The Presence of Subprime Loan Awards and Default Rates of Proprietary Universities

The debt burden on college students is threatening the future of an educated society. Students' inability to pay their debt results in increases in the federal student loan default rates and affects colleges' cohort default rates, which has a direct impact on post secondary institutions' revenue. The purpose of this quantitative, correlational study was to examine the relationship between the presence of subprime loans awarded by proprietary institutions and the1-year student loan default rates or the 2-year institutional cohort default rates. Rational choice of human behavior provided the theoretical framework for this study. The secondary data included all 132 reporting U.S. proprietary institutions that offer 4-year degrees. Three additional variables were employed to define the demographic profile (age, gender, and race) of students using subprime loans to assist with financing their education to increase the understanding of the characteristics of the student population that may affect the cohort default rates. The first multiple-regression model showed a statistically significant relationship existed between the presence of subprime loans awarded to students at proprietary institutions and the 1-year student default rates with respect to age and race. The second model, while overall insignificant at the .05 level, demonstrated a significant relationship between default 2-year cohort default rates and age. The results of the study may have a positive impact on social change by catalyzing policy changes to limit subprime lending, increase Title IV funding, and decrease student debt loads and default rates, thereby improving revenues to proprietary institutions and Title IV federal funding.