Low diploma rates hurt UA, ASU loans

Low graduation rates at Arizona's public universities might keep students from an increasingly popular cash source for college expenses.

Sallie Mae, the nation’s largest student loan firm, is reeling from the loss of at least $1.2 billion last year on defaulted private loans. The firm recently announced it intends to stop making such loans to those enrolled at schools struggling to graduate a large share of their students.

Most of those bad loans came from students who dropped out of school, said Martha Holler, a Sallie Mae spokeswoman.

“That’s why we’re so focused on graduation rates moving forward,” Holler said.

Arizona State University and the University of Arizona are among the worst large, public research universities at guiding students to diplomas within six years.

ASU and UA have slightly improved their graduation rates — 56 percent and 58 percent, respectively — during the past five years. Northern Arizona University graduates only about 45 percent of its students.

Those rates measure how many full-time students graduate within six years of enrolling.

Sallie Mae hasn’t decided how low is too low when it comes to graduation rates, Holler said. Asked if ASU could be among those excluded from the firm’s private loans, she responded: “That’s a great question.”

It’s unknown how many ASU students have received private loans from Sallie Mae.

Craig Fennell, ASU’s financial aid director, declined to comment. He said he could not provide details last week on how much private loan business the lender does at Arizona State.

No matter what Sallie Mae decides, ASU Provost Elizabeth Capaldi argues the graduation rates paint a misleading picture of how universities are performing.

Students count as dropouts if they take fewer than 12 credit hours in a semester, transfer to another university, or even if they graduate after leaving school for a period of time.

Even so, Capaldi has spent much of her 18 months at ASU working to increase the graduation rate.

“I’m not proud of it,” Capaldi said, “but we’re not as bad as lots of people.”

ASU’s graduation rate is low for a number of reasons. The university accepts about 90 percent of applicants, including many not prepared for college course work.

Another obstacle is that many ASU students must balance work and studies.

“I don’t know if you’ve ever been at graduation where (ASU President) Michael (Crow) says, ‘How many of you have worked?’ One-hundred percent of our students raise their hand,” she said.

People who earn a bachelor’s degree can enter higher-paying careers, enabling them to repay loans more easily. Those who drop out of college typically gain little financial benefit from their educations and are more likely to default on their loans.

Most students rely on federal loans guaranteeing low interest rates and flexible repayment plans.

Private loans are, traditionally, students’ last resort because they come with far higher interest rates than federal loans.

Student advocacy groups are celebrating Sallie Mae’s retreat on private loans.

“Frankly, it’s good that Sallie Mae is going to stop aggressively marketing costly and risky loans to students they know can’t afford to pay them back,” said Lauren Asher, associate director of the Project on Student Debt.

Asher argues undergraduate students at public universities, like Arizona’s, should be able to limit their borrowing to federal loans.

Regardless, the private loan business has grown at a startling pace — particularly at ASU.

In 2005, the university’s students, and their parents, took on at least $31 million in private loans, according to data from the Arizona Board of Regents.

By last school year, that amount swelled to nearly $62 million.

And those figures are likely below the real amount borrowed, said Dan Anderson, a research analyst for the regents. ASU’s financial aid office cannot track how many parents take on second mortgages, or use other types of borrowing, to help pay college expenses. The number of ASU students borrowing from the federal government has slowly dropped the past two years, regents data shows.

But private loans appear to have more than made up the difference.

Two years ago, 41 percent of the university’s undergraduate students used federal loans, compared with just 6 percent for private loans. Now, only 37 percent take federal loans and 9 percent use private loans — which, in raw numbers, means that almost twice as many students are taking the expensive loans.

Private loans have more than doubled at NAU, regents data shows.

Student advocates and policymakers in the state have spent years discussing student debt.

However, private loans haven’t entered the conversation, said Serena Unrein, executive director of the Arizona Students Association.

Unrein said she wasn’t aware of the rise in private borrowing here. “Perhaps that’s something that should be on our radar now,” she said.

At some universities, students have turned to private loans to cover the rocketing costs of tuition, books and housing.

Students can borrow up to $23,000 from the government for college, but expenses can rise far above that over the years required to earn a bachelor’s degree.

At Arizona’s universities, students on average graduate with $18,000 in debt, the regents’ data shows, indicating students are choosing more expensive private loans instead of federal loans.

For now, it is unclear exactly why.

“It seems like there’s an explosion in the marketing of private loans,” Unrein said. “And it seems like I can’t watch TV without seeing a loan for Astrive or other such lending companies that really emphasize that, hey, these private loans are out there.”