NIC: Economy to blame for loan default rate

COEUR d’ALENE — A new report shows that North Idaho College is among 265 higher education institutions nationwide with student loan default rates that exceed the schools’ graduation rates.

For fiscal year 2010, the national student loan default rate is 13.4 percent. The loan default rate at NIC for the same period is 19.6 percent. NIC’s graduation rate, according to the report, is 19 percent.

College representatives say the recent years’ economic downturn is to blame for the lower graduation rate, and say they are taking measures to reduce the loan default rate.

Graydon Stanley, the college’s vice president of student services, said he expects that NIC won’t remain on the list of schools noted in the report for long.

“We’re forecasting that we’ll move (the graduate rate) to 21 percent,” Stanley said.

They’re also anticipating a drop in the student default rate, he said, because the college has taken some “innovative and aggressive” moves to address student debt issues.

Based on federal data, the report was done by USA Today, in partnership with Education Sector, a nonprofit, nonpartisan education policy think tank based in Washington, D.C.

“These colleges should set off a red flag in the minds of prospective student borrowers — and their parents,” writes Education Sector Research Director Andrew Gillen. “Many students at these colleges will no doubt take out loans, graduate, and get good jobs. But the high default rates and lower graduation rates suggest that many students will not.”

NIC and ITT Technical Institute-Boise are the only two Idaho schools on the “red flag” list, which includes 88 public, two-year community colleges nationwide.

The U.S. Department of Education considers a student in default of a loan when the borrower is 270 days behind on payments.

The student loan default rate is the percentage of borrowers who are supposed to begin paying back their loans during a fiscal year and default within three years. Student loans generally become due within six months after a student graduates, drops out or drops below half-time enrollment.

Graydon Stanley, NIC’s vice president of student services, and Joe Bekken, the college’s financial aid director, both point out that the numbers in the USA Today report are based on 2009-10, when the college was at the height of a dramatic enrollment increase due to high unemployment.

“We had a lot of people come into the system who had to say they were degree-seeking in order to get financial aid, but they really weren’t on that track,” Stanley said.

Those students were looking for ways to support themselves financially, he said, seeking some training to make them more employable, and had no intention of ever graduating.

The demographic of students that attend community colleges are generally less likely to graduate than students attending four-year universities, he said.

“A huge number of our students are first generation, under-motivated in many cases, and certainly often under-prepared academically,” Stanley said.

That makes it unfair to measure a community college’s graduation rate against schools that don’t face those same challenges, he said.

The Education Sector report calls for better accounting of student loan defaults by the federal government, including providing information about the defaulters.

Bekken, who leads the college’s financial aid department, acknowledged that NIC’s student default rate is higher than the national average, but said it’s a trend nationwide.

“I believe it’s our next big bubble that’s going to burst,” he said.

At NIC, they’ve recently made some procedural changes that aim to address the problem, Bekken said.

Financial aid disbursements will no longer be made to students in a lump sum at the start of each semester. The funds distributed are those leftover after tuition is paid to the college. They are to be used for other school expenses or living expenses while attending school.

Under the new “incremental disbursement” procedure, students will receive half the funds when the semester begins and the rest halfway through, after mid-term grades and attendance are reviewed. Students who aren’t attending class or who have dropped below six credits won’t receive their second chunk of the funds.

“We hope this will reduce the number of students who are taking the money and not coming to school,” Bekken said. “It’s an active approach to keep them in school, and hopefully, it will help our completion rates.”

NIC has also removed the unsubsidized Stafford Loan application from the initial financial aid package given to all students.

Because the interest on these loans begins accruing as soon as the money is disbursed to the college, Bekken said students are graduating with a lot of interest in addition to their loan debt.

“We want students to think about what happens when they take out this loan. They might decide ‘I don’t need this additional $6,000, so there’s no need for me to take it out,” he said.

Students who want to apply for one of these unsubsidized loans can still do so, Bekken said, but they must complete some additional steps including calculating a personal budget that will show how taking out a loan will affect their finances. There is also a financial literacy piece.

“We’ve come to find out that the more we educate, the more responsible students are about their loans,” he said.