Roundup: Week of September 10 – September 14

Consolidation, Katrina Help Loan Default Rates Fall

The rate at which students default on their federal student loans has fallen to 4.6 percent, the Department of Education announced Monday. The new rate, for the 2005 fiscal year, applies to borrowers who began repaying their loans between Oct. 1, 2004 and Sept. 30, 2005, and defaulted by the end of Sept. 2006. The rate is half a percentage point lower than it was in the 2004 fiscal year, and more than 17 percentage points less than it was when it was at its peak of 22 percent in 1992. Secretary of Education Margaret Spellings attributed the drop to the rush over the last several years in borrowers consolidating their loans a process that automatically extends the repayment timeline. Spellings also highlighted the deferments granted to victims of Hurricane Katrina as an additional factor for the decline. The default rate varies widely based upon the type of school. For example, the cohort default rate for 2.3 percent for four-year private colleges; 3 percent for four-year public colleges, 7.9 percent for community colleges; and 8.2 percent for proprietary colleges and trade schools. Many aid experts and advocates for students question the usefulness of the data. They cite a 2003 report from the Education Department’s Inspector General that said that the sharp reduction in the default rates in recent years may have as much to do with changes in the government’s definition of default in the late 1990s and shifts in repayment practices as with borrower behavior.

Ed Department Lax in Oversight of Guarantee Agencies, IG Report Says

The Education Department is not doing enough to ensure that student-loan-guarantee agencies are keeping separate the federal funds they control on behalf of the government from their general operating funds, according to a report released last week by the departments Inspector General (IG). Guarantee agencies hold federal funds in reserve accounts, which they use to reimburse lenders for student loans that go into default. Not only is it a violation of federal law for the agencies to mix the federal funds with their operating funds, but it also makes it difficult for regulators to tell whether the agencies are using taxpayer dollars for their intended purposes. The report found that this lack of separation was occuring at at least 16 of 27 agencies that the department had audited. This report was a followup to a 2003 audit that had found that nine guarantors had underreported the amount of federal funds they held by more than $17.8-million. The IG report comes on the heels of an earlier Government Accountability Office report that criticized the departments failure to adequately oversee the Federal Family Education Loan (FFEL) program.

Higher Education Has Numerous Benefits for Societies and Individuals, Report Shows

Higher education provides numerous benefits to both societies and individuals including more tax revenue, increased earnings, better access to pension plans and even a higher proclivity to exercise and give blood, a report released Wednesday by the College Board stated. “Higher educations broad payoff which includes both monetary and nonmonetary benefits should motivate U.S. policymakers to work toward improving access to postsecondary education for all segments of the population,” College Board President Gaston Caperton said in a statement. According to the report:

• College graduates that enrolled at age 18 will earn enough in 11 years to compensate for the cost of taking time out of the workforce and borrowing to pay for the full-tuition of a public four-year institution
• A college graduate employed full-time will pay 80 percent more in taxes than the typical high school graduate
• A highly-educated workforce can raise the incomes of less-educated workers in the same metropolitan area
• College graduates have lower unemployment rates for all racial/ethnic groups