On average, HBCUs have a higher student loan default rate than non-HBCUs, but the difference has narrowed somewhat. 1). Relative to parents of freshmen at all 4-year colleges and universities, parents of 4-year HBCU freshmen were more likely to be divorced or separated, less likely to have a college education, and more likely to earn less than $20,000 a year. 2). A comparison of the average 6-year graduation rate—another measure of academic preparedness—showed a 35-percent rate for 4-year HBCUs compared with 54 percent for 4-year non-HBCUs, a difference of 19 percentage points. 3). 5). 6). 7). Our comparisons showed that students at high-default-rate HBCUs consistently had more disadvantaged socioeconomic characteristics than students at HBCUs with low default rates. 8). 10). Department Measures to Reduce Defaults Are Aimed at All Schools

According to Department officials, default reduction measures apply to all schools participating in federal student loan programs and are not specifically aimed at lowering high default rates at HBCUs. These measures were part of the default reduction initiative that the Department introduced in June 1989 in response to the rising default rates in federal student loan programs at that time. Fewer HBCUs Are at Risk of Losing Student Loan Program Eligibility

In August 1993, we reported that 33 HBCUs had 1988-90 cohort default rates equal to or greater than the 25-percent statutory threshold. Of these 14 HBCUs, 8 were schools that were included in the 1988-90 cohorts that still remain at risk and 6 had not been at risk in the 1988-90 cohorts. We asked them what measures their schools had taken to reduce or minimize their student loan default rates. They most often cited loan counseling or early intervention with delinquent borrowers as the measures they had taken to address defaults. We were asked to address several issues regarding default rates at Historically Black Colleges and Universities (HBCU), including an analysis of these kinds of links. 9, No. Comparing Students at HBCUs With Those of All Colleges and Universities

To determine how these academic preparation and socioeconomic characteristics of students enrolled at HBCUs compared with those of students at all colleges and universities, we reviewed the literature and identified one research study that reported academic and socioeconomic information by type of school. Department and HBCU Measures to Reduce Student Loan Default Rates

We obtained information on measures the Department of Education has taken or planned to help HBCUs lower their default rates from federal regulations, Department publications, and interviews with Department officials. We reviewed the Department’s Default Management Report for 1993-95 cohorts to determine the current status of the 33 HBCUs identified in our earlier report as having the potential to lose their eligibility to participate in title IV loan programs because of high default rates. To determine the measures HBCUs were taking to reduce their default rates, we conducted a telephone survey of financial aid administrators at 26 HBCUs. Seventeen of these had been among the 33 HBCUs identified in our earlier report as being at risk of losing their eligibility but had subsequently lowered their default rates below the statutory level for at least 1 of the 3 1993-95 cohort years. Selected Academic Preparation and Socioeconomic Background Student Characteristics Linked to Student Loan Default

From our review of research, we identified and selected academic preparation and socioeconomic student characteristics that have been shown to affect student loan default rates and for which data were available. Higher level of education linked to lower default rate. For comparing high- to low-default HBCUs, parents’ income is their adjusted gross income as reported on the 1995-96 school year Free Application for Federal Student Aid. 2.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed several issues regarding default rates at historically black colleges and universities (HBCU), focusing on: (1) a comparison of freshman students at HBCUs with those at all colleges and universities in terms of the academic and socioeconomic characteristics that have been linked to student loan defaults; (2) differences in socioeconomic characteristics among 4-year HBCUs, for undergraduate students with higher default rates compared with schools with lower default rates; (3) measures the Department of Education has taken or planned to help HBCUs reduce their student loan default rates; (4) the number of HBCUs that are potentially at risk of losing title IV student loan eligibility because of high default rates in 1993-95, and how many of these were potentially at risk in 1988-90; and (5) measures HBCUs have taken to reduce or minimize their student loan default rates.

What GAO Found

GAO noted that: (1) HBCUs have enrolled a higher percentage of freshmen who, compared with their peers at all institutions, are less prepared academically and come from more disadvantaged socioeconomic backgrounds; (2) the 1995 graduation rate for 4-year HBCUs (35 percent) was substantially below that of non-HBCU students (54 percent); (3) students at HBCUs were twice as likely to come from a home where parents were divorced or separated, and their parents generally had lower education and income levels than parents of students at all colleges and universities; (4) when the analysis is narrowed to only HBCUs, the same pattern is found; (5) in general, HBCUs with lower default rates enrolled students with more academic preparation and higher socioeconomic levels; (6) parents of students receiving federal financial aid at HBCUs with lower default rates generally had higher average adjusted gross incomes and more education and were more likely to be married; (7) the Department of Education employs a number of measures to help schools reduce student loan defaults; (8) these measures apply to all schools, as the Department has no separate or specific default reduction program for HBCUs; (9) the Department's primary efforts were introduced in 1989 as its default reduction initiative and include such activity as supporting schools' efforts to provide financial aid counseling to student borrowers and followup with delinquent borrowers; (10) according to the most recent computations available (for 1993-95), 14 HBCUs were potentially at risk of losing their student loan program eligibility because their default rates remained at or above 25 percent for 3 consecutive years; (11) this is fewer than the 33 HBCUs that GAO reported in August 1993 as potentially at risk on the basis of their 1988-90 default rates; (12) of these 33 HBCUs, 8 remained potentially at risk on the basis of their 1993-95 default rates (6 more subsequently became potentially at risk), 19 were no longer at risk and were eligible to participate in federal student loan programs, and 6 were no longer participating in the program; (13) financial aid administrators at 22 HBCUs GAO surveyed cited default reduction measures promoted by the Department--loan counseling and early intervention with delinquent borrowers--as the default reduction measures they most often used in managing their student loan default rates; and (14) this survey included administrators at 14 of the 33 HBCUs that GAO previously reported could be at risk of losing their student loan eligibility--if they were not subject to the exemption--based on their 1988-90 default rates.