Nearly 10% of student borrowers default in the first four years after they graduate, according to a new study of education loans that suggests the federal government has taken too narrow a view when measuring repayments. Moreover, the likelihood of default varies drastically across racial lines with black and Hispanic graduates far more likely to default, according to the study, Hidden Details: A Closer Look at Student Loan Default, released by Education Sector, an education policy group based in Washington.

In September, Education Secretary Margaret Spellings announced that the student loan default rate had fallen from 5.1% in 2006 to 4.6%. But the Education Dept. data cover only the first 24 months after a student graduates. Longer Term Paints Starker Picture

The new study, released Oct. 23, analyzes data collected over 10 years by the National Center for Education Statistics (NCES) of 1993 college graduates. Instead of examining just the two-year cohort rate, published yearly by the Education Dept. which looks only at student loan default in the two years following graduation, Education Sector expands the window to reveal a starkly different picture of loan repayment.

“The problem is far bigger than the rates provided by the U.S. Department of Education suggest,” says Kevin Carey, research and policy manager for Education Sector. “And the problem is much more substantial for certain kinds of borrowers.”

Extrapolating from the NCES data, analysts found that the default rate was much higher than the Education Dept. rate, around 9.7%. Lenders Defend Lifetime Rates

The Education Dept. declined to comment about the discrepancy or the choice of its two-year cohort rate. Student lenders such as Sallie Mae («www.businessweek.com») say they largely disregard the cohort rate, and choose instead to view the business and health of student loans and student lenders based on the lifetime default rate. In 2003, the Education Dept.’s Office of the Inspector General found that the smaller two-year look at default doesn’t actually reflect long-term default trends.

“The two-year snapshot of student default rates offers some insight, but it’s really not as meaningful as the lifetime default rates,” says Kevin Bruns, executive director of America’s Student Loan Providers, an industry trade group. “What this report is saying is that loan performance immediately after graduating is not as telling as we may have thought.”

Beyond loans, the broader issue of student debt has become a topic of heated debate, focused on its causes and solutions. Credit-card companies have come under increased scrutiny for their college lending practices, as critics argue that aggressive marketing practices fuel ballooning student debt. Credit-card issuing banks take great issue with this charge, pointing to their extensive financial literacy programs and arguing that students are often (BusinessWeek.com, 9/4/07) than the general population. Parsing the Data

“Students are clearly struggling,” Carey says. The report highlights exactly which type of students are struggling and what aggravates that struggle. As loans get bigger, so, too, does the chance of default. Students who graduated with $15,000 or more in loans are three times as likely to default as students with less than $5,000. Separating the data according to post-graduation income, Education Sector found that student salaries immediately after graduation have a tacit and long-term effect on their ability to repay their loans. Students with the lowest salaries one year after graduation were four times as likely to default on their loans as students with the highest post-graduating paychecks.

Default rates vary drastically across racial lines with black students routinely defaulting at far greater rates. Black students were five times as likely to default than white students, and nine times as likely as Asian students surveyed. While not quite as large a discrepancy, Hispanic students also defaulted in greater rates than their white or Asian counterparts. Hispanic students’ overall default rates were more than twice the rate for white students and four times greater than Asian students. “Student loan default is a real problem,” Carey says. “The data…revealed that.”

TORY Leader David Cameron today called for former Scotland Secretary Douglas Alexander to be stripped of his responsibilty for elections after his role in May’s Holyrood vote fiasco.

At Prime Minister’s Questions he told Gordon Brown: “How can the MP responsible for this fiasco as Secretary of State for Scotland who is now International Development Secretary go round the world telling other people who to run their elections?'’

Mr Cameron demanded an apology from Mr Brown after the independent Gould report into the May poll accused Ministers of putting party political interest ahead of the proper running of the election.

The Prime Minister said the Report into the confusion caused by the ballot papers in May does not blame individuals or parties.

Mr Cameron said the report says ministers put partisan political interests before the voters’ interests. He asked how International Development Secretary Mr Alexander, in charge of Labour general election manifesto, could lecture other countries about electoral “probity” given his own track record at the Scottish elections.

Mr Brown said Mr Cameron was “misleading people” about the conclusions of the report.

This sparked a rebuke from Speaker Michael Martin who called for “temperate language from the prime minister”. MPs are not allowed accuse other members of lying in the House of Commons.

Mr Cameron said he did not know how the prime minister had the “gall” to accuse him of misleading anyone, and called for former Scotland Secretary Mr Alexander to explain himself to MPs and be stripped of his current responsibility for elections.

But he stopped short of calling for him to be sacked from the Cabinet.

The Paisley and Renfrewshire South MP has already said sorry for his role in the May elections fiasco.

His apology came as First Minister Alex Salmond said control over all Scottish elections should be transferred to the Scottish Government.

More than 140,000 votes were spoilt in May’s council and Holyrood elections.

International expert Ron Gould’s report claimed that Scottish ministers - in Edinburgh and London - had focused on partisan political interests and voters were treated as an “afterthought”.

The elections saw a new ballot paper design brought in and a new voting system for the council seats.

Mr Cameron described the mishandling of the Scottish elections as a “scandal”.

However, Mr Brown told the Commons the Gould report made clear that no one individual or organisation was to blame and accused the Conservatives of misleading people over its contents.

He said Tory and Liberal Democrat leader had agreed to the content of the ballot papers covering Holyrood and local elections.

A DEAL to freeze council tax rates is set to be reached within the next few weeks.

Finance Secretary John Swinney met local authority chiefs last week and has put a ‘carrot and stick’ deal to the country’s 32 councils under which those who agree to freeze rates will then be compensated by Holyrood.

The details of the deal are still to be thrashed out, but ministers say they are confident of reaching agreement in a move which would mean householders not paying anything extra on the bills when they are renewed in April 2008.

The pledge to freeze council tax bills was a key part of the SNP’s successful election campaign earlier this year. In the longer term the party intends to replace it with a new tax based on income.

Council tax bills have risen by an average of 51% over the last 10 years, from an average 651 per household in 1997 to 980 this year - significantly above the rate of inflation.

But if a deal between ministers and councils is agreed, next year could finally see some relief.

The plan hinges on a special 70m fund being created by Swinney which would be available only to those councils which agree to freeze their tax.

The fund would ensure Swinney does not have to take the drastic step of capping councils, which would be deeply resented.

A Government source said: “A fund is being set up and if you freeze your council tax then you get access to the funds.”

The behind-closed-doors discussion now revolves round how much cash Swinney will be able to offer local authorities so they do not have to raise council tax to pay for services.

Some council leaders are said to be resistant to the idea of having their hand forced by such a plan.

But Swinney has told Scotland on Sunday he is confident he can find a way through their objections.

Asked if he was certain a deal could be reached, he replied: “I am. My view is very firmly that there is an opportunity to take this forward, but we will only be able to do that by agreement and discussion with local authorities.”

Swinney will publish his budget plans for the next three years in the middle of next month, when local authorities will be given a clear indication of how much they are getting from ministers.

Four in every five pounds that local government spends in Scotland comes from Holyrood. Councils say that only by increasing that grant will they be able to keep a lid on rate rises.

Doubts were expressed over the ability of the SNP to fund a deal when council chiefs met privately on Friday.

It followed complaints by Swinney and First Minister Alex Salmond that they had been left short-changed by the Treasury after being handed what they described as a “lousy” funding deal.

But SNP chiefs believe that, as negotiations continue, the obstacles can be removed.

Swinney remained tight-lipped about the discussions, but said he was convinced that a council tax freeze was achievable.

He said: “We are taking forward with local authorities the discussions towards implementing the Government’s manifesto commitments.

“And freezing the council tax is one of those commitments.”

Pat Watters, president of the Convention of Scottish Local Authorities, said: “The discussing are ongoing.

“We have reiterated our position that if the Government is looking for additional measures like freezing council tax then they must be in a position to resource that.”

However, some local authority sources fear a freeze could come at the expense of other services.

Labour finance spokesman Andy Kerr said: “We should wait until we see the colour of Mr Salmond’s money.

“It’s all very well coming up with a bribery fund but there is a major question over how Mr Swinney is going to fund this and all the rest of his manifesto commitments.”

Kerr claimed that Swinney had already begun to roll back from his pledge.

“He said before the election that he would force councils to freeze council tax. That has now been ditched,” he said.

Swinney told Scotland on Sunday he was also hoping to offer councils the sweetener of reducing the amount of bureaucracy they had to deal with at a national level.

Instead of setting targets and allocating cash for certain projects, he intends to offer councils more leeway by agreeing objectives instead.

He said: “We are having a constructive discussion about other things which are of significant concern to local authorities such as the level of ring-fencing, the level of inspection and regulation that goes on.”

Swinney added: “The key thing is that they are self-governing organisations.

“The local authorities are self-governing organisations and they will take their own decisions.”