New York Times Applauds Valencia’s Efforts to Cut Student Loan Default

While addressing the nation’s growing student loan debt — and the troubling default rate at some colleges — The New York Times editorial board recently applauded Valencia’s efforts to reduce the number of students who default on their loans.

 

Valencia students who received both Pell Grants and loans defaulted at a rate of 19 percent — compared with 26 percent across all of the colleges in the study and at only a slightly higher rate than their more affluent classmates. The same was true for students who took remedial course work versus those who did not. The overall default rate for the colleges in the study was 22 percent.

 

See below for the full article or visit online at: http://www.nytimes.com/2014/07/26/opinion/how-to-control-student-loan-defaults.html?_r=0

New federal rules that penalize colleges for excessive student loan defaults offer a powerful incentive for schools to educate students on the complexities of the federal student loan program, including the crucial fact that they can delay or make partial payments if they get into financial trouble. Keeping loan default rates low, a new study of nine community colleges shows, is not rocket science: Schools can do it.

Colleges with default rates of 30 percent or higher in any given year are now required to develop a plan for keeping more students on track to repay their loans. Beginning in September, institutions that reach or exceed the 30 percent for three consecutive years will lose eligibility for both the federal loan program and the Pell Grant program, subject to appeal. This places schools with runaway default rates at risk of having to shut down.

The new rules provide important protection for students for whom default can mean a shredded credit history that makes it difficult for them to buy cars or homes and even shuts them out of jobs. The rules also protect taxpayers, who are on the hook when a loan goes bad.

Some colleges argue that the regulations unfairly target and penalize schools that serve “high risk” populations like the poor and young people who need remedial help. A study of nine community colleges carried out by the Association of Community College Trustees and the Institute for College Access and Success, a nonprofit research group, rebuts that argument.

The study suggests instead that default levels for students of all descriptions depend importantly on the quality of the academic support and counseling they get from the schools. Valencia College in Florida is held up as an example of a school that does this well. Valencia students who received both Pell Grants and loans defaulted at a rate of 19 percent — compared with 26 percent across all of the colleges in the study and at only a slightly higher rate than their more affluent classmates. The same was true for students who took remedial course work versus those who did not. The overall default rate for the colleges in the study was 22 percent.

Valencia’s mandatory orientation process shows students from the beginning what it takes to succeed and what services are available to help them. The school also keeps in touch with delinquent borrowers, explaining important options like income-based repayment.

The most important predictor of default is whether a student completes the academic program. Across all campuses in this study, students who graduated defaulted at a rate of just 9 percent, as opposed to 27 percent for those who left college before receiving their degree. This means schools need to keep an eye on and intervene with struggling students before they get overwhelmed and drop out.

Identifying and reaching out to students with academic problems, counseling all students on their rights and obligations under the various loan programs — these are important tools for preventing defaults. But what is likely to persuade colleges to deploy these tools in the first place is the threat of losing federal aid if they do not.

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