Loan default-rate statistics skew view of U. aid policy

The University’s default rate is the highest of the country’s top 20 universities as ranked by the U.S. News and World Report, according to an analysis by news website Business Insider. The website reports that the University’s default rate tops the list at 2.2 percent, with peer institutions such as Massachusetts Institute of Technology and California Institute of Technology reporting figures near 0 percent.

However, these statistics are misleading due to the small size of Princeton’s borrowing cohort, explained University spokesman Martin Mbugua in an email. He noted that only 132 graduates and undergraduates — 1.7 percent of the student population — entered repayment of loans in the two-year fiscal period, and, of those individuals, only three defaulted.

“Peer institutions have many more borrowers, who represent a comparatively larger percentage of the respective student populations,” Mbugua said. “Because of our no-loan financial aid policy, the numbers of students who borrow is quite small, so therefore, even a few borrowers of this very small cohort would represent a large percentage [of students defaulting].”

Mbugua added that the University has the lowest borrower-to-student population ratio in the league and that 76 percent of University undergraduates graduate with no student debt.

Less than 9 percent of undergraduate parents used the Princeton Parent Loan Program last year, Mbugua said — most of them non-aid families who wanted the convenience of an excellent loan program.

“As for private student loans, only 0.4 percent of undergraduates used them last year,” he said.

Of those who do request a loan at some point during their four years at the University, their total average debt at graduation is $5,800. By comparison, the national average for college loan debt is about $26,000.

To conduct its analysis, Business Insider used data from a recent U.S. Department of Education report. The national student loan cohort default rate jumped from 7.0 to 8.8 percent between fiscal years 2008 and 2009, according to the report. Of the 3.6 million borrowers from 5,900 schools who entered loan repayment between Oct. 1, 2008, and Sept. 30, 2009, over 320,000 defaulted before Sept. 30, 2010.

Default rates increased for public, private and for-profit schools alike. However, for-profit schools saw the highest increase from 11.6 to 15.0 percent, with schools such as University of Phoenix and ITT Technical Institute reporting increases of 18.8 percent and 22.6 percent, respectively.

While the Obama administration continues to pressure for-profit colleges to decrease the number of students defaulting on federal loans by providing loan counseling, shutting down failing programs and tightening enrollment, the Department of Education has begun an income-based repayment plan that caps federal loan payments at 15 percent of discretionary income.