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Student-loan defaults: A measure of a school’s quality

Trade School Debt

Susana Holloway of Le Cordon Bleu’s culinary school in Portland, Ore., where a 15- or 21-month program costs $41,000. Photo: Leah Nash for The New York Times

Education is a big business. And it’s not just because tuition at some private universities costs more than several cars. It’s actually a real big business, with for-profit colleges developing into a major force of their own in the educational world.

The degree to which a number of very large high-profile for-profit universities are actually effective institutes of education has been covered quite a bit – by both the New York Times and ProPublica – but the industry isn’t just composed of large Internet universities or predatory schools that exist only on paper.

There are hundreds of smaller schools all over the country – some quite good and some that do seem rather predatory or fraudulent. Many of them are trade schools – some teaching a specific skill, or certifying workers in a trade  and many advertising training and job-placement for a career as a hair-dresser, chef or mechanic.

One key figure to help determine how quality a school is (and this is true whether it’s for-profit or not) is the rate at which students default on their student loans.

The theory is that defaults happen when students are not getting what they were promised when they enrolled (and signed onto student loans) and haven’t completed their education, or when graduates struggle to find a job, a sign that the education wasn’t that useful or, at least, the school’s career assistance isn’t.

To get a sense of how well the schools in your area are doing, check out the Department of Education’s statistics on student loan default rates.

On Monday, the Department of Education released its latest data – and found nationally there is an increase in default rates. If a school has unnaturally high default rates it can get kicked out of the federal student loan program. That’s a relative rarity, but it’s worth noting that four of the five schools facing sanctions from the Department of Education for having too many students in default are small, for-profit trade schools with local draw for students.

(It should be noted that default rates for non-profit schools are also up – though they are significantly lower than for-profit schools where as many as 15 percent of students are defaulting on their loans.)

Of course, less-than-honest recruitment techniques or failing to prepare students for post-graduation world is not the only reason students are struggling to repay loans. A changing economy hits different industries harder than others – and that may well be reflected in the rates of students at a certain type of trade school defaulting on their loans. Are graduates of the local beauty school struggling to land work? It could be the canary in the coal mine for your area or for certain parts of the community on your beat – nationally, hair salons are booming as consumers seem reluctant  to give up getting their hair done.

The flip side is that a beauty school with unusually low rates of loan defaults could be a genuine good news story.

And discussing the student loans taken out by students in your area to attend a trade school should be part of any article about how the unemployed – whether laid off or new to the workforce – are trying to make it in tough economic times.

In Economy, Featured, Investing | Banking, Story ideas.

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