debt – Page 6 – Robert Kelchen

Trends in Federal Student Loan and Pell Grant Awards

The U.S. Department of Education’s Office of Federal Student Aid released its newest quarterly update on federal student loan and Pell Grant awards on Friday, and the data (through the end of the 2014-15 academic year) are nothing short of stunning. As shown in the table below, federal student loan volume dropped by nearly $11 billion in 2014-15 to $89.4 billion, the lowest level since before the federal government ended the old bank-based lending program in 2010. Total Pell Grant awards also declined in 2014-15 to $30.3 billion, more than $5 billion below 2010-11 levels. (For more on trends in Pell awards over the last two decades, see my recent post on the topic.)

What could explain such sharp drops in student loan and Pell Grant dollars? Four factors could be at work:

(1) As America slowly continues to climb out of the Great Recession, more students and families may be earning enough money not to qualify for Pell Grants or need to borrow as much in student loans. Unemployment rates are down sharply since 2010, but median real household income has been nearly flat—so this is probably a minor contributing factor.

(2) Americans may be less willing to borrow for college than they were a few years ago, leading to less student loan debt. I’m more concerned about undergraduate students underborrowing for college than overborrowing, particularly as students react to stories about other people’s (atypical) debt loads and concerns about their financial strength. But this is difficult to prove empirically given current data.

(3) Part of the decline in total Pell awards is likely due to changes in the FAFSA formula that reduced the number of students automatically receiving the maximum Pell Grant in 2012-13 and beyond. But this would not explain continued declines in Pell dollars received.

(4) The most likely explanation to me is decreased enrollment due to an improved labor market inducing some individuals to work instead of attend college combined with the collapse of some of the large for-profit college chains. The most up-to-date data from the National Student Clearinghouse (which is available well ahead of federal estimates) show that enrollment has declined at degree-granting colleges each of the past three years, with the largest declines taking place at community colleges and in the for-profit sector. Lower enrollment, particularly among adult students, leads to fewer students taking out loans and receiving Pell Grants.

As the economy continues to slowly strengthen and the for-profit sector continues to sort itself out, I would expect enrollment (and the number of students receiving Pell Grants) to very slowly increase over the next several years. Future trends in student loan debt are less clear. Given the explosion of students enrolling in income-based repayment programs, students (particularly in graduate programs) might have less of an incentive to keep loan amounts in check. Yet, to this point, there doesn’t seem to be a boom in graduate school loans across the board. It would be worth looking at particular colleges with large programs in fields that are especially likely to qualify for Public Service Loan Forgiveness to see if loan amounts there are up by large amounts.

To Reduce Debt, Give Students More Information to Make Wise College Choice Decisions

This article was originally published at The Conversation.

Higher education has gotten a lot of attention during the early stages of the 2016 presidential campaign. All three major candidates for the Democratic nomination – former New York Senator Hillary Clinton, former Maryland Governor Martin O’Malley and Vermont Senator Bernie Sanders – have proposed different plans to reduce or eliminate student loan debt at public colleges.

However, the price tags of these plans (at least $350 billion over 10 years for Clinton’s proposal) will make free college highly unlikely. Republicans, including leading presidential candidates, have already made their opposition quite clear.

But student loan debt is unlikely to go away anytime soon. What is important for now is that students and their families get better information about tuition costs and college outcomes so they can make more informed decisions, especially as the investments are so large.

What colleges will reveal

Although colleges are required to submit data on hundreds of items to the federal government each year, only a few measures that are currently available are important to most students and their families:

First, colleges must report graduation rates for first-time, full-time students. This does a good job reflecting the outcomes at selective colleges, where most students go full-time.

But full-time students make up only a small percentage of students at some colleges, and data on the graduation rates of part-time students will not be available until 2017.

The price tag of Hillary Clinton’s college plan is too steep.
Marc Nozell, CC BY

Colleges must also report net prices (the cost of attendance less all grant aid received) by different family income brackets. The cost of attendance (defined as tuition and fees, room and board, books and supplies, and other living expenses such as transportation and laundry) and the resulting net price are important measures of affordability.

Because financial aid packages can vary across colleges with similar sticker prices, net prices are important to give students an idea of what they might expect to pay.

Colleges that offer their students federal loans must report the percentage of students who defaulted on their loans within three years of leaving college. This measure reflects whether students are able to make enough money to repay their loans. Colleges must also report average student loan debt burdens, so students can see what their future payments might look like.

In addition, vocationally oriented programs must report debt and earnings metrics under new federal “gainful employment” regulations. This provides students in technical fields a clear idea of what they might expect to make.

The Obama administration has promised that additional information on student outcomes will be made available “later this summer”, although they have not said what will be made available.

What don’t we know?

Despite the availability of information on some key outcomes, more can still be done to help students make wise decisions about which college to attend.

Below are some example of outcomes that would be helpful for students and their families to know about.

Although enormous gaps in college completion rates exist by family income, students and their families cannot currently access data on the graduation rates of low-income students receiving federal Pell Grants. (The federal government is purchasing data from the National Student Clearinghouse to fix this going forward.)

Colleges are required to report the percentage of minority students and the percentage of students receiving Pell Grants, but nothing is known about the percentage of first-generation students.

This is of particular interest given the key policy goal of improving access to American higher education; without this information, it is harder to tell which colleges are engines of social mobility.

Students need to have more information.
Lynda Kuit, CC BY-ND

Private-sector organizations such as PayScale and LinkedIn work to fill this gap, but they can only provide a limited amount of information.

How could we know more?

The data needed to answer many of the questions above are already held by the federal government, but in multiple databases that are not allowed to communicate with each other.

The greatest barrier to better information from the federal government is due to a provision included in the 2008 reauthorization of the Higher Education Act which banned the federal government from creating a “student unit record” data system that would link financial aid, enrollment and employment outcomes for students receiving federal financial aid dollars. This ban was put in place in part due to concerns over data privacy, and in part due to an intense lobbying effort from private nonprofit colleges.

States, in contrast, are allowed to have unit record data systems, and a few of them make detailed information available to anyone at the click of a mouse.

For example, Virginia makes a host of student loan debt information available in a series of convenient tables and graphics.

Senator Rubio has teamed with Democratic Senators Ron Wyden of Oregon and Mark Warner of Virginia to introduce legislation overturning the ban on unit record data, although no action has yet been taken in Congress.

A bipartisan push to make more information available to students and their families has the potential to help students make better decisions.

But getting data is only one part of the challenge. The other is getting that into the hands of students at the right time. For that, it is important for the federal government to work with college access organizations and guidance counselors.

Students should be able to access this information as they begin considering attending college. Although additional information may not allow a student to graduate debt-free, it will help him or her to make a more informed decision about where to attend college and if the price tag is worth paying.

Read the original article.

Comments on Senator Clinton’s Higher Education Proposal

Hillary Clinton’s presidential campaign released her framework for higher education reform at midnight on Monday morning (see details here and here). The plan, officially listed at a cost of $350 billion over ten years, would move closer to the idea of debt-free public college, require states to increase their spending on public higher education, and potentially embrace some accountability reforms with bipartisan appeal. Below are some of my first-take comments on Sen. Clinton’s proposal, as I look forward to seeing complete details. (I didn’t get an embargoed copy in advance.)

This proposal feels like a direct reaction to pressure that Sen. Clinton was facing from the political Left. Both of her main rivals, independent Senator Bernie Sanders of Vermont and former Maryland Governor Martin O’Malley, have supported versions of debt-free public college plans. This has zero chance of passing Congress as is, particularly as the House of Representatives is likely to stay in Republican hands through 2020 and the proposal would be paid for by additional taxes on wealthy Americans.
I’m highly skeptical of the $350 billion price tag, or at least when it’s phrased as just being $35 billion per year (roughly equal to federal Pell Grant spending). New federal programs take several years to phase in, meaning that most of the expenses are in later years. (President Obama’s free community college proposal is similar.) Once this plan is fully in place, I’d expect the price tag to be closer to $70 billion per year. All politicians like to massage the ten-year budget window used for cost estimates, and Sen. Clinton is no different.
Unlike some other “free college” proposals, Sen. Clinton’s proposal brings at least some private nonprofit colleges to the table by potentially making some of their students eligible for additional aid. This is a politically smart move, as the private nonprofit lobby is strong and many colleges in this sector do good work for students. But as noted in Inside Higher Ed this morning, the leadership of the private college lobby is concerned about any proposals that direct relatively less money to private colleges—as it could affect some institutions’ ability to survive.
This plan includes a federal/state partnership, which is typical for Democratic higher education proposals (and a good way to keep the price tag down somewhat). However, as suggested by Medicaid, many Republican governors may not take up the extra funds in exchange for having to assume additional responsibilities. For that reason, Sen. Clinton’s proposal to allow public colleges in those states to bypass the state governments to work directly with the federal government is politically brilliant. But states probably won’t be happy.
Much of the price tag will go to reduce interest rates on student loans, both for current students and to allow former students to refinance their loans. This is a big deal for the Elizabeth Warren faction of the Democratic Party—the folks who really make their voices heard in primary elections. But this money will do little to improve access and completion rates, in part because much of the money goes to students after they have left college and because income-based repayment plans make interest rates less relevant. Additionally, students who tried to avoid debt as much as possible (many from lower-income families) won’t benefit as much and may be upset by the subsidies going to higher-income borrowers. I wrote about this in my previous post.
There are bipartisan pieces in this plan, including accreditation reform, better consumer information, and risk-sharing for student loans. If Sen. Clinton becomes the nominee, look for her to pivot to the center and highlight some of these proposals.
The Clinton staff are claiming this proposal will help bring down the cost of providing a college education, in addition to the price that students pay. I just can’t help but be skeptical when suggested cost-saving areas include administration and technology. Colleges have been facing pressure to tighten their belts for years from states (and many have actually done so), so I don’t think the federal government will be any more successful. But it makes for a good soundbite.

The three main Democratic candidates have now laid out their higher education agendas. Hopefully, the Republican field (which, with the exception of Sen. Marco Rubio, have been fairly quiet on the issue) will follow suit.

Why “Debt-Free” College Will Upset Some Students

In a major higher education policy proposal, former Senator and current Democratic presidential frontrunner Hillary Clinton recently announced plans for higher education reforms that come close to debt-free college by increasing grant aid to students and reducing interest rates on current loans. She is following in the footsteps of the other two main candidates for the Democratic nomination—Vermont independent senator Bernie Sanders and former Maryland governor Martin O’Malley—both of whom have called for some sort of debt-free higher education option.

Putting aside the substantial cost to federal taxpayers ($350 billion over 10 years) and state governments (unknown at this point) for a while, any plan for student loan reforms or debt-free college should make those who know the burden of student loan debt happy. Right? Perhaps not so much. A somewhat similar example comes out of Seattle, where credit card processor Gravity Payments announced earlier this year that its employees would be paid a minimum of $70,000 per year. Again, this is an idea that sounds great—essentially double the wages received by lower-level employees and get an outpouring of good publicity. However, although Gravity signed up a number of new customers, the company has faced some unexpected opposition.

As detailed in a recent New York Times article, Gravity lost a number of existing customers over fears that increasing wages would result in higher future charges, even though the CEO cut his salary to partially pay for the wage increases. That doesn’t really have a corollary to higher education, but the other key point in the article does. Gravity lost two employees making over $70,000 per year as a result of the wage increase for everyone else, as they did not feel valued in a company that paid lower-skilled workers similar amounts to what they earned.

This raises an important point—whenever a program such as a dramatically higher wage floor, student loan reforms that reduce borrowing costs, or debt free college is introduced, at least some similar people who do not qualify for the new program are likely to be upset. Consider the case of a student who just finished repaying $15,000 in student loans by making additional payments in order to become debt-free as soon as possible. She may have sacrificed by working additional hours while in college, attending a less-selective college, and forgoing buying a newer, more reliable car. If the terms on student loan debt change in a way that essentially reward a student who borrowed $35,000 in order to not work in college and enjoy a slightly higher standard of living, it’s reasonable to expect the student with less debt to be upset. (Let’s also not forget the group of lower-income students who are debt-averse and will do anything not to borrow for college. They wouldn’t benefit from any student loan reforms.)

A move to debt-free college works in a similar way, as students who go to college after such a program is instituted get to benefit, while students who attended a few years earlier get nothing. This is happening to some extent in states like Tennessee, where all students can go to a community college tuition-free, and there is no constitutional amendment saying that life must be fair for all. But when plans for debt-free college and reducing student loan burdens get introduced, let’s not forget that some people will get upset because they perceive themselves as getting the short end of the stick. And when presidential campaigns try to build up support, they should do everything they can to make this group happy.

Is Student Loan Debt Really a Crisis?

This article I wrote was originally published on The Conversation.

Americans owed nearly $1.2 trillion in student loan debt as of March 2015, more than three times the amount of debt from just a decade ago. Part of this increase in debt is due to more students attending college, but part can also be attributed to just the borrower holding more debt.

Between the 2007-08 and 2011-12 academic years, nationally representative data from the US Department of Education show the median debt among graduating college seniors who took out loans rising from $20,000 to $26,500. This trend has likely continued over time due to rising tuition prices, meaning that the 70% of students who borrow for a four-year degree can expect to take on over $30,000 in debt in the future. Many students are struggling to repay their loans, as evidenced by high rates of default, delinquency and forbearance due to economic hardships.

These concerns have led some politicians (primarily Democrats) to call mounting student loan debt a “crisis,” while offering potential solutions such as reducing interest rates on student loans, allowing students to refinance their loans at lower rates, or more recently, proposing debt-free public higher education.

But is student loan debt really a crisis?

Debt crisis for whom?

As a professor whose research focuses on higher education finance and accountability policy – and who married an attorney with lots of student loan debt – I look at the student “debt crisis” differently.

I can see the types of students for whom debt is a crisis.

Although there are some exceptions, the crisis is generally not with people like my wife and me, who have advanced degrees and the ability to manage high debt payments due to earning more money (and knowing whether and how to use income-based repayment programs that cap debt payments at a certain percentage of one’s income).

Rather, the crisis is among students with relatively little debt but dismal job prospects.

Research by the New York Federal Reserve Bank found that 35% of students with less than $5,000 in debt defaulted within six years, twice the rate of students with more than $100,000 in debt.

Additionally, these students with low debt amounts and low earnings are disproportionately likely to be dropouts. Sixty-three percent of students who started college in 2003-04 and defaulted on their loans by 2009 were college dropouts, while students with a bachelor’s or associate degree were only 4% of defaults.

Impact of debt

Student loan debt has also been blamed for a range of other negative outcomes in various media articles, including delaying marriage, having children and purchasing a home.

The raw data certainly support the relationship between student loan debt and delaying these key markers of adulthood. It is true that the home ownership rate of young adults without debt exceeded the rate of those with debt for the first time in 2012.

But identifying a causal impact of student loan debt on these outcomes is harder to do: the characteristics of the types of people who went to college and borrowed are different from those who either did not go to college or went to college without taking on debt. For example, students may not borrow for college if their parents foot the bill – and these individuals may also get help putting down a down payment for a house.

Part of the declining home ownership rate among those with debt is likely because college graduates are more likely to move to expensive urban areas than those who did not attend college or take on any debt. Most of the students with little debt are dropouts, not graduates.

In my view, the best empirical research examining whether student loan debt affects home ownership is a working paper by Jason Houle and Lawrence Berger that has found a significant, but small, relationship between student loan debt and home ownership.

However, two different factors could be at play to cause this relationship.

It could be because prospective buyers with debt are unable to obtain a mortgage due to part of their income being needed to pay off student loans. But it could also be because those with debt perceive that they will be rejected if they apply for a loan (even though it may not be true).

Who should be the focus of policy?

Student loan debt is increasingly becoming an unpleasant part of life for millions of Americans, but for many borrowers – particularly those with advanced degrees and high debt burdens – debt is far from a crisis.

For example, the Brookings Institution’s Elizabeth Akers stated in her recent congressional testimony that although the length of student loan payments has increased over time, the average monthly payment has barely increased.

Senator Elizabeth Warren, a darling among progressives, pushed back against Akers, contending that the increasing length of payments construes a debt crisis.

While I’m certainly sympathetic to students frustrated by years of student loan payments, policies designed to help struggling borrowers should focus on students with the greatest need.

Students who left college without a degree and are unable to find a decent job are facing a crisis as they struggle to make ends meet. Our limited resources should be used to help these students complete a credential and repay their loans instead of targeting lawyers with six-figure debt loads.

Robert Kelchen is an assistant professor of higher education at Seton Hall University.

Read the original article.

Is “Overborrowing” for College an Epidemic?

As the Senate Health, Education, Labor, and Pensions Committee continues to slowly move toward Higher Education Act reauthorization, the committee held a hearing this week on the possibility of institutional risk-sharing with respect to federal student financial aid programs. This idea, which has bipartisan support at least in principle, would require at least some low-performing colleges to be responsible for a portion of loans not repaid to the federal government. (I’ve written about this idea in the past.)

Sen. Lamar Alexander (R-TN), the committee chair, began his opening statement with a discussion of “overborrowing,” which he defines as students borrowing more than they need to in order to attend college. Along with Sen. Michael Bennet (D-CO) and other colleagues, he is sponsoring the FAST Act, which contains a provision that would prorate the amount of funds part-time students can borrow for living expenses. Financial aid administrators are also concerned about overborrowing, as evidenced by their professional association’s push to allow colleges to offer students less than the maximum loan amount. This is also something that Sen. Alexander discussed in his opening statement.

But there is no commonly-accepted definition of “overborrowing,” nor is there empirical research that clearly defines how much borrowing is too much. I can see why policymakers want to limit the amount of money that part-time students can borrow for living expenses while in college, as students may hit their lifetime loan caps before completing their degrees as part-time students. But, as research that I’ve conducted with Sara Goldrick-Rab at Wisconsin and Braden Hosch at Stony Brook shows, about one-third of all colleges set living expenses at least $3,000 below what it likely costs to live. This effectively limits student borrowing, as they cannot have a financial aid package exceeding the cost of attendance.

Some people have said that high student loan default rates are a clear indicator that overborrowing is a common concern. Yet students with a small amount of debt are at a higher risk of default, as many of them dropped out of college without a degree and were unable to find gainful employment. It could be the case that borrowing more money would be a better decision, as that money might help students stay in college and complete degrees. However, a substantial percentage of students from low-income families are loan-averse—either completely unwilling to take on debt or only willing to take on a bare minimum as a last resort. Underborrowing is the concern in higher education funding that few people are talking about, and it deserves additional study.

Finally, it is worth a reminder that the typical student graduating with a bachelor’s degree has about $30,000 in debt, although there are huge differences by race/ethnicity and family income. This is in spite of media reports that focus on borrowers with atypically high debt burdens. While I’m concerned about the substantial percentage of students borrowing large amounts of money for graduate school (and particularly the implications for taxpayers due to the presence of income-based repayment programs), it’s hard to convincingly argue that overborrowing for an undergraduate degree is truly an epidemic.

Do Student Loans Result in Tuition Increases? Why It’s So Hard to Tell

One of the longstanding questions in higher education finance is whether access to federal financial aid dollars is one of the factors behind tuition increases. This was famously stated by Education Secretary William Bennett in a 1987 New York Times editorial:

“If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase. In 1978, subsidies became available to a greatly expanded number of students. In 1980, college tuitions began rising year after year at a rate that exceeded inflation. Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.”

Since Secretary Bennett made his statement (now called the Bennett Hypothesis), more students are receiving federal financial aid. In 1987-1988, the average full-time equivalent student received $2,414 in federal loans, which rose to $6,374 in 2012-2013. The federal government has also increased spending on Pell Grants during this period, although the purchasing power of the grant has eroded due to large increases in tuition.

The Bennett Hypothesis continues to be popular in certain circles, as illustrated by comments by Dallas Mavericks owner and technology magnate Mark Cuban. In 2012, he wrote:

“The point of the numbers is that getting a student loan is easy. Too easy.

You know who knows that the money is easy better than anyone ? The schools that are taking that student loan money in tuition. Which is exactly why they have no problems raising costs for tuition each and every year.

Why wouldn’t they act in the same manner as real estate agents acted during the housing bubble? Raise prices and easy money will be there to pay your price. Good business, right ? Until its not.”

Recently, Cuban called for limiting student loans to $10,000 per year, as reported by Inc.:

“If Mark Cuban is running the economy, I’d go and say, ‘Sallie Mae, the maximum amount that you’re allowed to guarantee for any student in a year is $10,000, period, end of story.’

We can talk about Republican or Democratic approaches to the economy but until you fix the student loan bubble–and that’s where the real bubble is–we don’t have a chance. All this other stuff is shuffling deck chairs on the Titanic.”

Cuban’s plan wouldn’t actually affect the vast majority of undergraduate students, as loan limits are often below $10,000 per year. Dependent students are limited to no more than $7,500 per year in subsidized and unsubsidized loans and independent students are capped at $12,500 per year. But this would affect graduate students, who can borrow $20,500 per year in unsubsidized loans, as well as students and their families taking out PLUS loans, which are only capped by the cost of attendance.

Other commentators do not believe in the Bennett Hypothesis. An example of this is from David Warren, president of the National Association of Independent Colleges and Universities (the professional association for private nonprofit colleges). In 2012, he wrote that “the hypothesis is nothing more than an urban legend,” citing federal studies that did not find a relationship.

The research on the Bennett Hypothesis can best be classified as mixed, with some studies finding a modest causal relationship between federal financial aid and tuition increases and others finding no relationship. (See this Wonkblog piece for a short overview or Donald Heller’s monograph for a more technical treatment.) But for data reasons, the studies of the Bennett Hypothesis either focus on all financial aid lumped together (which is broader than the original hypothesis) or just Pell Grants.

So do student loans result in tuition increases? There is certainly a correlation between federal financial aid availability and college tuition, but the first rule of empirical research is that correlation does not imply causation. And establishing causality is extremely difficult given the near-universal nature of student loans and the lack of change in program rules over time. It is essential to have some change in the program in order to identify effects separate from other types of financial aid.

In an ideal world (from a researcher’s perspective), some colleges would be randomly assigned to have lower loan limits than others and then longer-term trends in tuition could be examined. That, of course, is politically difficult to do. Another methodological possibility would be to look at the colleges that do not participate in federal student loan programs, which are concentrated among community colleges in several states. But the low tuition charges and low borrowing rates at community colleges make it difficult to even postulate that student loans could potentially drive tuition increases at community colleges.

A potential natural experiment (in which a change is introduced to a system unexpectedly) could have been the short-lived credit tightening of parent PLUS loans, which hit some historically black colleges hard. Students who could no longer borrow the full cost of attendance had to scramble to find other funding, which put pressure on colleges to find additional money for students. But the credit changes have partially been reversed before colleges had to make long-term decisions about pricing.

I’m not too concerned about student loans driving tuition increases at the vast majority of institutions. I think the Bennett Hypothesis is likely the strongest (meaning a modest relationship between loans and tuition) at the most selective undergraduate institutions and most graduate programs, as loan amounts can be substantial and access to credit is typically good. But, without a way to identify variations in loan availability across similar institutions, that will remain a postulation.

[NOTE (7/7/15): Since this piece was initially posted, more research has come out on the topic. See this updated blog post for my most up-to-date take.

Analyzing the New Cohort Default Rate Data

The U.S. Department of Education today released cohort default rates (CDR) by college, which reflects the percentage of students who default on their loans within three years of entering repayment. This is a big deal for colleges, as any college that had a CDR of more than 30% for three consecutive years could lose its federal financial aid eligibility. I analyzed what we can learn from CDRs—a limited amount—in a blog post earlier this week.

And then things got interesting in Washington. The Department of Education put out a release yesterday noting that some students with loans from multiple servicers (known as “split servicers”) were current on some loans and defaulting on others. In this release, ED noted that the split servicer students were being dropped from CDRs over the last three years—but only if a college was close to the eligibility threshold. This led many to question whether ED was serious about using CDRs as an accountability tool, as well as trying to glean implications for the upcoming college ratings system.

The summary data for cohort default rates by year and sector is available here, and shows a decline from a 14.7% default rate in Fiscal Year 2010 to 13.7% in FY 2011. Default rates in each major sector of higher education also fell, led by a decline from 21.8% to 19.1% in the for-profit sector. However, a comparison of the FY 2009 and 2010 data in this release with the FY 2009 and 2010 data in last year’s release shows no changes from last year–before the split servicer change was adopted. Something doesn’t seem to be right there.

Twenty-one colleges are subject to sanctions under the new CDRs, all but one of which (Ventura Adult and Continuing Education) are for-profit. Most of the colleges subject to sanctions are small beauty or cosmetology institutions and reflect a very small percentage of total enrollment. We don’t know how many other colleges would have crossed over 30%, if not for the split servicer changes.

This year’s data show some very fortunate colleges. Among colleges with a sufficiently high participation rate, six institutions had CDRs of between 29 and 29.9 percent after being over 30% in the previous two years. They are led by Paris Junior College, with a 29.9% CDR in FY 2011 after being over 40% in the previous years. Other colleges weren’t so lucky. For example, the Aviation Institute of Maintenance was at 38.9% in FY 2009, 36.1% in FY 2010, and improved to 31.1% to 2011—but is still subject to sanctions.

FY 2011 CDRs, FY 2009 & 2010 above 30%
Name	FY 2011	FY 2010	FY 2009
SEARCY BEAUTY COLLEGE	9.3	30.7	38.2
NEW CONCEPT MASSAGE AND BEAUTY SCHOOL	9.7	30.1	35.2
UNIVERSITY OF ANTELOPE VALLEY	12	31.8	30.6
PAUL MITCHELL THE SCHOOL ESCANABA	12.1	40	68.7
SAFFORD COLLEGE OF BEAUTY CULTURE	13.1	36.8	36.3
COMMUNITY CHRISTIAN COLLEGE	13.9	33.3	38.8
UNIVERSITY OF SOUTHERNMOST FLORIDA	14.6	30.8	35.1
SOUTHWEST UNIVERSITY AT EL PASO	15.5	36.1	37.5
CENTRO DE ESTUDIOS MULTIDISCIPLINARIOS	15.6	39.2	50.9
VALLEY COLLEGE	17.2	36.9	32.7
AMERICAN BROADCASTING SCHOOL	17.5	30.8	44.6
SUMMIT COLLEGE	17.6	30.9	30.5
VALLEY COLLEGE	19.4	56.5	37.5
AMERICAN UNIVERSITY OF PUERTO RICO	21	31.2	36.6
BRYAN UNIVERSITY	21.1	30.2	30.4
SOUTH CENTRAL CAREER CENTER	22	32.6	35.1
PAUL MITCHELL THE SCHOOL ARKANSAS	22	37.5	30
D-JAY’S SCHOOL OF BEAUTY, ARTS & SCIENCES	22.2	37.5	41.9
PAUL MITCHELL THE SCHOOL GREAT LAKES	22.2	34.6	33.9
KILGORE COLLEGE	22.7	30.2	33.5
ANTONELLI COLLEGE	22.8	33	35.1
OLD TOWN BARBER COLLEGE	23	37.7	40
OZARKA COLLEGE	23.1	41.8	35
TESST COLLEGE OF TECHNOLOGY	23.4	33.7	32
CENTURA COLLEGE	23.7	32	35
RUST COLLEGE	23.7	32	31.6
CARSON CITY BEAUTY ACADEMY	23.8	31.8	43.3
BACONE COLLEGE	24.1	32	30
KAPLAN CAREER INSTITUTE	24.1	32.5	33.6
TECHNICAL CAREER INSTITUTES	24.3	38.8	34.9
VICTOR VALLEY COMMUNITY COLLEGE	24.6	32.6	31
SOUTHWESTERN CHRISTIAN COLLEGE	24.6	32.7	43.1
AMERICAN BEAUTY ACADEMY	24.8	35.7	34.6
CENTURA COLLEGE	24.8	31.5	34.7
DENMARK TECHNICAL COLLEGE	25	30.8	31.6
MILAN INSTITUTE OF COSMETOLOGY	25	32.4	41.5
TREND BARBER COLLEGE	25	43.5	60.5
JACKSONVILLE BEAUTY INSTITUTE	25.2	33.3	41.7
CONCEPT COLLEGE OF COSMETOLOGY	25.3	41.5	34.2
EASTERN OKLAHOMA STATE COLLEGE	25.4	31.8	30
OTERO JUNIOR COLLEGE	25.5	34.2	38.2
LANGSTON UNIVERSITY	25.5	32.5	32.9
COLLEGEAMERICA DENVER	25.5	34.8	38.3
AVIATION INSTITUTE OF MAINTENANCE	25.8	36.9	39.6
EMPLOYMENT SOLUTIONS	26	38.5	30
SANFORD-BROWN COLLEGE	26.2	31.6	31.5
CAMBRIDGE INSTITUTE OF ALLIED HEALTH AND TECHNOLOGY	26.6	33.3	35
ANTELOPE VALLEY COLLEGE	26.9	32.6	33.2
UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE	26.9	30.6	31.6
CC’S COSMETOLOGY COLLEGE	27.4	40.3	35.9
MILWAUKEE CAREER COLLEGE	27.6	34.1	32.7
NTMA TRAINING CENTERS OF SOUTHERN CALIFORNIA	27.8	32.1	34.2
CONCORDIA COLLEGE ALABAMA	27.9	31.4	37.5
NORTH AMERICAN TRADE SCHOOLS	28	31	31.1
AVIATION INSTITUTE OF MAINTENANCE	28.1	37.9	39.8
MEDIATECH INSTITUTE	28.4	33.3	33.3
SEBRING CAREER SCHOOLS	29	54.1	57.5
MOHAVE COMMUNITY COLLEGE	29.3	32.7	36.7
CHERYL FELL’S SCHOOL OF BUSINESS	29.4	38	31.2
AVIATION INSTITUTE OF MAINTENANCE	29.4	36.1	38.9
KLAMATH COMMUNITY COLLEGE	29.4	33	31.7
PARIS JUNIOR COLLEGE	29.9	40.7	41.5
STYLEMASTERS COLLEGE OF HAIR DESIGN	30.6	46.6	37
LASSEN COLLEGE	30.8	37.1	37.7
AVIATION INSTITUTE OF MAINTENANCE	31.1	37.5	32.2
CHARLESTON SCHOOL OF BEAUTY CULTURE	31.7	37.5	34
PALLADIUM TECHNICAL ACADEMY	33	39.4	46.2
L T INTERNATIONAL BEAUTY SCHOOL	38.1	37.7	38
TIDEWATER TECH	38.6	42.7	55
JAY’S TECHNICAL INSTITUTE	40.6	53.8	51.5
OHIO STATE COLLEGE OF BARBER STYLING	41.1	37.8	32.9
MEMPHIS INSTITUTE OF BARBERING	44.7	47.2	44.4
FLORIDA BARBER ACADEMY	46.5	41.7	32.5
SAN DIEGO COLLEGE	49.3	34	35.7

Fully 35 colleges with sufficient participation rates had CDRs between 29.0% and 29.9% in FY 2011, including a mix of small for-profit colleges, HBCUs, and community colleges. The University of Arkansas-Pine Bluff, a designated minority-serving institution, has had CDRs of 29.9%, 29.2%, and 29.8% in the last three years. Mt. San Jacinto College and Harris-Stowe State University also had CDRs just under 30% in each of the last three years. Only 19 colleges, representing a mix of institutional types, had CDRs between 30.0% and 30.9%. This includes Murray State College in Oklahoma, which was at 30.0% in FY 2011, 28.9% in FY 2010, and 31.1% in FY 2009. Forty-three colleges were between 28.0% and 28.9%.

FY 2011 CDRs between 29 and 31 percent
Name	FY 2011	FY 2010	FY 2009
OHIO TECHNICAL COLLEGE	29	24.1	21.3
DAYMAR COLLEGE	29	28.9	46.2
SEBRING CAREER SCHOOLS	29	54.1	57.5
L’ESPRIT ACADEMY	29.1	0	0
BLACK RIVER TECHNICAL COLLEGE	29.1	27.9	26.6
NEW SCHOOL OF RADIO & TELEVISION	29.1	26.2	28.1
LOUISBURG COLLEGE	29.2	28.7	24.7
MOHAVE COMMUNITY COLLEGE	29.3	32.7	36.7
HARRIS SCHOOL OF BUSINESS	29.3	25.6	17.8
INTELLITEC MEDICAL INSTITUTE	29.3	27.1	24.7
GALLIPOLIS CAREER COLLEGE	29.3	33.9	29.4
CHERYL FELL’S SCHOOL OF BUSINESS	29.4	38	31.2
COLLEGE OF THE SISKIYOUS	29.4	27.7	27.1
AVIATION INSTITUTE OF MAINTENANCE	29.4	36.1	38.9
KLAMATH COMMUNITY COLLEGE	29.4	33	31.7
COLORLAB ACADEMY OF HAIR, THE	29.4	24.3	12.5
DIGRIGOLI SCHOOL OF COSMETOLOGY	29.4	21.6	23.5
VIRGINIA SCHOOL OF MASSAGE	29.4	14.8	22
WASHINGTON COUNTY COMMUNITY COLLEGE	29.5	20.5	12.7
MT. SAN JACINTO COLLEGE	29.5	29.9	26.5
WEST TENNESSEE BUSINESS COLLEGE	29.5	32.6	21.8
BRITTANY BEAUTY SCHOOL	29.5	31.9	26.4
JOHN PAOLO’S XTREME BEAUTY INSTITUTE, GOLDWELL PRODUCTS ARTISTRY	29.5	25	0
HARRIS – STOWE STATE UNIVERSITY	29.6	27.9	26.5
CARIBBEAN UNIVERSITY	29.6	29.9	29.9
GUILFORD TECHNICAL COMMUNITY COLLEGE	29.7	26	19
WARREN COUNTY CAREER CENTER	29.7	22.9	25
STARK STATE COLLEGE	29.7	24.5	17.2
STRAND COLLEGE OF HAIR DESIGN	29.7	17.9	11.1
INDEPENDENCE COLLEGE OF COSMETOLOGY	29.8	21.6	18.4
FRANK PHILLIPS COLLEGE	29.8	25.2	29.1
MEDICAL ARTS SCHOOL (THE)	29.8	21.6	13.1
NEW MEXICO JUNIOR COLLEGE	29.8	24.1	23.1
PARIS JUNIOR COLLEGE	29.9	40.7	41.5
UNIVERSITY OF ARKANSAS AT PINE BLUFF	29.9	29.2	29.8

MURRAY STATE COLLEGE	30	28.9	31.1
JARVIS CHRISTIAN COLLEGE	30	36.5	29.3
BUSINESS INDUSTRIAL RESOURCES	30.1	19.1	20.9
LONG BEACH CITY COLLEGE	30.1	24.2	19
EASTERN GATEWAY COMMUNITY COLLEGE	30.1	0	0
MARTIN UNIVERSITY	30.2	19.8	18.7
LANE COMMUNITY COLLEGE	30.2	30.6	19.5
CAREER QUEST LEARNING CENTER	30.2	24.1	16.1
NIGHTINGALE COLLEGE	30.3	25	16.6
EMPIRE BEAUTY SCHOOL	30.4	31.6	25.2
NATIONAL ACADEMY OF BEAUTY ARTS	30.4	20.6	5.6
BAR PALMA BEAUTY CAREERS ACADEMY	30.5	35.8	26.8
WEST VIRGINIA UNIVERSITY – PARKERSBURG	30.5	25.8	24.1
ENSACOLA SCHOOL OF MASSAGE THERAPY & HEALTH CAREERS	30.5	17.3	10
PROFESSIONAL MASSAGE TRAINING CENTER	30.6	14.8	13
UNIVERSAL THERAPEUTIC MASSAGE INSTITUTE	30.6	23.5	17.2
STYLEMASTERS COLLEGE OF HAIR DESIGN	30.6	46.6	37
CCI TRAINING CENTER	30.8	26.5	26.7
INSTITUTE OF AUDIO RESEARCH	30.8	29.7	17
LASSEN COLLEGE	30.8	37.1	37.7
KAPLAN CAREER INSTITUTE	30.8	34.6	29.7
TRANSFORMED BARBER AND COSMETOLOGY ACADEMY	30.9	66.6	0
MAYSVILLE COMMUNITY AND TECHNICAL COLLEGE	30.9	26.4	24.5
TRI-COUNTY TECHNICAL COLLEGE	30.9	27.2	16.1

Some of the larger for-profits fared better, potentially due to split servicers. The University of Phoenix’s CDR was 19.0% in FY 2011, down from 26.0% in FY 2010 and 26.4%. DeVry University was at 18.5% in FY 2011, down from 23.4% in FY 2010 and 24.1% in FY 2009. ITT Technical Institute also improved, going from 33.3% in FY 2009 to 28.6% and then 22.4% this year. (Everest College disaggregates its data by campus, but the results are similar.)

The CDR data are not without controversy, but they are an important accountability tool going forward. It will be interesting to see whether and how these data will be used in the draft Postsecondary Institution Ratings System later this fall.

Building a Better Student Loan Default Measure

Student loan default rates have been a hot political topic as of late given increased accountability pressures at the federal level. Currently, colleges can lose access to all federal financial aid (grants as well as loans) if more than 25% of students defaulted on their loans within two years of leaving college for three consecutive cohorts. Starting later this year, the measure used will be the default rate within three years of leaving college, and the cutoff for federal eligibility will rise to 30%. (Colleges can appeal this result if there are relatively few borrowers.)

But few students should ever have to default on their loans given the availability of various income-based repayment (IBR) plans. (PLUS loans typically aren’t eligible for income-based repayment, but their default rates oddly aren’t tracked and aren’t used for accountability purposes.) If a former student enrolled in IBR falls on tough times, his or her monthly payment will go down—potentially to zero if income is less than 150% of the federal poverty line. As a result, savvy colleges should be encouraging their students to enroll in IBR in order to reduce default rates.

And more students are enrolling in IBR. Jason Delisle at the New America Foundation analyzed new Federal Student Aid data out this week that showed that the number of students in IBR doubled from 950,000 to 1.9 million in the last year while outstanding loan balances went from $52.2 billion to $101.0 billion. The federal government’s total Direct Loan portfolio increased from $361.3 billion to $464.3 billion in the last year, meaning that IBR was responsible for nearly half of the increase in loan dollars.

This shift to IBR means that the federal government needs to consider new options for holding colleges accountable for their outcomes. Some options include:

(1) Using a longer default window. The “standard” loan repayment plan is ten years, but defaults are only tracked for three years. A longer window wouldn’t give an accurate picture of outcomes if more students enroll in IBR, but it would provide useful information on students who expect to do well enough after college that standard payments will be a better deal than IBR. This probably requires replacement of the creaky National Student Loan Data System, which may not be able to handle that many more data requests.

(2) Look at the percentage of students who don’t pay anything under IBR. This would measure the percentage of students making more than 150% of the poverty line, or about $23,000 per year for a former borrower with one other family member. Even with the woeful salaries in many public service jobs (such as teaching), they’ll likely have to pay something here.

(3) Look at the total amount repaid compared to the amount borrowed. If the goal is to make sure the federal government gets its money back, a measure of the percentage of funds repaid might be useful. Colleges could even be held accountable for part of the unpaid amount if desired.

As the Department of Education continues to develop draft college ratings (to come out later this fall), they are hopefully having these types of conversations when considering outcome measures. I hope this piece sparks a conversation about potential loan default or repayment measures that can improve upon the currently inadequate measure, so please offer your suggestions as comments below.

The Ticking Student Loan Time Bomb: The Forgiveness Tax

What to do about the rising amount of student loan debt has recently taken center stage in domestic policy discussions, as the average student who completes a bachelor’s degree and takes out debt now has a student loan burden of around $30,000. Media reports love focusing on those with much larger amounts of debt—who tend to either have graduate degrees or went to colleges with high costs of attendance—but these students are a minority. The past week has seen proposals by members of Congress and President Obama to reduce the burden on those who leave college with debt. Below are summaries of the three main proposals and what they mean for students and taxpayers.

Proposal 1: President Obama’s extension of more generous income-based repayment (IBR) terms. He signed an executive order authorizing the Department of Education to enter the federal rulemaking process in order to extend IBR terms that apply to current Direct Loan borrowers retroactively for those who borrowed before 2007 or those who have not borrowed since 2011. Once approved (no sooner than 2015), borrowers could pay 10% of their discretionary income over 20 years instead of 15%. This proposal has gained support from many in the higher education community, but there are concerns about costs and whether the President has the authority to act without Congressional approval.

Proposal 2: Sen. Warren (D-MA)’s proposal to refinance student loans. She has introduced multiple proposals to lower interest rates, including one to lower rates to 0.75% (which I called “a folly”). Her most recent proposal would allow students to refinance federal and some private loans at the current subsidized Stafford loan interest rate (3.86%). President Obama endorsed the plan when he signed his executive order, but the likelihood of the plan passing is fairly low. It is expected to cost about $55 billion (a number highly dependent on how many borrowers actually refinance), and is paid for by a surtax on millionaires. While passing the Democrat-controlled Senate is possible, it is unlikely to pass the GOP-controlled House.

Proposal 3: Sen. Warner (R-VA)’s and Thune (R-SD)’s proposal to allow employers to contribute pre-tax dollars to help repay employees’ loans. This proposal came as a surprise, particularly the provision that borrowers would have to refinance in the private market before participating in the program. No cost information is currently available to the best of my knowledge, and this proposal is unlikely to pass.

While all three of these proposals could help at least some borrowers in the short run, none of them do anything to affect the main reason behind the growth in student loans: the rising cost of college. If anything, making it easier to repay loans has the potential to increase college costs as colleges’ incentives to reduce costs are decreased. This fits in with the “Bennett Hypothesis,” in which increases in federal financial aid are associated with increased costs. (Evidence to support the hypothesis is mixed.)

Making IBR programs more generous could have serious long-run implications for millions of students. Under current law, students in IBR programs (excluding those in the Public Service Loan Forgiveness program) will face a tax bill for any balance forgiven at the end of the loan (typically 10-25 years). President Obama did not mention that when signing the executive order, even though it is likely that many borrowers will face a substantial tax burden when their loan is forgiven. If a remaining balance of $30,000 is forgiven (on the low end of the likely distribution), the borrower can face a tax burden of $10,000.

The issue of the forgiveness tax has not yet reached center stage, but will do so in the next few years as the first wave of IBR borrowers begin to reach the end of the repayment period. Congress needs to clarify whether the forgiveness tax will remain in place in order to give borrowers as much information as possible. Congress can choose to eliminate the tax, but the loss of revenue must be offset elsewhere in the federal budget through spending cuts or tax increases. Or they can keep the tax, but could consider spreading out the burden over multiple years.

Thinking about the long-term implications of loan forgiveness under IBR is not sexy, and it is not a topic that will resonate with many voters at this point in time. But politicians need to consider the ticking time bomb and how to best defuse it before more Americans enroll in IBR.