Should Students in “Boot Camps” Get Federal Financial Aid?

In the last several years, a number of companies have started short-term, intensive training programs in fields such as computer programming, Web design, and business designed to give fresh college graduates the skills they need to land lucrative jobs in growing fields. These “boot camps” include offerings by start-up companies such as Dev Bootcamp, General Assembly, and Koru as well as some entries from branches of traditional colleges (such as Rutgers). This sector is rapidly growing, with one organization estimating that about 16,000 students will complete coding boot camps in 2015.

Boot camps may tout their high job placement rates, but they are not cheap for students. The typical program costs about $11,000 for an 11-week program, although shorter options are often available in some fields. Unlike for most undergraduate and graduate programs through traditional colleges, these programs are currently not eligible for federal financial aid dollars. This means that students have two options to pay for these programs: paying out of pocket or taking out a private loan. However, the U.S. Department of Education is beginning an “experimental sites” program that will allow a small number of colleges to partner with unaccredited providers like boot camps to offer courses and receive federal financial aid.

Should students in boot camp programs be able to receive federal grants and loans? The best argument toward allowing students to receive federal funds for these programs (after a careful vetting process) is that it would allow students with modest financial means and little creditworthiness of their own to easily pay for some or all of these programs. These programs tend to recruit heavily from selective colleges with fewer low-income students (see the list of Koru’s partners), where ability to pay hasn’t been such a concern to this point. But as the sector expands to include colleges with more economic diversity, financing these programs could become a problem.

On the other hand, the highly vocational nature of these programs allows for different financing structures to make sense. This can happen through private loans focused on high-quality programs, which is the goal of the partnership between private lenders Skills Fund and six boot camps. Income share agreements are also a potential fit in this area, although I do have concerns about whether successful graduates would want to give up equity in themselves rather than just make loan payments. Finally, it remains to be seen whether boot camps themselves would actually be interested in going through certification and quality assurance processes that are likely to accompany federal student aid. For example, General Assembly’s co-founder told Inside Higher Ed that he didn’t want to receive federal student aid due to concerns about federal aid leading to higher prices in the future (the so-called “Bennett Hypothesis”). Others, such as Alex Holt at New America, have concerns about additional federal oversight leading to reduced program quality and less innovation.

I’ve thought about the dueling concerns of access and flexibility regarding boot camps, and I still don’t know exactly where I stand. The good thing here is that we’re likely to have a small number of programs get access to federal financial aid, so the effects of federal funding (and rules) can be examined before opening the spigot for more interested programs. I’d love to hear your thoughts on this question below, as this is a developing issue on which research badly needs to be conducted.

How Well Do Default Rates Reflect Student Loan Repayment?

This post initially appeared at the Brown Center Chalkboard blog.

The U.S. Department of Education released new data this week on colleges’ cohort default rates (CDR)—reflecting the percentage of a college’s former students with federal student loans who entered repayment in Fiscal Year 2012 and defaulted by the end of Fiscal Year 2014. The average CDR dropped to 11.8 percent in Fiscal Year 2012, down from 13.7 percent in FY 2011 and 14.7 percent in FY 2010. Eight colleges had a CDR over 30 percent for three consecutive years, subjecting them to the loss of all federal financial aid dollars. Over 100 additional colleges had a CDR over 30 percent in the 2012 cohort, putting them at risk of losing funds if their performance does not improve.

Yet although CDRs are important for accountability purposes, they do not necessarily reflect whether students are repaying their loans.  As of June 30, 2015, just over half of the $623 billion in Direct Loans made to students who have entered repayment are in current repayment. In addition to the $48 billion in loans in default, an additional $63 billion are more than 30 days delinquent and $180 billion are in deferment and forbearance. Deferment and forbearance are not always bad things, as students can qualify for either by being in the military or pursuing graduate studies. However, students can also request deferment and forbearance for economic hardship, while interest still accrues. The presence of income-based repayment plans, in which students making below 150 percent of the federal poverty line can make no payments while still remaining current on their loan, further complicates any analyses. All of these complications make cohort default rates a weak metric of whether students are actually paying back their loans.

Are students repaying their loans? A look using College Scorecard data

The Department of Education’s recent release of College Scorecard data provides new insights into whether students are repaying their loans, while also allowing for comparisons to be made to the current CDR metric. The Scorecard contains a new measure of the percentage of students whose student loan balance was lower than when entering repayment, which reflects the percentage of students who have been able to pay down at least some principal.

Using this new metric on declining student loan balances to compare with colleges’ CDRs, I come to three new findings.  Please note that for the purposes of this blog post, I consider the three-year cohort default rate for students who entered repayment in FY 2011 compared to the one-year and three-year repayment rates for students who entered repayment in FY 2010 and 2011. The key findings are below.

(1) Cohort default rates substantially underestimate the percent of students who have been unable to lower their loan balances. Of the nearly 5,700 colleges with data on both CDRs and repayment rates, the median college had a 14.9 percent three-year CDR while 40.8 percent of students did not repay any principal in the first three years after leaving college. This means that one in four exiting students was not in default, yet did not make a dent in their loan balance in the first three years after entering repayment. Figure 1 below shows the relationship between CDRs and repayment rates. A low CDR for a college is associated with higher rates of repayment (with a correlation coefficient of 0.76), but there are plenty of exceptions. For example, 25 percent of the colleges with default rates below 10% had more than one-fourth of all students failing to repay any principal.


(2) The percentage of students paying down principal doesn’t change much between one year and three years since entering repayment. One year after entering repayment, 62.8 percent of students at the median college had paid down at least $1 in principal, though that percentage dipped slightly to 59.2 percent within three years (see Figure 2 for the distribution of repayment rates). This drop is likely due to some students either falling behind on their payments while enrolled in the standard repayment plan as well as payments under income-based plans being insufficient to cover accumulating interest. In either case, stagnant or falling repayment rates should raise red flags regarding students’ ability to eventually pay off the loan within 10-20 years.



(3) As a whole, repayment outcomes make a turn for the worse at for-profit colleges compared with public or private nonprofit colleges. This can be best illustrated by showing the difference in repayment rates between one and three years of entering repayment by institutional type. As Figure 3 below shows, for-profit colleges tended to have lower repayment rates after three years than one year, a red flag that their borrowers are not doing well, while public and private nonprofit colleges saw similar repayment rates over time. Only one in four for-profit colleges had more students paying down principal three years after completion, which points to potential problems for students and taxpayers alike. Although for-profit colleges have somewhat lower CDRs than community colleges, community colleges do not see drops in the repayment rates that exist in the for-profit sector.


The new loan repayment rate data provides an additional tool   for policymakers to use when holding colleges accountable for their performance. Although this metric represents a substantial improvement over CDRs by including students who are struggling to make payments, the presence of income-based repayment plans (where students can stay current on their loans by making small payments if their income is sufficiently low) complicates any accountability efforts. Further research is needed to examine the implications of income-based repayment programs on principal repayment rates.