in the business you plan to enter and ask if the degree you're about to pursue means anything to them: "I'd like to get into [nursing, auto repair, hair styling, etc.] and am considering a training program. Would you say that a degree from [school] would help someone applying for jobs in the field?"

What a great blog you have. Tim Ranzetta for Assistant Secretary for Postsecondary Education!

You advise students to maximize their federal grants. The same might be said for all grants, which may include employer benefits, state programs, institutional aid, and federal grants other than Pell, such as Veterans' benefits. This of course would apply to all students, not only those at career colleges.

The trouble is, how would a student know if he or she were maximizing grants? How grants are applied for and distributed at an institution may be a closely guarded secret, especially the funds under an institution's control and how financial aid packages are put together. That need not be.

The federal Student Right to Know Act provides that institutions "shall accurately describe-- (4) The criteria for determining the amount of a student’s award."

Students are largely unaware of these provisions because the U.S. Department of Education does not let students know their rights regarding grant aid and financial aid packaging, and most institutions are not about to point them out. Enforcement of SRTK could clean up a lot of what ails postsecondary education.

Source: Student Lending Analytics Blog

Eerie Similarities

As the OECD report "Improving Financial Literacy" states:  "Although financial literacy levels are low in general for consumers, they are especially low for certain groups of consumers, such as the less-educated, those at the lower end of the income distribution, and minorities."  Who also are most susceptible to the "dreams of home ownership" or "achieving your dreams of a college education." I would also include the proliferation of institutional loan programs, which forecast default rates over 50%, in this category.  Giving money to student when you anticipate more than 1 in 2 won't be able to repay is not a bad definition of predatory lender.  Aided by laissez-faire regulators or better yet overlapping regulators (like the educational triad), to ensure that more time is spent arguing over who is responsible for what rather than enforcing regulations.  If I wasn't laughing I would be crying about the GAO's findings of a regulatory gap left by a retiring Dept. of Ed. official responsible for monitoring the ATB test publishers.  His/her work was apparently so important that their responsibilities were never transitioned, until GAO started asking questions about who was monitoring these test publishers.    It also helps to have inadequate measurement systems, such as the cohort default rate which determines ongoing eligibility at the institutional level.  See this post for the many inadequacies of this measure, which is certainly effective at keeping the "failure factories" alive.  Standards for qualifying for a home loan or for access to funding have to be lowered sufficiently to alllow access to all, leading to the proliferation of no-doc liar loans in housing and ATB tests to qualify for federal aid.  Symptomatic of these low standards, GAO uncovered fraudulent activity at an ATB testing center where answers were provided to students and tests were doctored to ensure students could access these federal funds.  Exacerbated by a lack of transparency in disclosure which might allow home borrowers or student borrowers to make more effective decisions by comparing alternatives or understanding the potential ROI of their investment.  Take that number in for a moment, 4 out of 10 will default .  To which boosters will say, a cumulative default rate is not a reflection of their education, it is a reflection of their life circumstances.  To which my response would be:  How is packaging a student, who has a significant risk of failure with a significant amount of debt, in the student's best interest? At 4-year for-profits, almost a quarter borrow more than $40,000, while at 2-year schools 42% borrow more than $20,000. 

I don't have any easy answers...but wish a bipartisan commission of experts was thinking about how to solve this problem before a generation of low-income students write-off the value of education because they can't stop the collection calls. 

Source: Student Lending Analytics Blog