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7:07 AM Sun, Sept. 23rd

Student loan defaults on rise in AZ

PHOENIX - The default rate for student loans is rising, and critics are blaming generous lending practices, tuition increases that force students to take on more debt and low-wage jobs that make it hard to repay the money.

Arizona has the nation's highest overall default rate on federal student loans - 9.8 percent in fiscal year 2007, the latest year available.

The state also has a larger share than the nation as a whole of students at community colleges and for-profit schools.

The U.S. Department of Education says for-profit schools had the highest share of defaults in the United States in 2007 at 11 percent. The rate at community colleges was nearly 10 percent. Private nonprofit universities had the lowest rates, 3.7 percent.

Average loans for a student earning a bachelor's degree at a for-profit school totaled $32,650 in the 2007-08 school year, compared with $17,700 at public universities and a $7,125 average for two-year degrees at community colleges.

Last school year, Arizona for-profit schools enrolled nearly 468,000 students, according to the State Board for Private Postsecondary Education, which licenses and regulates most for-profit schools.

The 232 schools the state licenses range from cosmetology and truck-driver training to graduate programs in business and education.

Nonprofit schools say they play an important role. Like community colleges, their admission standards are more lenient, attracting larger percentages of students in economic need, including students who are minorities, older than 25 or lower income.

Many for-profit schools also offer accelerated programs that allow students to start careers sooner and allow enrollment at various times during the year.

Tuition is for-profit schools' main revenue source since they don't get state financing. But school officials argue the cash flow lets for-profits more quickly put expensive programs, such as nursing, into operation.

"It's more complex than just the sticker price," said Harris Miller, who heads the Career College Association, which represents 1,400 for-profit schools.

Consumer advocates say for-profit schools' high tuition makes it common for students to borrow more money than starting salaries can support.

Some students take out private loans to supplement limits on loans from the federal government. Private loans generally have higher interest rates and less flexible repayment terms.

The U.S. Department of Education is considering stricter rules to reduce defaults.

One proposal would require schools to disclose more information to prospective students, including posting a link to a Bureau of Labor Statistics website that lists median salaries for various occupations.

Also under consideration: prohibiting schools from linking recruiters' pay to the number of students they enroll and limiting borrowers' payments on 10-year federal loans to no more than 8 percent of the projected annual income in the first few years of working. Loans from private lenders would be excluded.