Why Does Colorado Have Such a High Student Loan Default Rate?

Colorado 2nd Among U.S. States in Student Loan Defaults. Why?

Why does Colorado have the second highest student loan default rate in the nation?

According to information provided by the U.S. Department of Education, as of 2009 Colorado had the second-highest federal student loan default rate among all 50 states at 11.7%. Only Arizona (at 16%!) ranked higher. Just behind Colorado came Arkansas (11.6%), and Iowa (11.5%). Colorado's rate is considerably higher than the national average default rate of 8.8% among public, private-not-for-profit, and for-profit institutions combined, according to the U.S. Department of Education.

According to another Dept. of Education report, the national default rate of public college and university students by 2009 was 7.2%; for not-for-profit private institutions, 4.6%; for for-profit institutions, a staggering 15.0% overall. This report indicated that defaults had increased year-on-year from 2007 across all institutional categories.

As a newcomer to Colorado and the state's higher educational scene, I am frankly mystified by Colorado's prominence as a student loan deadbeat state, because I know that Colorado as a whole had not been impacted as much by the "Great Recession" as states such as California, Florida, and Nevada (as well as Arizona). And yet, at least as of 2009, there were proportionately more deadbeats in Colorado than in California, Florida, or Nevada (although this may change as the effects of the recession continue to linger on). Why?

The Reasons (To me) Are Unclear

After a search on Google and our UNC library database, I was unable to find any news articles or research online that directly researched higher state default rates in a comparative sense, with respect to Colorado. Therefore, I began an indirect investigation.

According to James R. Kvaal, deputy under secretary of education, two trends are causing default rates to rise: First, the continuing dismal economic outlook for college graduates in general (There's a strong correlation between student-loan default rates and unemployment rates, as well as credit-delinquency rates, per Mr. Kvaal), and secondly, the growth in for-profit colleges, which have a disproportionately high student-loan default rate. However, according to recent 2011 U.S. Department of Labor statistics, Colorado's state unemployment rate is currently around 8.3%, which is below the national average of around 9.0% (although this is a particular challenging job market for young adults nationally, I could not find comparative young adult unemployment figures by state). Meanwhile, according to a 2010 article in the Denver Times, about 25% of Colorado’s 375,168 college students were enrolled in 2- and 4-year for-profit colleges as of Fall 2008, which is actually some 2% less than 27% national enrollment rate of students who enrolled in private for-profit institutions, according to the National Center of Education Statistics.

Very well. What else might cause Colorado's abnormally high student loan default rate? How about minority student enrollment? According to a 2010 study, the percentage of minority students enrolled at a given college correlated more strongly with that college’s loan repayment rate than the correlation with the percentage of Pell Grant (low-income) recipients at that same college. Does Colorado state have a proportionately higher number of minority students enrolled in its respective higher educational system? According to a 2008 study, Colorado state as a whole was composed of some 29% minority residents. Meanwhile, some 22% of enrolled college freshmen in 2007 were minorities throughout the state (public) higher educational system. And so, minority student enrollment does not seem to correlate with Colorado's high student default rate.

How about out-of-state students (both national and international) as a percentage of Colorado's higher education student population? As they would have to pay out-of-state tuition, which might be correlated with higher rates of student default (per a National Center for Education Statistics report, public 4-year institutions charged in-state undergraduates an average of $6,070 in tuition & related fees, out-of-state undergraduates $14,378), could this be a correlating factor? According to one article I came across, overall out-of-state national student enrollment was around 20% across all higher educational institutions in the mid-2000s (logically, that number would be lower nowadays, post-Great Recession). According to one source, nowadays Colorado does not seem to have an above-average percentage of out-of-state college students, with such over-achieving institutions as Colorado College (over 70%) and CU Boulder (well over 40%), balanced out by the likes of CSU (17%), UNC (11%), and all of the community colleges and For-Profits in the state that enroll substantially fewer than 10% of out-of- state students (I was unable to obtain precise out-of-state student statistics for Colorado as a whole).

Rising Cost of Living, Tuition, and Total Debt Load, Perhaps?

Finally, how about generally rising costs? With respect to tuition and cost-of-living, along with rising debt load amounts?

First, according to this 2010 Ed News of Colorado report, Colorado only ranks 40^th of 49 states in terms of average college student debt load with the average debt being $18,321, according to the Project on Student Debt. Meanwhile, our state ranks 38^th of 49 when you look at the proportion of students carrying debt for school. So then, is it the fact that Colorado has a high cost of living that impacts student loan payability? Well, according to this report, Colorado ranked 32nd out of 50 states in overall cost of living during the 3rd quarter of this year of 2011.

Where perhaps a root cause of Colorado state's high student loan default rate lies is just how steeply the state's average college tuition rates have risen in recent years. According to this Chronicle of Higher Education story, national college tuition rates have risen about 6% a year on average over the last decade (2001-2010). But according to Proposition 103 proponents, college tuition has risen 43% in Colorado over the last five years (an average of about 8.6% a year). I frankly haven't found a source yet to collaborate this data, but if valid then this sharp rise might account for some recent student loan defaults. The problem is, many of these reported state loan defaults originated several years ago, not recently, and so recent spikes in tuition costs would not explain their occurrence. Meanwhile, some states like California, in particular, have suffered even steeper recent tuition increases than Colorado, and yet still have lower overall student loan default rates (thus far, at least).

The Mystery Remains...For Now

My brief investigation into this issue failed to yield any conclusive results and insights. I would be especially interested in any feedback from my colleagues and instructor regarding this topic. Perhaps the principle cause lies with the fact that Colorado ranks close to the very bottom of the nation in proportionate amount of public funding allocated for higher education, due to effects propagated by the state's so-called Taxpaper Bill of Rights (TABOR) passed in 1992 which severely restricted the degree to which higher education could be supported with public funding (Prop 103 was meant in part to ameliorate its ongoing impact). However, the impact of TABOR seems to insufficiently account for Colorado's near nationally-leading student loan default rate, given that so many other meaningful, higher education-related metrics are near national averages, per the discussion above. Again, comments and insights are especially welcome!