Student Loans

During the past decade, a growing body of research has established that various measures of students' academic preparation and socioeconomic status predict how likely students are to default on their loans. In general, default rates tend to be higher among students who are not as well prepared academically or others whose families are not as well off economically. This report, which discusses default rates at historically black colleges and universities, answers the following questions: How do freshman at these institutions compare with those at all colleges and universities in terms of the academic and socioeconomic characteristics that have been linked to student loan defaults? Among four-year historically black colleges and universities, how do such characteristics for undergraduate students differ at schools with higher default rates compared with schools with lower default rates? What measures has the Department of Education taken or planned to help historically black colleges and universities reduce their student loan default rates? How many historically black colleges and universities are at risk of losing title IV student loan eligibility because of high default rates in 1993-95, and how many of these were potentially at risk in 1988-90? What measures have these institutions taken to reduce or minimize their student loan default rates?

GAO noted that: (1) HBCUs have enrolled a higher percentage of freshmen who, compared with their peers at all institutions, are less prepared academically and come from more disadvantaged socioeconomic backgrounds; (2) the 1995 graduation rate for 4-year HBCUs (35 percent) was substantially below that of non-HBCU students (54 percent); (3) students at HBCUs were twice as likely to come from a home where parents were divorced or separated, and their parents generally had lower education and income levels than parents of students at all colleges and universities; (4) when the analysis is narrowed to only HBCUs, the same pattern is found; (5) in general, HBCUs with lower default rates enrolled students with more academic preparation and higher socioeconomic levels; (6) parents of students receiving federal financial aid at HBCUs with lower default rates generally had higher average adjusted gross incomes and more education and were more likely to be married; (7) the Department of Education employs a number of measures to help schools reduce student loan defaults; (8) these measures apply to all schools, as the Department has no separate or specific default reduction program for HBCUs; (9) the Department's primary efforts were introduced in 1989 as its default reduction initiative and include such activity as supporting schools' efforts to provide financial aid counseling to student borrowers and followup with delinquent borrowers; (10) according to the most recent computations available (for 1993-95), 14 HBCUs were potentially at risk of losing their student loan program eligibility because their default rates remained at or above 25 percent for 3 consecutive years; (11) this is fewer than the 33 HBCUs that GAO reported in August 1993 as potentially at risk on the basis of their 1988-90 default rates; (12) of these 33 HBCUs, 8 remained potentially at risk on the basis of their 1993-95 default rates (6 more subsequently became potentially at risk), 19 were no longer at risk and were eligible to participate in federal student loan programs, and 6 were no longer participating in the program; (13) financial aid administrators at 22 HBCUs GAO surveyed cited default reduction measures promoted by the Department--loan counseling and early intervention with delinquent borrowers--as the default reduction measures they most often used in managing their student loan default rates; and (14) this survey included administrators at 14 of the 33 HBCUs that GAO previously reported could be at risk of losing their student loan eligibility--if they were not subject to the exemption--based on their 1988-90 default rates.