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Student loan defaults put colleges at risk

For Tim Balzer, graduate school has become a place of financial refuge. The 2002 Little Miami High School alum is accruing $37 in interest weekly on his more than $60,000 in student loans that so far have bought him two undergraduate majors, a minor and a master’s degree, all in theater and mathematics.

None has led to a job offer.

“A lot of us with student loans kind of refer to graduate school as a place where we hide from our student loans,” he said.

While in graduate school, loan payments are deferred, even if additional interest is accrued.

Balzer works part time at Costco while he tries to make payments on his loans, and though he continues to search for a full-time job, he may go back to graduate school again for a more marketable degree — something he wishes he would have considered before he went to a private school and studied subjects that did not lead to a direct career path.

While Balzer intends to pay back what he has borrowed in full, there is a growing number of students who are defaulting on loans, leaving taxpayers on the hook and some local schools at risk of losing federal funding.

In 2014, the U.S. Department of Education will use three-year default rates when considering eligibility for federal aid.

Schools with a default rate higher than 30 percent for three years would risk getting ousted from the student aid program, essentially a death notice for a school.

The new rules come as enrollment booms — particularly in the for-profit industry — and a growing number of students qualify for taxpayer-backed student loans. Last year, college loans surpassed outstanding credit card debt, and are approaching $1 trillion.

The default rate for 2009 was 8.9 percent, nearly two points higher than the year before, according to draft data released by U.S. Department of Education.

For-profit colleges account for nearly half of all defaults while representing 27 percent of borrowers and just 12 percent of total college enrollment, federal data shows. The number of for-profit students not repaying loans jumped 49 percent between 2008 and 2009, to 155,211 students in default.

Across all sectors of higher education, 15.2 percent of for-profit students were in default compared to 7.3 percent of public college students and 4.7 percent of students in private schools, the federal data shows. In all, 327,669 students defaulted in 2009, up from 238,852 in 2008.