Mary Beth Marklein, Jodi Upton and Sandhya Kambhampati

USA TODAY

Education group singles out red flag colleges

College leaders say graduation and default rates have more to do with challenges stidents face

Report calls for funding to be tied to student outcomes

More than 260 colleges and universities in 40 states, the District of Columbia and Puerto Rico have students who are more likely to default on their loans than full-time freshmen are to graduate, an analysis of federal data shows.

Hundreds of thousands of students are enrolled at the 265 schools, nearly half of which are operated by for-profit colleges, a USA TODAY analysis shows. About one-third of the schools they attended were are public community colleges.

"These colleges should set off a red flag in the minds of prospective student borrowers — and their parents," says Andrew Gillen, research director for Education Sector, a non-profit, non-partisan think-tank on education policy that gathered the federal data. "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 will not."

The analysis comes amid controversy as Congress decides whether to intervene to stop interest rates on new federally subsidized student loans from doubling. The lower interest rates expired Monday.

The Education Sector analysis, a snapshot of Education Department data, looks at U.S. colleges where at least 100 borrowers started repaying loans in 2009 and the equivalent of at least 250 full-time students were enrolled in the 2009-10 academic year, the latest year for which complete data are available. In a new report, "In Debt and In the Dark," the Education Sector identified 514 of what it calls "red flag colleges," schools where the percentage of borrowers who started repaying loans in 2009 and had defaulted by 2012 was higher than the schools' graduation rates. USA TODAY focused on 265 "red flag colleges" out of 2,711 schools where at least 30% of students borrow.

Leaders of community and for-profit colleges long have argued that graduation and default rates have more to do with the challenges faced by their students, who are among the neediest and most likely to struggle academically, than with the quality of their institutions. Also, each number counts different populations and applies only to subsets of students — those who borrow and those who began at the college as first-time, full-time students. Nevertheless, the two data sets are the federal government's "best estimate" for identifying, and holding accountable, schools that are eligible to receive federal student aid, Gillen says.

A Senate investigation last summer found that students at for-profit colleges on average had lower graduation rates and higher default rates than those enrolled in non-profit institutions. USA TODAY's analysis found 117 for-profit institutions where default rates were higher than graduation rates, with most offering four-year degrees or higher. ITT Educational Services, which has 145 technical institutes nationwide, operated 45 of them.

The analysis found 88 community colleges where default rates were higher than graduation rates, though fewer of those students borrow and their loans are smaller on average.

At New River Community and Technical College in Beckley, W.Va., administrators attribute the 5% graduation rate and 25.7% default rate to several factors, including high unemployment and the residual effect of a period of years when loan amounts were inflated because an incorrect formula for awarding aid was used. That attracted a number of students who had "no intention of completing their education," says Barbara Elliott, director of public relations. Even for those who did earn a degree, "the payments were so high that they may have had trouble making them."

Kevin Modany, CEO of ITT Educational Services, which posted a 34.1% default rate across all of its campuses, says the 2009 data capture a tumultuous period during which the nation was in recession and a new federal law had gone into effect that changed how some student loans were serviced.

Of ITT campuses with graduation rates below 34.1%, he says, "our analyses have always led us to conclude that the primary determinant of whether a student will graduate from an associate degree program of study is the student's socioeconomic status. The higher the student's socioeconomic status, the greater the likelihood that the student will graduate."

The Education Sector report argues that default data would be more useful if it provided information about defaulters, such as whether they also received federal aid for low-income students and which fields they were studying. That would help students determine the likelihood they would default if they borrowed, Gillen says.

A report released in May by the non-profit Century Foundation urges greater federal support for public community colleges — with funding tied to student outcomes such as degrees earned, job placement rates and successful transfers to four-year colleges. Steve Gunderson, president of the Association of Private Sector Colleges and Universities, says federal data should reflect their students, many of whom attend part-time and have returned to school after taking a semester or more off.

Last week, the Education Department updated its College Affordability and Transparency Center website established in 2011 to highlight institutions where costs are rising fastest. Tim Ranzetta, a financial aid analyst in Palo Alto, Calif., says transparency is not enough. His proposal? Require flagged schools to post a disclosure: "Warning: This education can be hazardous to your health."