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Here's Minnesota's latest 2- and 3-year default rates on student loans, as compiled by the state Office of Higher Education (OHE).

The data was released rather quietly late last week by the U.S. Department of Education, and state analyst Tricia Grimes was able to release her work yesterday. The office should release the final report in the weeks to come.

Two sets of developments seem to be at play this year:

1) Under the standard measuring system, Minnesota's default rates have inched up a bit more than the national average did this year; and

2) A new measuring system has begun. Its first results have caused default rates to jump across the board -- even though nothing has changed at the schools themselves.

Under the standard measuring system, Minnesota's (2-year) student-loan default rate increased from 5.8 percent in 2009 to 6.9 percent in 2010. That new number is still below the national average of 9.1 percent.

But that increase was sharper than the national increase of 8.8 to 9.1 percent, leading state Office of Higher Ed Director Larry Pogemiller to tell me:

OHE officials also highlighted the differences in default rates between Minnesota's for-profit sector and its two-year community and technical colleges.

Nationally, public-two years tend to have better default rates. But in Minnesota, it's just the opposite. Here, public two-years had average 2-year default rates of 11.7 percent in 2010 vs. 5.6 percent for two-year for-profits and 6.8 percent for 4-year for-profits.

State officials couldn't explain why, but said Minnesota's career-college sector is long-established and perhaps more regulated than those in other states.

But let's look at the second development.

This year marked the first time the feds came out with the official results of a new measurement: the three-year default rate.

Here's how state and federal education officials explained the change:

Apparently, officials thought most people who defaulted on their student loans would do so within two years of leaving school (with or without a degree).

But they came to believe that many more defaulted after that period, so the old measurement didn't really give an accurate picture. Expanding their look to the first three years would do a much better job.

Of course, increasing the period by 50 percent (an extra year) means more time for something bad to happen to a borrower -- loss of a job, an expensive illness, etc. -- so default rates naturally go up across the board.

So that 5.8 percent default rate for Minnesota for for 2009 is suddenly 9 percent under the three-year measurement.

And the U.S. default rate rises from 8.8 percent to 13.4 percent -- a greater increase than Minnesota's. Notice, too that most of Minnesota's peer states in the Big 10 have seen their default rates jump by greater margins as well.

So then is Minnesota actually increasing its lead over the national and regional average, or narrowing? Hard to say at this point.

So why is this new measurement important?

For most schools, it shouldn't make much of a difference, other than they'll have to face grimmer, more realistic figures.

For some, though, it could carry some consequences.

Federal authorities say colleges whose three-year default rates meet or exceed 30 percent could face default-management plans, and state analyst Tricia Grimes said schools could lose their access to financial aid if they hit 30 percent or higher for three years in a row.

The highest three-year default rates come from Hibbing Community College (25.3 percent), Mesabi Range Community and Technical College (25 percent), Cosmetology Careers Unlimited in Hibbing (31.2 percent) and Duluth Business University (26.7 percent).

Grimes says she thinks those schools may have the highest rates because they're in an economically tougher areas that suffer from higher unemployment, on average, than the rest of the state.

Only Cosmetology Careers Unlimited breached the 30 percent limit. But owner Richard Shaffer told me his school has only 16 students, and so is too small to be held to the same standard as others.

(The idea is that any change in an individual student could disproportionately affect the rating of the school as a whole. That leads to wild percentage swings even though the changes are small.)

Schaffer says future default rates will be averaged in with this year's, and that chances are he'll have more time than most to bring his rate down. He said he has already employed a third-party loan-default counselor, which should improve the situation.

Grimes says many of the loan defaults are preventable, but borrowers aren't aware of their options. Many students, for example, have access to:

- loan-forgiveness plans for teachers, government workers and nonprofit workers; and

- deferment plans for those who are unemployed or experiencing financial difficulty.

You can find default rates for individual schools in the report above.

Education News

On Campus Blog

Alex Friedrich

Author

Here’s Minnesota’s latest 2- and 3-year default rates on student loans, as compiled by the state Office of Higher Education (OHE). The data was released rather quietly late last week by the U.S. Department of Education, and state analyst Tricia Grimes was able to release her work yesterday. The office should release the final report…

How often are Minnesotans defaulting on student loans?

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