Colleges Penalized For Student Loan Defaults?

There is a very interesting development underway in the US Department of Education.  That department wants to make colleges more accountable for whether or not they effectively prepare their students for the job market.  To do so, the colleges would be graded according to the rate of their graduates who fall into student loan default within 36 months of graduating.  The new rules, if approved, would go into effect in 2014.  The proposed threshold is 30%, so if more than 1 in 3 of a college’s student borrowers default on their student loans within 3 years of graduation, the college may be at risk of losing the ability to accept federal student loan money. The rules will not apply to other forms of student lending, such as student car loans.

These rules are largely designed to target for-profit schools.  Of course, none of the schools are allowed to run credit checks on students and use these as a factor in the acceptance equation, so even legitimate schools could be facing a real struggle.  For more information, check out this article in the AZ Star.