Some Good News on Student Loan Repayment Rates

The U.S. Department of Education released updates to its massive College Scorecard dataset earlier this week, including new data on student debt burdens and student loan repayment rates. In this blog post, I look at trends in repayment rates (defined as whether a student repaid at least $1 in principal) at one, three, five, and seven years after entering repayment. I present data for colleges with unique six-digit Federal Student Aid OPEID numbers (to eliminate duplicate results), weighting the final estimates to reflect the total number of borrowers entering repayment.[1]

The table below shows the trends in the 1-year, 3-year, 5-year, and 7-year repayment rates for each cohort of students with available data.

Repayment cohort 1-year rate (pct) 3-year rate (pct) 5-year rate (pct) 7-year rate (pct)
2006-07 63.2 65.1 66.7 68.4
2007-08 55.7 57.4 59.5 62.2
2008-09 49.7 51.7 55.3 59.5
2009-10 45.7 48.2 52.6 57.4
2010-11 41.4 45.4 51.3 N/A
2011-12 39.8 44.4 50.6 N/A
2012-13 39.0 45.0 N/A N/A
2013-14 40.0 46.1 N/A N/A

One piece of good news is that 1-year and 3-year repayment rates ticked up slightly for the most recent cohort of students who entered repayment in 2013 or 2014. The 1-year repayment rate of 40.0% is the highest rate since the 2010-11 cohort and the 3-year rate of 46.1% is the highest since the 2009-10 cohort. Another piece of good news is that the gain between the 5-year and 7-year repayment rates for the most recent cohort with data (2009-10) is the largest among the four cohorts with data.

Across all sectors of higher education, repayment rates increased as a student got farther into the repayment period. The charts below show differences by sector for the cohort entering repayment in 2009 or 2010 (the most recent cohort to be tracked over seven years), and it is worth noting that for-profit students see somewhat smaller increases in repayment rates than other sectors.

But even somewhat better repayment rates still indicate significant issues with student loan repayment. Only half of borrowers have repaid any principal within five years of entering repayment, which is a concern for students and taxpayers alike. Data from a Freedom of Information Act request by Ben Miller of the Center for American Progress highlight that student loan default rates continue to increase beyond the three-year accountability window currently used by the federal government, and other students are muddling through deferment and forbearance while outstanding debt continues to increase.

Other students are relying on income-driven repayment and Public Service Loan Forgiveness to remain current on their payments. This presents a long-term risk to taxpayers as at least a portion of balances will be written off over the next several decades. It would be helpful for the Department of Education to add data to the College Scorecard on the percentage of students by college enrolled in income-driven repayment rates so it is possible to separate students who may not be repaying principal due to income-driven plans from those who are placing their credit at risk by falling behind on payments.

[1] Some of the numbers for prior cohorts slightly differ from what I presented last year due to a change in how I merged datasets (starting with the most recent year of the Scorecard instead of the oldest year, as the latter method excluded some colleges that merged). However, this did not affect the general trends presented in last year’s post. Thanks to Andrea Fuller at the Wall Street Journal for helping me catch that bug.

How to Provide Context for College Scorecard Data

The U.S. Department of Education’s revamped College Scorecard website celebrated its third anniversary last month with another update to the underlying dataset. It is good to see this important consumer information tool continue to be updated, given the role that Scorecard data can play in market-based accountability (a key goal of many conservatives). But the Scorecard’s change log—a great resource for those using the dataset—revealed a few changes to the public-facing site. (Thanks to the indefatigable Clare McCann at New America for pointing this out in a blog post.)

scorecard_fig1_oct18

So to put the above screenshot into plain English, the Scorecard used to have indicators for how a college’s performance on outcomes such as net price, graduation rate, and post-college salary compared to the median institution—and now it doesn’t. In many ways, the Department of Education’s decision to stop comparing colleges with different levels of selectivity and institutional resources to each other makes all the sense in the world. But it would be helpful to provide website users with a general idea of how the college performs relative to more similar institutions (without requiring users to enter a list of comparison colleges).

For example, here is what the Scorecard data now look like for Cal State—Sacramento (the closest college to me as I write this post). The university sure looks affordable, but the context is missing.

scorecard_fig2_oct18

It would sure be helpful if ED already had a mechanism to generate a halfway reasonable set of comparison institutions to help put federal higher education data into context. Hold on just a second…

scorecard_fig3_oct18

It turns out that there is already an option within the Integrated Postsecondary Education Data System (IPEDS) to generate a list of peer institutions. ED creates a list of similar institutions to the focal college based on factors such as sector and level, Carnegie classification, enrollment, and geographic region. For Sacramento State, here is part of the list of 32 comparison institutions that is generated. People can certainly quibble with some of the institutions chosen, but they clearly do have some similarities.

scorecard_fig4_oct18

I then graphed the net prices of these 32 institutions to help put Sacramento State (in black below) into context. They had the fifth-lowest net price among the set of universities, information that is at least somewhat more helpful than looking at a national average across all sectors and levels.

scorecard_fig5_oct18

My takeaway here: the folks behind the College Scorecard should talk with the IPEDS people to consider bringing back a comparison group average based on a methodology that is already used within the Department of Education.

Comments on the Proposed Gainful Employment Regulations

The U.S. Department of Education is currently accepting public comments (through September 13) on their proposal to rescind the Obama administration’s gainful employment regulations, which had the goal of tying federal financial aid eligibility to whether graduates of certain vocationally-focused programs had an acceptable debt-to-earnings ratio. My comments are reprinted below.

September 4, 2018

Annmarie Weisman

U.S. Department of Education

400 Maryland Avenue SW, Room 6W245

Washington, DC 20202

Re: Comments on the proposed rescinding of the gainful employment regulations

Dear Annmarie,

My name is Robert Kelchen and I am an assistant professor of higher education at Seton Hall University.[1] As a researcher who studies financial aid, accountability policies, and higher education finance, I have been closely following the Department of Education (ED)’s 2017-18 negotiated rulemaking efforts regarding gainful employment. I write to offer my comments on certain aspects of the proposed rescinding of the regulations.

First, as an academic, I was pleasantly surprised to see ED immediately referring to a research paper in making its justification to change the debt-to-earnings (D/E) threshold. But that quickly turned into dismay as it became clear that ED had incorrectly interpreted what Sandy Baum and Saul Schwartz wrote a decade ago after Baum clarified the findings of the paper in a blog post.[2] I am not wedded to any particular threshold regarding D/E ratios, but I would recommend that ED reach out to researchers before using their findings in order to make sure they are being interpreted correctly.

Second, the point that D/E ratios can be affected by the share of adult students, who have higher loan limits than dependent students, is quite valid. But it can potentially be addressed in one of two ways if D/E ratios are reported in the future. One option is to report D/E ratios separately for independent and dependent students separately, but that runs the risk of creating more issues of small cell sizes by splitting the sample. Another option is to cap the amount of independent student borrowing credited toward D/E ratios at the same level as dependent students (also addressing the possibility that some dependent students have higher limits due to Parent PLUS loan applications being rejected). This is less useful from a consumer information perspective, but could solve issues regarding high-stakes accountability.

Third, ED’s point about gainful employment using a ten-year amortization period for certificate programs while also offering 20-year repayment plans under REPAYE is well-taken. Switching to a 20-year period would allow some lower-performing programs to pass the D/E test, but it is reasonable given that ED offers a loan repayment plan of that period. (I also approach the idea that programs would lose Title IV eligibility under the prior administration’s regulations as being highly unlikely based on experiences with very few colleges losing eligibility based on high cohort default rates.) In any case, aligning amortization periods to repayment plan periods makes sense.

Fourth, I am highly skeptical that requiring institutions to disclose various outcomes on their own websites would have much value. Net price calculators, which colleges are required to post under the Higher Education Act, are a prime example. Research has shown that many colleges place these calculators on obscure portions of their website and that information is often up to five years out of date.[3] Continuing to publish centralized data on outcomes is far preferable than letting colleges do their own thing, and highlights the importance of continuing to publish outcomes information without any pauses in the data.

Fifth, while providing median debt and median earnings data allows analysts to continue to calculate a D/E ratio, there is no harm in continuing to provide such a ratio in the future alongside the raw data. There is no institutional burden for doing so, and it is possible that some prospective students may find that ratio to be more useful than simply looking at median debt. At the very least, ED should conduct several focus groups to make sure that D/E ratios lack value before getting rid of them.

Sixth, while it is absolutely correct to note that people working in certain service industries receive a high portion of their overall compensation in tips, I find it dismaying as a taxpayer that there is no interest in creating incentives for individuals to report their income as required by law. A focus on D/E ratios created a possibility for colleges to encourage their students to follow the law and accurately report their incomes in order to increase earnings relative to debt payments. ED should instead work with IRS and colleges to help protect taxpayers by making sure that everyone pays income taxes as required.

In closing, I do not have a strong preference about whether ED ties Title IV eligibility to program-level D/E thresholds due to my skepticism that any sanctions would actually be enforced.[4] However, I strongly oppose efforts by ED to completely stop publishing program-level student outcomes data until the College Scorecard data are ready (which could be a few years). Continuing to publish data on certificate graduates’ outcomes in the interim is an essential step since all sectors of higher education already have to report certificate outcomes—meaning that keeping these data treat all sectors equally. Publishing outcomes of degree programs would be nice, but not as important since only some colleges would be included.

As I showed with my colleagues in the September/October issue of Washington Monthly magazine, certificate students’ outcomes vary tremendously both within and across CIP codes as well as within different types of higher education institutions.[5] Once the College Scorecard data are ready, this dataset can be phased out. But in the meantime, continuing to publish data meets a key policy goal of fostering market-based accountability in higher education.

[1] All opinions reflected in this commentary are solely my own and do not represent the views of my employer or funders.

[2] Baum, S. (2018, August 22). DeVos misinterprets the evidence in seeking gainful employment deregulation. Urban Wire. https://www.urban.org/urban-wire/devos-misrepresents-evidence-seeking-gainful-employment-deregulation.

[3] Anthony, A. M., Page, L. C., & Seldin, A. (2016). In the right ballpark? Assessing the accuracy of net price calculators. Journal of Student Financial Aid, 46(2), 25-50. Cheng, D. (2012). Adding it all up 2012: Are college net price calculators easy to find, use, and compare? Oakland, CA: The Institute for College Access and Success.

[4] For more reasons why I am skeptical that all-or-nothing accountability systems such as the prior administration’s gainful employment regulations would actually be effective, see my book Higher Education Accountability (Johns Hopkins University Press, 2018).

[5] Washington Monthly (2018, September/October). 2018 best colleges for vocational certificates. https://washingtonmonthly.com/2018-vocational-certificate-programs.

Comments on the Proposed Borrower Defense to Repayment Regulations

The U.S. Department of Education is currently accepting public comments (through August 30) on their proposed borrower defense to repayment regulations, which affect students’ ability to get loans forgiven in the case of closed schools or colleges that misrepresented important facts. Since these regulations also affect colleges and taxpayers, I weighed in to provide a researcher’s perspective. My comments are reprinted below.

August 21, 2018

Jean-Didier Gaina

U.S. Department of Education

400 Maryland Avenue SW, Mail Stop 294-20

Washington, DC 20202

Re: Comments on the proposed borrower defense to repayment regulations

Dear Jean-Didier,

My name is Robert Kelchen and I am an assistant professor of higher education at Seton Hall University.[1] As a researcher who studies financial aid, accountability policies, and higher education finance, I have been closely following the Department of Education (ED)’s 2017-18 negotiated rulemaking efforts regarding borrower defense to repayment and financial responsibility scores. Since there were no academic researchers included in the negotiated rulemaking committee (something that should be reconsidered in the future!), I write to offer my comments on certain segments of the proposed regulations.

My first comment is on the question of whether ED should accept so-called affirmative claims from borrowers who are not yet in default and seek to make a claim against a college instead of only accepting defensive claims from borrowers who have already defaulted. For colleges that are still open, this is a clear decision in my view: affirmative claims should be allowed because ED can then attempt to recoup the money from the college instead of effectively requiring the taxpayer to subsidize at least some amount of loan forgiveness. However, the decision is somewhat more complicated in the case of a closed school, where taxpayers are more likely to foot the bill. My sense is that affirmative claims should probably still be allowed given the relationship between defaulting on student loans and adverse outcomes such as reduced credit scores.[2]

To protect taxpayers and students alike, more needs to be done to strengthen federal requirements for colleges that are at risk of closure. If a college closes suddenly, students may be eligible to receive closed school discharges at taxpayer expense. Yet my research and analyses show that ED’s current rules for determining a college’s financial health (the financial responsibility score) are only weakly related with what they seek to measure. For example, several private nonprofit colleges that closed in 2016 had passing financial responsibility scores in 2014-15, while many colleges have continued to operate with failing scores for years.[3] I also found that colleges did not change their revenue or expenditure patterns in any meaningful way after receiving a failing financial responsibility score, suggesting that colleges are not taking the current measure seriously.[4]

I am heartened to see that ED is continuing to work on updating the financial responsibility score metric to better reflect a college’s real-time risk of closing through another negotiated rulemaking session. However, I am concerned that students and taxpayers could suffer from continuing with the status quo during a potential six-year phase-in period, so anything to shorten the period would be beneficial. I again urge ED to include at least one academic researcher on the negotiated rulemaking panel to complement institutional officials and accountants, as the research community studies how colleges respond to potential policy changes that the rest of the committee may be proposed.

Finally, I am concerned about ED’s vague promise to encourage colleges to offer teach-out plans instead of suddenly closing, as the regulations provide no incentives for colleges on the brink of financial collapse to work with accreditors and states to develop a teach-out plan. It would be far better for ED to require colleges to be proactive and develop teach-out plans at the first sign of financial difficulties, reducing the risk to taxpayers by minimizing the risk of closed school discharges. These plans can then be approved by an accreditor and/or state agency as a part of the regular review process. Colleges would likely contend that having to develop a pre-emptive teach-out plan may affect their ability to recruit and retain students, but tying this to an existing benchmark of federal concern (such as a low financial responsibility score or being on HCM2) should alleviate that issue.

Thank you for the opportunity to provide comments on these proposed regulations and I am happy to respond to any questions that ED staffers may have.

[1] All opinions reflected in this commentary are solely my own and do not represent the views of my employer.

[2] Blagg, K. (2018). Underwater on student debt: Understanding consumer credit and student loan default. Washington, DC: Urban Institute.

[3] Kelchen, R. (2017, March 8). Do financial responsibility scores predict college closures? https://robertkelchen.com/2017/03/08/do-financial-responsibility-scores-predict-college-closures/.

[4] Kelchen, R. (forthcoming). Do financial responsibility scores affect institutional behaviors? Journal of Education Finance.

Is Administrative Bloat Really a Big Problem?

I usually begin talks on my book Higher Education Accountability with a discussion of why accountability pressures now are stronger than ever for much of nonprofit higher education. Not surprisingly, one of the key reasons that I discuss is the rising price tag of a college education. I usually get at least one question from audience members in every talk about the extent to which administrative bloat in higher education is driving up college prices. I have written before about how difficult it is to pin the rising cost of providing a college education on any given factor, but I am diving in deeper on the administrative bloat concern in this post.

First, let’s take a look at trends in administrative expenditures and staffing over the last decade or two. Here are charts on inflation-adjusted per-FTE expenditures for instruction, academic support, institutional support, and student services between 2003 and 2013 (courtesy of Delta Cost Project analyses). The charts show that spending on student services and academic support increased faster than both inflation and instructional expenditures, while institutional support expenditures (the IPEDS expenditure category most closely associated with administration) increased about as fast as instructional expenditures.

Turning to staffing trends, I again use Delta Cost Project data to look at the ratios of full-time faculty, part-time faculty, administrators, and staff per 1,000 FTE students. In general, the ratio of full-time faculty and administrators per 1,000 students held fairly constant across time in most sections of higher education. However, the ratio of part-time faculty and professional staff members (lower-level administrators) increased markedly across higher education.

The data suggest that there has not been a massive explosion of high-level administrators, but there has been substantial growth in low- to mid-level academic support and student services staff members. What might be behind that growth in professional staff members? I offer two potential explanations below.

Explanation 1: Students need/want more services than in the past. As most colleges have enrolled increasingly diverse student bodies and institutions respond to pressures to graduate more students, it’s not surprising that colleges have hired additional staff members to assist with academic and social engagement. Students have also demanded additional services, such as more staff members to support campus diversity initiatives. (Lazy rivers and climbing walls could factor in here, but there are limited to such a small segment of higher education that they’re likely to be a rounding error in the grand scheme of things.)

Explanation 2: Staff members are doing tasks that faculty members used to do, which may not necessarily be a bad thing. A good example here is academic advising. Decades ago, it was far more common for faculty members to advise undergraduate students from their first year on. But over the years, professional academic advisers have taken on these responsibilities at many campuses, leaving faculty members to advise juniors and seniors within a major. To me, it seems logical to allow lower-paid professional advisers to work with first-year and second-year students, freeing up the time of higher-paid faculty members to do something else such as teach or do research. (I also have a strong hunch that professional advisers are better at helping students through general education requirements than faculty members, but I’d love to see more research on that point.)

In summary, there are lots of gripes coming from both faculty members and the public about the number of assistant and associate deans on college campuses. But most of the growth in non-faculty employees is among lower-level student and academic affairs staff members, not among highly-paid deans. There is still room for a robust debate about the right number of staff members and administrators, but claims of massive administrative bloat are not well-supported across all of higher education.

It’s hard to believe that a faculty member is writing this, but I do feel that most administrators do serve a useful purpose. As I told The Chronicle of Higher Education in a recent interview (conducted via e-mail while I was waiting for a meeting with an associate dean—I kid you not!), “Faculty do complain about all of the assistant and associate deans out there, but this workload would otherwise fall on faculty. And given the research, teaching, and service expectations that we face, we can’t take on those roles.”

Why Accountability Efforts in Higher Education Often Fail

This article was originally published at The Conversation.

As the price tag of a college education continues to rise along with questions about academic quality, skepticism about the value of a four-year college degree has grown among the American public.

This has led both the federal government and many state governments to propose new accountability measures that seek to spur colleges to improve their performance.

This is one of the key goals of the PROSPER Act, a House bill to reauthorize the federal Higher Education Act, which is the most important law affecting American colleges and universities. For example, one provision in the act would end access to federal student loans for students who major in subjects with low loan repayment rates.

Accountability is also one of the key goals of efforts in many state legislatures to tie funding for colleges and universities to their performance.

As a researcher who studies higher education accountability – and also just wrote a book on the topic – I have examined why policies that have the best of intentions often fail to produce their desired results. Two examples in particular stand out.

Federal and state failures

The first is a federal policy that is designed to end colleges’ access to federal grants and loans if too many students default on their loans. Only 11 colleges have lost federal funding since 1999, even though nearly 600 colleges have fewer than 25 percent of their students paying down any principal on their loans five years after leaving college, according to my analysis of data available on the federal College Scorecard. This shows that although students may be avoiding defaulting on their loans, they will be struggling to repay their loans for years to come.

The second is state performance funding policies, which have encouraged colleges to make much-needed improvements to academic advising but have not resulted in meaningful increases in the number of graduates.

Based on my research, here are four of the main reasons why many accountability efforts fall short.

1. Competing initiatives

Colleges face many pressures that provide conflicting incentives, which in turn makes any individual accountability policy less effective. In addition to the federal government and state governments, colleges face strong pressures from other stakeholders. Accrediting agencies require colleges to meet certain standards. Faculty and student governments have their own visions for the future of their college. And private sector organizations, such as college rankings providers, have their own visions for what colleges should prioritize. (In the interest of full disclosure, I am the methodologist for Washington Monthly magazine’s college rankings, which ranks colleges on social mobility, research and service.)

As one example of these conflicting pressures, consider a public research university in a state with a performance funding policy that ties money to the number of students who graduate. One way to meet this goal is to admit more students, including some who have modest ACT or SAT scores but are otherwise well-prepared to succeed in college. This strategy would hurt the university in the U.S. News & World Report college rankings, which judge colleges in part based on ACT/SAT scores, selectivity and academic reputation.

Research shows that students considering selective colleges are influenced by rankings, so a university may choose to focus on improving their rankings instead of broadening access in an effort to get more state funds.

2. Policies can be gamed

Colleges can satisfy some performance metrics by gaming the system, instead of actually improving their performance. The theory behind many accountability policies is that colleges are not operating in an efficient manner and that they must be given incentives in order to improve their performance. But if colleges are already operating efficiently – or if they do not want to change their practices in response to an external mandate – the only option to meet the performance goal may be to try to game the system.

An example of this practice is with the federal government’s student loan default rate measure, which tracks the percentage of borrowers who default on their loans within three years of when they are supposed to start repaying their loans. Colleges that are concerned about their default rates can encourage students to enroll in temporary deferment or forbearance plans. These plans result in students owing more money in the long run, but also they push the risk of default outside the three-year period that the federal government tracks, which essentially lets colleges off the hook.

3. Unclear connections

It’s hard to tie individual faculty members to student outcomes. The idea of evaluating teachers based on their students’ outcomes is nothing new; 38 states require student test scores to be used in K-12 teacher evaluations, and most colleges include student evaluations as a criterion of the faculty review process. Tying an individual teacher to a student’s achievement test scores has been controversial in K-12 education, but it is far easier than identifying how much an individual faculty member contributes to a student’s likelihood of graduating from college or repaying their loans.

For example, a student pursuing a bachelor’s degree will take roughly 40 courses during their course of study. That student may have 30 different professors over four or five years. And some of them may no longer be employed when the student graduates. Colleges can try to encourage all faculty to teach better, but it’s difficult to identify and motivate the worst teachers because of the elapsed time between when a student takes a class and when he or she graduates or enters the workforce.

4. Politics as usual

Even when a college should be held accountable, politics often get in the way. Politicians may be skeptical of the value of higher education, but they will work to protect their local colleges, which are often one of the largest employers in their home states. This means that politicians often act to stop a college from losing money under an accountability system.

The ConversationTake for example Senate Majority Leader Mitch McConnell, R-Ky., who was sympathetic to the plight of a Kentucky community college with a student loan default rate that should have resulted in a loss of federal financial aid. He got a provision added to the recent federal budget agreement that allowed only that college to appeal the sanction.

Comments on Accountability and the Higher Education Act

As the Senate works on its version of a Higher Education Act reauthorization bill, the Health, Education, Labor and Pensions Committee has made accountability one of its key areas of discussion in recent hearings. Committee chairman Lamar Alexander asked the higher education community for comments regarding accountability, so I sent my comments along to the committee. They are reprinted below.

February 15, 2018

The Honorable Lamar Alexander

The Honorable Patty Murray

Senate Health, Education, Labor and Pensions (HELP) Committee

Dear Senators:

My name is Robert Kelchen and I am an assistant professor of higher education at Seton Hall University.[i] I have been closely following the Higher Education Act reauthorization hearings in the Senate HELP Committee and am pleased to see the committee beginning to work on writing a comprehensive, bipartisan piece of legislation. Accountability is a crucial issue for both protecting students and taxpayers alike, and is such it is essential to design a system that encourages institutional improvement while discourages colleges from trying to game the system to remain eligible to receive federal Title IV financial aid dollars.

I have spent the last several years researching higher education accountability in all of its forms, including efforts by the federal government, state governments, accrediting agencies, the private sector, and colleges themselves.[ii] In this letter, I share four key points from my research on how to design accountability systems that have the highest likelihood of success and provide the best possible information for students, their families, and policymakers.

 

Point 1: Avoid all-or-nothing accountability systems. Three key federal accountability policies—cohort default rates (CDRs), the 90/10 rule, and gainful employment—grant institutions access to federal Title IV financial aid if they pass a certain threshold. Although the gainful employment metrics are too new to actually take away programs’ financial aid, it is clear from CDRs and the 90/10 rule that very few colleges are affected. In the most recent year of data, only ten small colleges faced the loss of either federal student loans or all Title IV aid for high CDRs and no colleges were subject to the loss of federal student aid for failing the 90/10 rule in two consecutive years.[iii]

Setting minimum performance floors sounds like an appealing idea, and the idea of ‘bright line’ standards has been proposed with respect to recognizing accreditors.[iv] But actually following through and pulling the plug on the lowest-performing colleges by denying them access to federal financial aid is a much more difficult task. As the majority staff’s white paper notes, just eleven colleges have lost access to Title IV funds due to high CDRs since 1999—even though approximately ten colleges per year should have lost aid if federal laws were strictly followed. Congress and the Department of Education have shown a lack of willingness to effectively close colleges (particularly public or private nonprofit institutions), as shown by the Senate Majority Leader’s recent efforts to exempt a Kentucky technical college from losing Title IV aid and the previous administration’s alteration of CDR calculations just prior to release in 2014 that protected an unknown number of colleges.[v]

A more effective way to hold a larger number of colleges accountable for their outcomes is to use a gradually increasing set of sanctions for lower-performing institutions. In theory, risk-sharing proposals for federal student loan repayment can provide that sort of incentive. However, the PROSPER Act’s loan repayment metric would create the same all-or-nothing incentive that would be subject to both institutional gaming and intense lobbying efforts. The Student Protection and Success Act creates a sliding scale to some extent (although retaining a minimum eligibility threshold), and academics’ risk-sharing proposals also are based on sliding scales.[vi] It is also important to note that risk-sharing proposals should include incentives for institutional improvement as well as sanctions, similar to what the ASPIRE Act would do.

 

Point 2: Both institution-level and program-level accountability policies are important. Policy conversations are rapidly moving toward holding individual programs within colleges accountable for their performance. Gainful employment regulations already seek to do that for a subset of programs, but the PROSPER Act would use program-level loan repayment rates for all institutions of higher education. This proposal makes intuitive sense, but program-level data collection efforts have some important limitations.

In general, programmatic outcomes data make the most sense when students enter a college or university with a particular field of study in mind. This is less of a concern for vocationally-oriented programs at the undergraduate level and for graduate and professional education in which students are generally admitted to study in particular programs. But not all students enter associate or baccalaureate degree programs with a declared major, and roughly one-third of first-time college students changed their declared major at least once within three years of starting college.[vii] This means that attributing student outcomes to a particular program becomes a concern. Additionally, if undeclared students are ignored for the purposes of program-level accountability metrics, colleges suddenly have an incentive to restrict when students can officially declare majors. Waiting until two years into a bachelor’s degree program to declare a major restricts the pool of students to those with a higher likelihood of success, meaning that dropouts are less likely to be counted.

Another potential option is to restrict program-level accountability only to students who graduate, as is the case with the current gainful employment regulations. But this obscures important data for students, since only 54% of students at four-year colleges and 32% of students at two-year colleges graduated from that same institution within eight years of initial enrollment.[viii] It is likely the case that reported program-level outcomes are far better for graduates than dropouts, thus providing an overly rosy picture of lower-performing programs.[ix]

Given the interest in program-level outcomes data alongside the difficulty in fully relying on program-level accountability measures in certain sectors of higher education, a more reasonable solution would be to use a combination of program-level and institution-level data for accountability purposes. It may be worthwhile to consider tougher performance measures for entire institutions than individual programs due to the difficulty in accurately measuring programmatic outcomes in non-vocational fields and due to concerns about small cell sizes for certain programs of study.

 

Point 3: Defining the loan repayment rate is perhaps the most important accountability-related issue in HEA reauthorization. Very few academics consider CDRs to be a tremendously valuable measure of institutional performance due to their ability to be manipulated by colleges, the presence of income-driven repayment programs, and their relatively short time horizon. The student loan repayment rate that was included in the 2015 release of the College Scorecard represented a more comprehensive look at how former students are managing their loans, and painted a completely different pictures than CDRs (especially after an unfortunate coding error was finally fixed in early 2017).[x]

Both the definition of student loan repayment rates in the College Scorecard and the types of loans included are decisions that have substantial accountability implications. The Scorecard definition (repaying at least $1 in principal at 1, 3, 5, and 7 years after entering repayment) includes federal subsidized and unsubsidized loans, omitting Parent and Grad PLUS loans. Approximately $21 billion of the $94 billion in federal loans during the 2016-17 academic year was in the form of PLUS loans, yet this is entirely missing from the Scorecard repayment rate (and CDRs, as well).[xi] It may be worth considering a separate loan repayment rate metric for Parent PLUS loans, but Grad PLUS loans should be included with other student loans for accountability purposes.

There are two other potential definitions of loan repayment rates that are worth considering. The first is the percentage of dollars that are repaid during a certain period of time. This is similar to the initial definition of repayment rates that was used in the 2010 negotiations regarding gainful employment.[xii] This is a more taxpayer-focused metric, as it captures overall risk of nonrepayment instead of the percentage of borrowers who are struggling to pay down principal. The second definition is the percentage of students who are on track to repay their loans within a fixed window of time. The challenge with this definition is that students can choose from a menu of loan repayment plans, with extended payment plans being particularly common among students with larger amounts of debt.

A further complicating factor is the growth of income-driven repayment plans, which now represent about 40% of all outstanding federal student loan dollars.[xiii] These plans often result in outstanding balances rising in early years of repayment (when incomes are low) before principal is paid down later. An analysis of recent bachelor’s degree recipients found that only about 25% of students in income-driven plans paid off any principal within five years of entering repayment, while about 75% of students not in income-driven repayment had repaid principal within one year of entering repayment.[xiv] How to address students in income-driven repayment plans is a key concern regarding student loan repayment rates, as the federal government could simultaneously encourage students to enroll in income-driven plans while penalizing colleges where students take up such plans.

 

Point 4: Free the higher education data! Students and their families are currently being asked to make one of the biggest financial decisions of their lives based on relatively little objective information. The College Scorecard was a helpful step forward, as was including part-time and Pell recipient graduation rates in the Integrated Postsecondary Education Data System in 2017. A student unit record data system would certainly be helpful in making better data available in the college choice process, but there are things that the Department of Education can do (with the support of Congress) without overturning the ban. A few of the most important data points are the following:

  • Program-level outcomes for all Title IV institutions. Regardless of how the gainful employment negotiated rulemaking panel turns out, HEA reauthorization should encourage data to be released for all programs of study (with the caveats as noted earlier in this letter). Some programmatic accreditors are starting to require institutions to release this sort of information, but ED can do so fairly easily for all students receiving federal financial aid. It would be nice to include all students attending Title IV-participating institutions, but program-level data for federal aid recipients would be a good start.
  • Separate data for undergraduate and graduate students. Although graduate and professional students represent just 17% of all federal student loan borrowers, they make up 38% of all federal student loan dollars.[xv] Yet loan repayment and debt data are not presented separately for graduate students—and current data do not even include Grad PLUS loans.
  • Include outcomes for Parent PLUS loans. Although only five percent of students had a Parent PLUS loan in the 2011-12 academic year, this is still an important financing source for families; borrowing rates are higher (13%) at HBCUs and average loan amounts among borrowers are over $12,000.[xvi] Yet the only information available on PLUS loan outcomes is a set of sector-level default rates that ED released following a negotiated rulemaking panel in 2014.[xvii] It is more difficult to envision a high-stakes accountability policy based on parent outcomes instead of student outcomes, but making institution-level data public would be a valuable service to families.
  • Provide data on incomedriven repayment plan usage by institution. Because repayment rates are affected by income-driven repayment plans, it would be helpful to provide information on the percentage of borrowers from each institution who are enrolled in income-driven repayment plans, ideally at the undergraduate and graduate level. A lower repayment rate at a college that graduates a large percentage of students into public service may be more acceptable due to income-driven repayment plans, while a similar repayment rate at a college where students are enrolled in more lucrative majors would be a greater cause for concern.[xviii]

I would like to thank the HELP Committee for holding a series of hearings on Higher Education Act reauthorization and for actively engaging with the research community throughout the process. As the committee is drafting the bill over the next few months, so I encourage Senators and staff members to continue reaching out to researchers while considering potential policy proposals and legislative text. I am more than happy to talk with any committee members during this process and I wish you all the best of luck in working on a much-needed overhaul of the Higher Education Act.

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[i] All views and opinions expressed in this letter are mine alone and do not necessarily reflect my employer.

[ii] See my new book Higher Education Accountability, which is now available through Johns Hopkins University Press.

[iii] Author’s calculations using Federal Student Aid data on cohort default rates (FY14 cohort) and proprietary school revenue percentages (2015-16). Additionally, I appreciate the majority staff referencing one of my blog posts on the topic—that made my day!

[iv] Lederman, D. (2017, June 21). Where winds are blowing on accreditation. Inside Higher Ed. https://www.insidehighered.com/news/2017/06/21/bright-line-indicators-student-outcomes-dominate-discussion-federal-accreditation.

[v] Douglas-Gabriel, D. (2018, February 8). McConnell attempts to protect two Kentucky colleges in budget deal. The Washington Post. https://www.washingtonpost.com/news/grade-point/wp/2018/02/08/mcconnell-attempts-to-protect-two-kentucky-colleges-in-budget-deal/?utm_term=.a5e47c2fb77e. Stratford, M. (2014, September 24). Reprieve on default rates. Inside Higher Ed. https://www.insidehighered.com/news/2014/09/24/education-dept-tweaks-default-rate-calculation-help-colleges-avoid-penalties.

[vi] Kelchen, R. (2015). Proposing a federal risk-sharing policy. Indianapolis, IN: Lumina Foundation. Webber, D. A. (2017). Risk-sharing and student loan policy: Consequences for students and institutions. Economics of Education Review, 57, 1-9.

[vii] Leu, K. (2017). Beginning college students who change their majors within 3 years of enrollment. Washington, DC: National Center for Education Statistics Report NCES 2018-434.

[viii] Ginder, S. A., Kelly-Reid, J. E., & Mann, F. B. (2017). Graduation rates for selected cohorts, 2008-13; outcome measures for cohort year 2008; student financial aid, academic year 2015-16; and admissions in postsecondary institutions, fall 2016. Washington, DC: National Center for Education Statistics Report NCES 2017-150rev.

[ix] There is an argument that students want outcomes of graduates only instead of combining graduates and dropouts, given common complaints about College Scorecard data and the common trend of students overstating their likelihood of graduation. But for an accountability system tied to federal financial aid instead of consumer information, the proper sample may differ.

[x] Kelchen, R., & Li, A. Y. (2017). Institutional accountability: A comparison of the predictors of student loan repayment and default rates. The ANNALS of the American Academy of Political and Social Science, 671, 202-223.

[xi] Baum, S., Ma, J., Pender, M., & Welch, M. (2017). Trends in student aid. New York, NY: The College Board.

[xii] Belfield, C. R. (2013). Student loans and repayment rates: The role of for-profit colleges. Research in Higher Education, 54(1), 1-29.

[xiii] Author’s analysis using Federal Student Aid data.

[xiv] Conzelman, J. G., Smith, N. D., & Lacy, T. A. (2016, July 11). The tension between student loan accountability and income-driven repayment plans. Brown Center Chalkboard. https://www.brookings.edu/blog/brown-center-chalkboard/2016/07/11/the-tension-between-student-loan-accountability-and-income-driven-repayment-plans/.

[xv] Baum, S., & Steele, P. (2018). Graduate and professional school debt: How much students borrow. West Chester, PA: AccessLex Institute.

[xvi] Goldrick-Rab, S., Kelchen, R., & Houle, J. (2014). The color of student debt: Implications of federal loan program reforms for black students and historically black colleges and universities. Madison, WI: Wisconsin HOPE Lab.

[xvii] Stratford, M. (2014, April 3). Default data on Parent PLUS loans. Inside Higher Ed. https://www.insidehighered.com/news/2014/04/03/education-department-releases-default-data-controversial-parent-plus-loans.

[xviii] It would be helpful to have data on Public Service Loan Forgiveness interest by institution, but these data would be incomplete because students do not have to signal any intent to use the program until they officially apply after making 120 qualifying payments.

Who Uses Income-Driven Repayment Plans?

Over the last two years, the U.S. Department of Education’s Office of Federal Student Aid has quietly released additional data on the federal government’s portfolio of nearly $1.4 trillion in student loans. I was on the FSA website today looking up the most recent data on Public Service Loan Forgiveness employment certification forms (up to 740,000 filed as of September 30) for a paper I am currently drafting when a new set of spreadsheets on the income-driven repayment (IDR) programs caught my eye.

Overall, just over $375 billion of the $1.05 trillion in federal Direct Loans is now enrolled across the various types of IDR programs. (The rest of the federal loan portfolio is in the old FFEL program, which does not make new loans.) This is up from $269 billion of loans in IDRs when I last wrote about the topic on my blog in mid-2016, which has implications for both students and taxpayers alike. Here, I summarize some of the new data on the types of borrowers who use IDR, as well as some of the other data elements that would be helpful to have going forward.

It is not surprising that students with more debt are more interested in income-driven repayment plans, as many borrowers with less debt could manage payments under the standard ten-year repayment plan. But I was surprised by how much of the debt is held by a small percentage of borrowers. About 1.9 million of the 35.3 million borrowers (or five percent) have more than $100,000 in debt—and this is primarily due to graduate school attendance (since undergraduates cannot borrow more than $57,500 without resorting to PLUS loans). Yet these borrowers hold $325 billion in Direct Loans, or about 30% of all loans outstanding. About $173 billion of this amount is enrolled in IDR plans—53% of all debt held by those with six-figure debts. On the other hand, less than one-fourth of all debt of borrowers with less than $40,000 outstanding is enrolled in IDR. The table and figure below show the amount of Direct Loans outstanding and the amount enrolled in IDR by debt burden.

(UPDATE 2/1/18: As a commenter noted below, there is a small percentage of loans from the old FFEL program in income-driven repayment plans. But as far as I can tell from the data, this only slightly overstates the percentage of Direct Loans in IDR. I’m confident that the general trends still hold, though.)

Table 1: Direct Loan and IDR volumes by debt burden.
Amount of debt All Direct Loans ($bil) IDR ($bil) Pct of loans in IDR
Less than $5k 16.9 0.9 5.3%
$5k-$10k 45.6 4.0 8.8%
$10k-$20k 110.7 16.7 15.1%
$20k-$40k 220.6 52.9 24.0%
$40k-$60k 154.6 50.9 32.9%
$60k-$80k 110.5 48.2 43.6%
$80k-$100k 71.3 30.3 42.5%
$100k-$200k 191.7 90.5 47.2%
More than $200k 133.5 82.3 61.6%
Total 1055.4 376.7 35.7%

I also examined new FSA data on Direct Loan and IDR volumes by age (Table 2 below) and institution type (Table 3). The data show that younger borrowers (between ages 25 and 49) have a higher percentage of dollars in IDR than older borrowers and that students who attended private nonprofit and for-profit colleges rely on IDR more heavily than students who went to public colleges. The finding by sector matches general patterns in tuition and fees, but it does not suggest that for-profit college students disproportionately turn to IDR to manage their loan burdens.

Table 2: Direct Loan and IDR volumes by age of borrower.
Age All Direct Loans ($bil) IDR ($bil) Pct of loans in IDR
24 or younger 128 9.2 7.2%
25-34 418.3 177.4 42.4%
35-49 337.9 139.8 41.4%
50-61 140.5 39 27.8%
62 or older 30.6 11.3 36.9%
Total 1055.3 376.7 35.7%

 

Table 3: Direct Loan and IDR volumes by institutional type.
Sector All Direct Loans ($bil) IDR ($bil) Pct of loans in IDR
Public 464.2 143.3 30.9%
Private nonprofit 337 126.5 37.5%
For-profit 176.6 63.6 36.0%
Total 977.8 333.4 34.1%

There are two additional data elements that would be extremely useful in considering the implications of income-driven repayment plans. Ideally, data on IDR takeup would be available at the institutional level (as I have politely requested in the past). But at the very least, a breakdown by undergraduate/graduate student status would be useful information.

And one final request of any journalists or qualitative researchers who may be reading this blog—I would love to know more about how the PSLF approval process is going now that some borrowers have made the 120 monthly payments necessary to qualify for forgiveness. It’s been strange not to hear anything about that process after applications could be submitted as early as October 2017.

Key Takeaways from the House Higher Education Act Reauthorization Bill

Majority Republicans on the U.S. House Committee on Education and the Workforce unveiled their draft legislation today to reauthorize the Higher Education Act—the most important piece of legislation affecting American higher education. The Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act checks in at a hefty 542 pages and touches many important aspects of higher education. I live-tweeted my first read through the bill (read the thread here), and in this blog post I am sharing some thoughts on the key themes of the legislation.

Takeaway 1: This bill would undo many Obama-era regulations and salt the earth on future regulations. It’s no secret that Republicans didn’t care for regulations such as gainful employment, borrower defense to repayment, or providing a federal definition of the credit hour. The PROSPER Act would not only undo the regulations, but prohibit the Secretary of Education from promulgating any future regulations (meaning that Congress would have to pass legislation to create any new rules). The Secretary of Education would also be prohibited from creating a federal college ratings system, even though the Obama-era effort to do so was unsuccessful.

Takeaway 2: The federal student loan system would be radically overhauled. Instead of the array of loans that are now available, there would be three flavors of a federal ONE Loan—for undergraduates, parents, and graduate students. The key details are below.

 

  Undergrad (dependent) Undergrad (independent) Parent Grad student
Annual limit (current) $5,500-$7,500 $9,500-$12,500 Cost of attendance Cost of attendance
Annual limit (PROSPER) $7,500-$11,500 $11,500-$14,500 $12,500 $28,500
Lifetime limit (current) $31,000 $57,500 Cost of attendance Cost of attendance
Lifetime limit (PROSPER) $39,000 $60,250 $56,250 $150,000

Note: Medical students have higher loan limits than what is listed above.

Undergraduate students actually have higher loan limits, but the PROSPER Act would also allow colleges to limit borrowing by student major if they feel students are unlikely to repay their obligations. Financial aid administrators have sought this authority for years, which means that students could actually see lower loan limits. Graduate students, on the other hand, would be limited to $28,500 per year and $150,000 overall in federal loans. Given that tuition alone often exceeds this number, expect students to turn to the private market (when possible) to finance their education.

The PROSPER Act also drastically changes income-driven repayment programs. Instead of the range of programs available now, future borrowers could choose between the standard ten-year payment plan or an income-driven plan that would allow them to pay 15% of their discretionary income (over 150% of the federal poverty line) for as long as necessary to repay the loan. There would be no ending date to payments, and payments for married couples would be based on both spouses’ incomes even if they file their taxes separately. (Both of these provisions differ from current law.) The Public Service Loan Forgiveness program, which was only mentioned once in passing in the entire bill, would also end. However, people in the program now would be grandfathered in.

Takeaway 3: Colleges would be held accountable for their outcomes in new ways. The cohort default rate metric (which I’m no fan of) would be replaced by a repayment rate metric. If a program (not a college) had more than 45% of its borrowers at least 90 days delinquent or in certain types of deferment for three consecutive years, it would lose access to all federal financial aid. This is a more generous definition of repayment for colleges than the College Scorecard’s definition (repaying at least $1 in principal), so I can’t say how many colleges would actually be affected.

Another interesting piece is that colleges would have to repay at least a portion of federal financial aid dollars given to students who left college during a semester. Right now, colleges can try to claw back those funds, but this proposal would limit colleges to trying to collect 10% of the amount owed back from students. This is similar to what Matt Chingos and Kristin Blagg have proposed in a policy brief.

There are so many other interesting points in this legislation, but I think these are the three most important ones that I can speak to based on my experience and research. Keep in mind that the Senate will also introduce a Higher Education Act reauthorization bill sometime in 2018, and that the two bills may differ significantly from each other.

What New Gainful Employment and Borrower Defense Rules May Look Like

President Trump is fond of negotiating, as can be evidenced through his long business career and many promises to renegotiate a whole host of international agreements. Federal higher education policy is also fond of negotiation, thanks to a process called negotiated rulemaking that brings a range of stakeholders together for an arduous series of negotiations regarding key changes to federal policies. Notably, if stakeholders do not come to an agreement, the Department of Education can write its own rules—something that the Obama administration did on multiple occasions. (For more on the nitty-gritty of negotiated rulemaking, I highly recommend Rebecca Natow’s new book on the topic.)

In a long-expected announcement, the Department of Education announced Wednesday morning that it would be renegotiating two key higher education regulations (gainful employment and borrower defense to repayment) that were initially negotiated during the Obama administration, with the first meetings beginning next month. To get an idea of how expected these announcements were, here are the stock prices for Adtalem (DeVry) and Capella right after the announcement (which began to break around 11:30 AM ET). Note the fairly small movement in share prices, suggesting that changes were baked into stock prices pretty well.

It is extremely likely that the negotiated rulemaking committees won’t be able to come to an agreement (again), so the new rules will reflect the Trump administration’s higher education priorities. Here is my take on what the two rules might look like.

Gainful Employment

The Obama administration first announced its intention to tie federal financial aid eligibility for select vocational programs (disproportionately at for-profit colleges) in 2009 and entered negotiated rulemaking in 2009-10. The first rules, released in 2011, were struck down in 2012 due a lack of a “reasoned basis” for the criteria used. The second attempt entered negotiated rulemaking in 2013, survived legal challenges in 2015, and began to take effect with the first data release in early 2017. Nearly all of the programs that failed in the first year were at for-profit colleges, but this also led to Harvard shutting down a failing graduate theater program. No colleges have lost aid eligibility yet, as two failing years are required before a college is at risk of losing funds.

The Trump administration is likely to take one of three paths in changing gainful employment regulations:

Path 1: Expand the rules to cover everyone. One of the common critiques against the current regulations is that they only cover nondegree programs at nonprofit colleges in addition to nearly all programs at for-profit colleges. For example, doctoral programs in education at Capella University are covered by gainful employment, while my program at Seton Hall University is not. Requiring all programs to be covered by gainful employment would both preserve the goals of the original regulations while silencing some of the concerns. But this would face intense pressure from colleges that are not currently covered (particularly private nonprofits).

Path 2: Restrict the rules to cover only the most at-risk programs. It is possible that gainful employment metrics could be used along other risk factors (such as heightened cash monitoring status or high student loan default rates) to determine federal loan eligibility. If written a certain way, this would free nearly all programs from the rules without completely unwinding the regulations.

Path 3: Make the rates for informational purposes instead of accountability purposes. This is the most likely outcome in my view. The Trump administration can provide useful consumer information without tying federal funds (a difficult thing to actually do, anyway). In this case, I could see all programs being included since the data will be somewhat lower-stakes.

Borrower Defense to Repayment

Unlike gainful employment, borrower defense to repayment regulations were set to affect for-profit and nonprofit colleges relatively equally. Here is what I wrote back in October about the regulations when they were announced.

These wide-ranging regulations, which will take effect on July 1, 2017 (a summary is available here) allow individuals with student loans to get relief if there is a breach of contract or court decision affecting that college or if there is “a substantial misrepresentation by the school about the nature of the educational program, the nature of financial changes, or the employability of graduates.” The language regarding “substantial misrepresentation” could have the largest impact for both for-profit and nonprofit colleges, as students will have six years to bring lawsuits if loans are made after July 1, 2017.

These regulations have been halted and will not take effect until a new round of negotiated rulemaking takes place. They were generally unpopular among colleges, as evidenced by a strong lobbying effort from historically black colleges that were worried about the vague definition of “misrepresentation.” The outcome of this negotiated rulemaking session is likely to be a significant rollback of the scope to cover only the most egregious examples of fraud.

Although these two sets of negotiated rulemaking sessions are likely to mainly be for show due to the Department of Education’s final ability to write rules when the committee deadlocks, they will provide insight into how various portions of the higher education community view the federal role in accountability under the Trump administration. The Department of Education doesn’t livestream these meetings (a real shame), but I’ll be following along on Twitter with great interest. Pass the popcorn, please?