More than 220 colleges have long-term student loan default rates so high that students at those colleges would be ineligible for federal student loans under a new law. The law would measure default rates over a three-year period starting 2014, according to new Department of Education figures.

Federal student aid supplies low-interest loans to students to help pay tuition based on  what many students know as the FAFSA form. In the final quarter of the 2008-2009 academic year, the federal government distributed over $4.6 billion in aid to nearly 2.5 million students in unsubsidized loans alone.

If too many of a school’s past students fail to pay back their federal loans on time, the school may become ineligible to get future money for their students.

Student-loan defaults are more common at for-profit colleges, and the proposed bill has caused those institutions to warn of imminent harm to students.

"The only thing that explains default rate is the socioeconomic background" of the student, said Harris N. Miller, president of the Career College Association, which represents for-profit institutions. "By using that as the metric of quality, you will always be discriminating against low-income students."

But some groups offer other explanations for the high default rates of for-profit college students: predatory lending.

A report released Dec.1 by U.S. PIRG, the United States Students Association, and Demos explains that for-profit colleges aggressively market high-interest loans that they know their students cannot pay back. The report calls on Congress to create a Consumer Financial Protection Agency to regulate, among other things, lending by for-profit colleges.


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