Data shows 1 in 20 Minn. students default on student loans

by Tim Post, Minnesota Public Radio

St. Paul, Minn. — Minnesota's for-profit career colleges and the state's two-year community colleges top the list of schools with students in default.

New data from the Department of Education shows that 6 percent of students in Minnesota who took out government education loans are in default.

That number is half the national average of 12 percent. One state higher education official says the biggest factor in a student's ability to pay back loans is whether she or he graduates.

Number one on the list is Duluth Business University with a default rate of nearly 35 percent.

Almost 29 percent of students who borrowed student loans to attend Rainy River Community College defaulted on their loans.

Other community colleges and for-profit career colleges round out the top of the list with three year default rates all in the teens.

Meanwhile Minnesota's public four-year colleges fare much better, with an average default rate of 3 percent. The average rate was two and a half percent at private four-year colleges.

The numbers represent those students who started making payments on their student loans in fiscal years 2005, 2006, or 2007 and defaulted.

Tricia Grimes, a policy analyst at the Minnesota Office of Higher Education, said two-year community colleges and for-profit career colleges lead the list because they serve more low income students who attend part time.

"Part-time attendance is also a risk factor for not completing a degree. It's one of those things that unfortunately tends to be associated with higher default rates," Grimes said.

Students who don't finish their degree are less likely to get a job, and less likely to pay back their loans.

So what should students and their families take from default data? Grimes said students should find a school that's a good fit and they should finish their degrees.

"They should be looking at what programs the school offers and try to come up with a plan for the student to attend so that they will be able to complete the program that they start."

By 2012 the U.S. Department of Education will use the three-year default rates to determine which schools are eligible to offer their students federal financial aid.

Colleges with default rates over 30 percent could face sanctions and lose their ability to offer the loans.

Currently, among Minnesota schools, only Duluth Business University in Duluth is above the 30 percent threshold.