Little Rock undergoing cancer treatment. While acting as her mother’s caregiver, Peck couldn’t handle her bills. She deferred to avoid defaulting. She knew that, in addition to destroying her credit rating, a default would allow the government to garnish wages, social security and tax returns. For the past few years, both national and state default rates have risen steadily. According to the U.S. Department of Education, the national default rate for loans applied to public institutions is 8.8 percent, up from 7 percent in 2008. Arkansas’s public two-year institutions have a 16 percent default rate, which jumps to 20 percent for its historically black colleges. The latter may reflect the median household income of black Arkansans, which was $23,000 in 2006, as compared to the state average of $35,599. Forprofit colleges with branches that cater to older Arkansas students have national default rates of 18 percent.
I
van Reyes is in his second year at Pulaski Technical Institute, where he is double majoring in IT and culinary arts. With 11,199 students, Pulaski Tech is Arkansas’s largest public two-year college. Reyes is 33 years old and a single father of three. When he graduates next year, he’ll be roughly $36,000 in debt. Most afternoons, Reyes camps in a booth in the Pulaski Tech cafe, nursing a giant soda and poring over binders and books. This is his self-imposed study hall, the cushion between his day shift as the cafe’s stir-fry cook and his evening classes. “They call us ‘change-takers,’ ” he said, momentarily abandoning his binder to squint out the window at the waning winter sun. “It means you get the loan check, cash it and bounce,” meaning skip out on classes. Reyes never intended to be a change-taker. When he enrolled in the University of Arkansas at Little Rock as a freshman in 1999, he had the best intentions. Reyes is a first-generation American. He was born in Little Rock, but his parents are from Colombia. His father never understood why he wanted to go to college. “My dad, he’s old school Latino. Old school Latinos, man, that’s why they love America. You come here and get a job off the bat, but if my dad didn’t work 60 hours a week, he couldn’t make any real money. He told me to go to McDonald’s. But that’s stupid, man. Why not find a job that pays double, while working regular 40 hours like everybody else?” His entire life, Reyes watched his mother work 12-hour shifts, seven days a week, at Luby’s Cafeteria, while his father pieced together part-time and fulltime jobs. That’s why, despite landing at an alternative learning center rather than a traditional high school, he made sure to get his GED and enroll in college. His parents couldn’t help with tuition, so Reyes took out loans. “They set up tables, you just walked in and picked up an application, and then they told you what you were getting,” he remembers. Reyes’
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JANUARY 11, 2012
ARKANSAS TIMES
According to the U.S. Department of Education, the national default rate for loans applied to public institutions is 8.8 percent, up from seven percent in 2008. Arkansas’s public two-year institutions have a 16 percent default rate.
loans were applied to his tuition, and the excess — books and living expenses — came to him in the form of a personal check. “I was partying a lot. I decided to keep the party going,” he said. “I didn’t get my hand slapped, so I thought I could do it again.” Reyes managed to “party” for six consecutive semesters. “I didn’t know it had a name till the second time. I thought it was just me. Then I heard some people talking about change-taking.
I was just thinking, take the money and run,” he explained. Three years in, Reyes was on academic probation and eventually, UALR booted him out. At 23 he moved back to his mom’s house and began working retail and paying his loans. But once he got his own place, he was forced to defer his payments. “I started to let my loans go into default,” Reyes says. “It was the grace of a really good friend who paid to get them back on track.”
F
ederal and state lending agencies such as Sallie Mae and the Arkansas Student Loan Authority (ASLA) were established to administer Federal Family Education Loans (FFELP) in the 1970s, when rising education costs and enrollment made banks hesitant to underwrite student loans. But after the federal Healthcare and Education Reconciliation Act of 2010, the Department of Education began to administer loans directly. Congress figured that if the government could avoid middleman subsidiaries, it might avoid exorbitant interest rates. ASLA is a quasi-governmental agency, a nonprofit responsible to the state legislature. According to director Tony Williams, it has never received state funding. ASLA’s entire budget is funded through interest fees. ASLA is in a period of transition. It currently holds $500 million in Arkansas student debt. Since it lost its ability to lend, ASLA has functioned solely as a financial aid educator. But in January 2012, it expects to begin servicing FFELP loans, which will allow it to collect government fees. Instead of functioning as both lender and collector, it will simply collect federal loan payments. ASLA has the option of privatizing, as Sallie Mae did, but according to Williams that will only happen if Arkansas students can’t find alternative funding. “We’d like to see if there’s a need before we get into it. The lottery scholarship is still new. We’re hoping that it will lower the need for student loans,” he said.
E
ach college determines its own students’ financial aid eligibility, including how much a student can borrow in private loans. Then the lending agency assesses the risk factors and determines the interest rate. In the case of federal loans, a standard interest rate is set by Congress and eligibility is factored from data collected on the FAFSA form. Eighty-six percent of Pulaski Tech students receive financial aid to cover $2,840 in annual tuition. The school estimates that, with books and living expenses, current expenses are about $16,400 annually. According to data collected by the National Center for Education statistics, 56 percent of its students borrow funds to cope with this cost, and 14.7 percent of those students have loans in default. At UALR, annual in-state tuition is $6,643, and just short of half — 43 percent — of current