In total, 103 schools are currently designated HBCUs. They range in size and scope from 2-year colleges with relatively few programs to 4-year universities offering graduate degrees in several fields and enrolling more than 10,000 students. Although most students who attend are black, about one student in every six is not. Collectively, HBCUs enroll about 16 percent of all black students attending all 2-year and 4-year colleges and universities in the United States. Title IV authorized the Department of Education to bar postsecondary schools with high fiscal year “cohort default rates” from continuing to participate in federal student loan programs. Each year, the Department assesses a school’s eligibility on the basis of its three most recent available cohort default rates. In fiscal year 1998, eligibility is based on default rates for fiscal years 1993, 1994, and 1995. A school remains eligible if its cohort default rate is below the statutory threshold, currently 25 percent, in at least 1 of the latest 3 consecutive fiscal years. A school becomes ineligible if its default rate equals or exceeds the default threshold in all 3 fiscal years. The Higher Education Act exempts HBCUs from this threshold requirement through June 1998. In addition to the cohort default rate threshold specified in the Higher Education Act, the Department has established—through regulation—a provision that allows it to start procedures to limit, suspend, or terminate a school’s participation in all title IV federal student aid programs if the school’s cohort default rate for a single year exceeds 40 percent. The exemption from the statutory threshold for HBCUs does not extend to this provision. Students get federal loans from two major programs: the Federal Family Education Loan Program (FFELP) and William D. Ford Federal Direct Loan Program (FDLP). Loans made under FFELP are provided by private lenders and are ultimately guaranteed against default by the federal government. Loans made under FDLP are provided through schools, and the Department services and collects loans through contractors. FDLP was originally authorized by the Higher Education Amendments of 1992. Since the first loans under FDLP were made in the fourth quarter of fiscal year 1994, the fiscal year 1995 cohort is the first cohort affected by FDLP defaults. Students at HBCUs make extensive use of these loan programs. Although HBCU students accounted for 1.9 percent of fall 1995 enrollments at all 2-year and 4-year public and private schools, they were awarded 3.5 percent of the total dollar volume of student loans under FFELP and FDLP in fiscal year 1996 (see table 1). On average, HBCUs have a higher student loan default rate than non-HBCUs, but the difference has narrowed somewhat. Between fiscal years 1993 and 1995, the aggregate student loan cohort default rate for HBCUs declined from 20.6 percent to 18.5 percent while the rate for non-HBCUs increased from 7.4 percent to 7.8 percent (see fig. 1). Before 1987, little research had been published that identified the factors that could predict high student loan default rates. However, in the past 10 years several empirical research studies have analyzed student borrowers from proprietary (private, for profit) schools as well as from public and private 2-year and 4-year colleges and universities. A key theme derived from these studies is that student loan repayment and default behavior are primarily influenced by individual borrower characteristics rather than by the characteristics of the educational institutions they attend. For example, one study concluded that “student characteristics are of overwhelming importance in correctly predicting defaulters, in contrast to the institutions they attend, or the administrative practices those institutions use to try to curb student defaults.” The studies indicate that characteristics playing an important role in determining the level of student default rates are related to students’ academic preparation and socioeconomic background. In general, the higher the students’ academic preparation and more advantaged the socioeconomic background, the lower the likelihood of defaulting on their student loans. Factors indicating good academic preparation, such as staying in college, earning good grades, and advancing to graduation, significantly decrease the probability of default. Two of the most important factors accounting for different college graduation rates among institutions are actually precollege factors: high school grades and college admissions test scores. The higher the grades and test scores, the greater the incidence of college graduation. Similarly, studies have shown that students who come from a more advantaged socioeconomic background—indicated by higher parental education and income levels and two-parent families—have better high school grades and lower student loan default rates. Students attending 4-year HBCUs are less academically prepared and come from a more disadvantaged socioeconomic background than their counterparts attending all 4-year colleges and universities, according to our analysis of an annual survey of the fall 1996 freshman class. For example, relative to freshmen at all 4-year colleges and universities, HBCU students had a lower high school grade average and needed (or already had) more tutoring or remedial work. In addition, the rate at which students starting at the same school graduated within a 6-year period was lower for HBCUs than for non-HBCUs. 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. These findings help explain why HBCU student loan default rates have generally been higher than the rates for non-HBCUs. Freshmen at HBCUs and 2-year schools reported similar high school grades: they were much less likely to earn A’s and much more likely to earn B’s and C’s than freshmen at all 4-year colleges and universities (see fig. 2). For example, the portion of university freshmen with an A average exceeded the portion of HBCU and 2-year freshmen threefold. In contrast, over a quarter of HBCU and 2-year freshmen had a C average compared with 5 percent of university freshmen. In six subject areas (English, reading, mathematics, social studies, science, and foreign languages), an average of 11 percent of HBCU freshmen had special tutoring or remedial work compared with 7 percent of 2-year, 6 percent of 4-year, and 4 percent of university freshmen (see table 2). In addition, HBCU freshmen were nearly twice as likely to require additional tutoring or remedial work as freshmen at all colleges and universities. 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. The typical marital status of parents of HBCU freshmen differed from that of parents of freshmen at all colleges and universities. Nearly half of all HBCU freshmen (49 percent) reported the marital status of their parents as divorced or separated, while the majority of freshmen at all schools reported that their parents were living together (see fig. 3). Fewer parents of HBCU and 2-year college freshmen had attained a college degree than had parents of 4-year college and university freshmen (see fig. 4). About 20 percent of HBCU and 2-year college freshmen reported that their parents had a college degree, compared with 26 percent or more of 4-year college and university freshmen. Compared with parents of all freshmen, parents of HBCU freshmen were more likely to have lower incomes. The portion of freshmen with parents who had incomes of less than $20,000 ranged from 29 percent for HBCU freshmen to 9 percent for university freshmen (see fig. 5). In contrast, only 22 percent of parents of HBCU freshmen had incomes of $60,000 or more, compared with 52 percent for parents of university freshmen. HBCU freshmen were much more likely to receive Pell grant aid than their counterparts at all schools, another indicator of parental income (see fig. 6). Generally, the lower the parents’ income, the greater the amount of financial aid received. Federal Pell grants, available only to undergraduate students, under title IV, are designed to help students who have the greatest financial need. Grants need not be repaid, and the maximum Pell grant award amount for school year 1995-96 was $2,340. Although HBCU students as a group differ substantially from students at all colleges and universities in their academic preparation and socioeconomic backgrounds, our analysis indicates that the same kinds of differences exist among students at individual HBCUs. That is, when HBCUs are divided into groups according to their default rates, the characteristics of students at schools with the highest default rates reflect less academic preparation and more disadvantaged socioeconomic backgrounds. These links between student characteristics and the magnitude of default rates at HBCUs are consistent with the research that has shown certain student characteristics to be linked to student loan defaults. We based our analysis on undergraduate students at 83 4-year HBCUs that conferred bachelor’s degrees during the 1993-94 school year and for which the Department had reported student loan default rate statistics for the 1993-95 cohorts. Collectively, the default rate for these HBCUs averaged 20 percent over the 3-year period. We grouped the 83 HBCUs into low, medium, and high default categories to facilitate comparisons of student characteristics among three groups of HBCUs. For the low group, the average default rate was 11.5 percent compared with 31 percent for the high group.