Student Loans Repayment Rate To Determine Federal Funding Eligibility

As the Obama administration and Congress push for tougher regulation of for-profit colleges, the Federal Education Department has formulated a strategy based on student loans repayment rates which proposes to cut federal funding of for-profit colleges that fail to perform. For-profit colleges, which currently depend on federal funding for up to 90 percent of their revenue, could see their access to federal funds restricted or cut off entirely if they fail to meet standards imposed by these tough new rules.

The Federal Education Department has decided to measure the performance of these for profit colleges by the student loan repayment rates of students – the percentage of students who are repaying the principal of their loans, and also the graduate’s debt burden – what share of the student’s salary goes towards repaying their loans. If a for-profit college performs badly at one of these tests, their Federal funding will be cut, and if it performs badly in both of these tests, the college may become ineligible for Federal funding.

The minimum student loan repayment rate has been set at 35 percent, and if the college’s rate falls below 35 percent and also fails the student debt burden test, it will become ineligible for Federal funding. Colleges with student loan repayment rates between 35 percent and 45 percent will also be penalized, and have their access to Federal funding restricted. If the student loan repayment rate exceeds 45 percent, this will be deemed acceptable and the college will not be subjected to any further Federal scrutiny.

Recent figures released by the Education Department showed that on average, the student loan repayment rate for for-profit colleges was around 36 percent, as compared to 55 percent at non-profit colleges.