New Data on Long-Term Student Loan Default Rates

In recent years, more data have come out on how well students are able to manage repaying their loans beyond the three-year window currently used for federal accountability purposes (via cohort default rates). A great 2015 paper by Adam Looney and Constantine Yannelis used tax records merged with data from the National Student Loan Data System (NSLDS) to show longer-term trends in default in repayment. Two days later, the release of the College Scorecard provided college-level data on student loan repayment rates going out seven years (even though the repayment rates were initially calculated incorrectly).

Thanks to a lot of hard work by the data folks at the U.S. Department of Education and their contractor RTI, there are new data available on long-term student loan default rates. ED and RTI used NSLDS data going through 2015 to match records from the Beginning Postsecondary Students studies of cohorts beginning college in 1995-96 and 2003-04. This allowed a 20-year look at student loan default and payoff rates for the 1995-96 cohort and a 12-year look at the 2003-04 cohort, as detailed in this useful report from the National Center for Education Statistics.

Thanks to NCES’s wonderful PowerStats tool, I took a look at the percentage of students in the 2003-04 entering cohort (my college cohort) who had defaulted on at least one of their federal student loans within 12 years. Many of the news headlines focused on the high default rates of students at for-profit colleges (about 52%!), but this isn’t entirely a fair comparison because for-profit colleges tend to serve more economically-disadvantaged students. So in this post, I focused on racial/ethnic differences in default rates by type of college attended to give a flavor of what the data can do.

As the below chart shows, nearly half of all black students (49%) defaulted on at least one loan within 12 years—more than twice the rate of white students (20%) and more than four times the rate of Asian students (11%). The differentials are still present across sector, with more than one-third of black students defaulting across all sectors while a relatively small percentage of Asian students defaulted across all nonprofit sectors. Default rates at for-profit colleges are high for all racial/ethnic groups, with almost half of white students defaulting alongside nearly two-thirds of black students.

An advantage of the PowerStats tool is that it allows users to run regressions via NCES’s remote server. This allows interested people to analyze the relationship between long-term default rates and attending a for-profit college after controlling for other characteristics. However, PowerStats is overwhelmed by requests by my fellow higher education data nerds at this point, so I gave up on trying to run the regression after several hours of waiting. But if someone wants to run some regressions using the new loan repayment data in the BPS once the server calms down, I’m happy to feature their work on my blog!

Examining Trends in Student Loan Repayment Rates

It’s been a good week for higher education data nerds. The Department of Education released updated student loan cohort default rates on Wednesday afternoon (see my summary here), followed by an update to the massive College Scorecard dataset on Thursday morning. This is the third update to the Scorecard, with this year’s update also featuring a nice new comparison tool on the student-facing version of the site.

In this post, I focus on trends in student loan repayment rates (defined as the percentage of students who have repaid at least $1 in principal) at various periods entering loan 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. Additionally, I use the January 2017 data release for the 2012-13 Scorecard data because there appears to be an error in that year’s dataset that results in very few colleges having loan repayment rates.

I begin by show 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 61.8 63.5 64.6 66.6
2007-08 53.0 54.2 56.1 59.7
2008-09 46.1 47.9 52.0 56.0
2009-10 41.0 43.2 48.7 N/A
2010-11 36.6 40.7 46.3 N/A
2011-12 32.2 38.1 N/A N/A
2012-13 33.0 38.3 N/A N/A

There are two clear trends from this table. First, repayment rates have steadily dropped for more recent cohorts of students. The one-year repayment rate for students entering repayment in 2006-07 (before the Great Recession) was 61.8%, while the most recent cohort of students had a one-year repayment rate of just 33.0%. Much of this decline is likely due to the growth of income-driven repayment plans (which can allow students to be current on their payments while not making a dent in the overall principal). But economic circumstances also likely play a role here.

Second, repayment rates steadily rise for a given cohort as they have more time in the labor market after college. In the 2008-09 repayment cohort, the seven-year repayment rate was 56.0%, 9.9% higher than the one-year rate. These trends still suggest that it will be a long time before students repay their loans, but this is a step in the right direction.

I also show the distribution of colleges’ repayment rates for the 2008-09 cohort across all of the repayment periods by the type of college (public, private nonprofit, and for-profit). In general, private nonprofit colleges have higher repayment rates than both public and for-profit colleges (in part because private nonprofit colleges are primarily four-year institutions), but all sectors see slight improvements between the one-year and seven-year repayment rates.

Finally, a programming note: I’ll be getting the final page proofs for my book shortly and have to do final checks and put together an index during the month of October. I’ll try to write a couple of short blog posts when the new National Postsecondary Student Aid Study and full IPEDS Outcomes Measures survey come out; otherwise, stay tuned for some exciting new research that I’ll be unveiling in early November.

It’s Time to Move Beyond Cohort Default Rates

Today marked the annual release of data on cohort default rates—representing the percentage of students at a given college who default on their federal student loans within three years. The newest data show that 11.5% of students who entered repayment in Fiscal Year 2014 defaulted during this period, which is up slightly from 11.3% for those who entered repayment in Fiscal Year 2013.

Cohort default rates (CDRs) have been used for decades as an accountability metric by the federal government, with colleges posting CDRs of over 40% in a given year losing access to federal student loans for a two-year period and colleges with CDRs above 30% in three consecutive years losing access to all federal financial aid for two years. This year, six colleges posted default rates high enough to lose all Title IV aid and four more had default rates high enough to lose loan access.

Yet CDRs suffer from two key concerns that make them almost toothless from an accountability perspective—and show the need for better accountability metrics. I discuss the two key points in brief below (and if you like this topic, you’ll love my book on higher education accountability that will come out in January!).

Point 1: Default rates are an almost meaningless indicator of student outcomes. The availability of income-driven repayment programs means that no student should ever default on their obligations (although these programs are still clunky and some students simply don’t ever want to repay their loans). But for students who are able and willing to jump through the hoops of income-driven programs and have very low incomes, they can be current on their loans while making zero payments. Many colleges also adopt default management programs that can encourage students to either enroll in income-driven plans or to defer their obligations beyond the three-year accountability window.

In a recent article (a summary is available here), Amy Li of the University of Northern Colorado and I explored the relationship between default and repayment rates (as defined as paying down at least $1 in principal over a given period of time). We showed that although reported default rates stayed low, the percentage of students failing to repay any principal—a key question for taxpayers—was far higher.

Point 2: Default rate sanctions affect almost no colleges. Ben Miller of the Center for American Progress summed up how few colleges faced the loss of federal aid:

The all-or-nothing nature of potential sanctions gives colleges a tremendous incentive to make sure they aren’t affected. In 2014, the Obama Department of Education agreed to a controversial last-minute change to CDRs that allowed some colleges to sneak just below the 30% threshold. In 2017, a provision appeared in the FY 2018 budget that would effectively void CDR sanctions for colleges in economically distressed areas:

It turns out that Senator Mitch McConnell (R-KY) inserted the provision, likely to help out Southeast Kentucky Community and Technical College—one of the six institutions that is at risk of losing all federal financial aid due to high default rates. It pays to have friends in high places, I reckon.

So what can be done to improve federal accountability policies on student loans? I offer two simple ideas to start. First, move from default rates to repayment rates in order to get a better idea of students’ post-college circumstances. Second, move from an all-or-nothing sanction system to gradual sanctions. I go into both of these points in more depth in a paper I wrote in 2015 on the idea of “risk sharing” for student loans. It is essential to move away from CDRs as quickly as possible, even though some in higher education community may prefer the CDR system that affects relatively few colleges.

The Tangled Web of Student Debt Consolidation Companies

Like seemingly most American households, the Kelchens get far more junk in the mail than actual mail of value. We get about as many credit card applications as our shredder can handle, as well as folks trying to sell us a broad array of products and services. But letters that mention student loan debt and say “Final Notice” on them always get my attention, both as a researcher of higher education finance and as a proud part-owner of my wife’s law school debt.

The letter below came last week from a company called Direct Document Solutions out of Irvine, California. It says that we may be eligible to consolidate our existing federal student loan into a lower-interest federal loan—and that we may be eligible for loan forgiveness. While the fine print says that the company is fee-based and that they are not a part of the Department of Education, it’s in much smaller font than the rest of the letter.

After looking at this letter for a while, I realized that it looked vaguely like another student loan consolidation letter we had received several months prior. I dug through my Twitter media archives and found a nearly-identical letter (presented below) from last August from a company called Certified Document Center (which operates as Document Preparation Services at the same address as Direct Document Solutions). The Better Business Bureau gave the company a C rating, with 18 complaints in the last 12 months alone.

Just before I got the letter last week, NerdWallet put out a helpful list of about 130 companies that are less-than-ideal actors in the student debt consolidation business. To get on this list, companies needed to have faced significant complaints or have a D or F rating from the Better Business Bureau. So this means that Document Preparation Services sneaks over the bar and doesn’t make the list.

But in my research of this company, I discovered it was a part of the Association for Student Loan Relief—a group of 118 companies that specialize in student loan consolidation. A number of these companies show up on NerdWallet’s watch list. These companies tend to be clustered in certain areas—for example, nine are located in Irvine, California and quite a few are located in South Florida. This, along with the multiple aliases that several companies appear to have used, suggest the possibility that a number of these companies may be run by the same people or group of people.

People who are struggling to repay their federal loans (or are simply seeking a better deal) should probably start by talking with their current servicer or even reaching out to their former college’s financial aid office. If an income-driven repayment plan is the best choice, there is usually little need to involve a paid consolidation company. For students who are seeking a lower interest rate, there are legitimate companies (like Earnest and SoFi) and banks that will refinance student loans. Refinancing can be a great option for people who are certain that they won’t benefit from income-driven repayment plans and have fairly high incomes, but this is a decision that should be researched before making. Read reviews, look at BBB ratings (and the number of complaints), and be very skeptical when changing anything with your student loans.

No matter what you do, don’t put your student loans in the hands of some random company sending you “Final Notice” letters even though you have no relationship with them. That’s a great way to ruin your credit and empty your bank account.

Comments on the Trump Higher Education Budget Proposal

The Trump administration released its first full budget proposal for Fiscal Year 2018 today, and it is safe to say that it represents a sharp break from the Obama administration’s budget proposals. The proposed discretionary budget for the Department of Education is about $69 billion, $10 billion less than the Fiscal Year 2017 budget. Below, I offer brief comments on three of the key higher education proposals within the budget, as well as my take on whether the proposals are likely to be enacted in some form by a Republican-controlled Congress that seems fairly skeptical of the Trump administration’s higher education policy ideas.

Public Service Loan Forgiveness would no longer be available for new borrowers. Public Service Loan Forgiveness (PSLF) was first made available in 2007 in an effort to encourage individuals to work in lower-paying nonprofit or government jobs. This plan allows students enrolled in income-driven repayment plans who annually certified their income and employment status to have any remaining balances forgiven after ten years of payments of 10% of discretionary income. However, the plan has been criticized due to its likely high price tag to taxpayers and because it provides far larger subsidies to graduate students than undergraduate students.

The Trump administration’s budget proposal would end PSLF for new borrowers as of July 1, 2018—and require all people currently on PSLF to maintain continuous enrollment in the program to remain eligible. This is likely to be a difficult hurdle for many people to clear, as a large number of students have been tripped up by annual recertification in the past. I’m glad to see that the Trump administration didn’t completely end PSLF for current students (as people reasonably relied on the program to make important life choices), but otherwise saving PSLF in the current form isn’t at the top of my priority list because of how most of the subsidy goes to reasonably well-off people with graduate degrees instead of low-paid individuals with a bachelor’s degree in early childhood education.

Prognosis of happening: Low to medium. This will generate howls of outrage in The New York Times and The Washington Post from groups such as the American Bar Association and the National Education Association, but there is a reasonable argument for at least curtailing the amount of money that can be forgiven under PSLF. A full-fledged ending of the program may not happen, but some changes are quite possible as quite a few members of Congress are upset with rising costs of loan forgiveness programs.

Subsidized loans for undergraduates would be eliminated, and income-driven loan repayment periods would change. Undergraduate students can qualify for between $3,500 and $5,500 per year in subsidized student loans (meaning interest is not charged while they are in school), with the remainder of their federal loans being unsubsidized (with interest accumulating immediately). The Trump administration would end subsidized loans, with the likely rationale that the interest subsidy is not an efficient use of resources (something that is hard to empirically confirm or deny, but is quite plausible).

The federal government currently offers students a menu of income-driven loan repayment options, and the Trump administration proposed to simplify these into one option.  Undergraduates would pay up to 12.5% of the income over 15 years (from 10% over 20 years for the most popular current plan), while grad students would pay up to 12.5% for 30 years. Undergraduate students probably benefit from this change, while graduate students decidedly do not. This plan hits master’s degree programs hard, as any graduate debt would either trigger a 30-year repayment period for a potentially small amount of additional debt or push people back into a standard (non-income-driven) plan.

Prognosis of happening: Medium. There has been a great deal of support for streamlining income-driven repayment plans, but the much less-generous terms for graduate students (along with ending PSLF) would significantly affect graduate student enrollment. This will mobilize the higher education community against the proposal, particularly as many four-year colleges are seeking to grow graduate enrollment as a new revenue source. But potentially moving to a 20-year repayment period for graduate students or tying repayment length to loan debt are more politically feasible. The elimination of subsidized loans for undergraduates hits low-income students, but a more generous income-driven repayment program mainly offsets that and makes that change more realistic.

Federal work-study funds would be cut in half and the Supplemental Educational Opportunity Grant would be eliminated. The federal government provides funds for these two programs to individual colleges instead of directly to students, and colleges are required to provide matching funds. The SEOG is an additional grant available to needy undergraduates at participating colleges, while federal work-study funds can go to undergraduate or graduate students with financial need. Together, these programs provide about $1.7 billion of funding each year, with funds disproportionately going to students at selective and expensive colleges due to an antiquated funding formula. Rather than fixing the formula, the Trump administration proposed to get rid of SEOG (as being duplicative of Pell) and halve work-study funding.

Prognosis of happening: Slim to none. Because funds disproportionately go to wealthier colleges (and go to colleges instead of students), the lobbying backlash against cutting these programs will be intense. (There is also research evidence showing that work-study funds do benefit students, which is important to note as well.) Congressional Republicans are likely to give up on changing these two programs in an effort to focus on higher-stakes changes to student loan programs.

In summary, the Trump administration is proposing some substantial changes to how students and colleges are funded. But don’t necessarily expect these changes to be implemented as proposed, even if there are plenty of concerns among conservatives about the price tag and inefficient targeting of current federal financial aid programs. It will be crucial to see the budget bill that will go up for a vote in the House of Representatives, as that is more likely to be passed into law than the president’s proposed budget.

The Challenges Facing New York’s Tuition-Free College Program

Although tuition-free public college will not become a federal policy anytime soon, more states and local communities are considering different variations of free college. There are nearly 200 active college promise or free college programs in the United States, with two states (Arkansas and New York) enacting tuition-free programs in recent weeks.

New York’s Excelsior Scholarship program has garnered quite a bit of attention because it covers students at four-year colleges (most larger programs are limited to less-expensive two-year colleges), because of the conditions attached, and because New York governor Andrew Cuomo is likely to run for president in 2020. Yet the ambitious program (the legislation text starts on page 142 of this .pdf) also has to overcome a number of challenges in order to be truly effective. I discuss three of the key challenges with this program below.

Challenge 1: Will scholarship funds be available to all qualified students? The budget includes $163 million in funding for the program, which is probably far below the amount of money needed to fund all students. Judith Scott-Clayton of Teachers College estimated that an earlier version of the program could cost about $482 million per year. Even requirements that students complete 30 credits per year and clawbacks for students who leave the state after graduation (more on that later) may not bring the cost down enough—particularly if the program is successful in increasing enrollment at public colleges. The budget has a provision that allows awards to be cut or allocated via lottery if funds run short, which is a distinct possibility if the state faces another recession. Needless to say, this would be a PR nightmare for the state.

Challenge 2: Will colleges use fees as a tuition substitute? A full-tuition scholarship sounds great, but students and their families often forget about fees. Right now, fees are a sizable portion of direct educational prices. For example, at SUNY-Albany, tuition is $6,470 and fees are $2,793, while Hostos Community College charges $4,800 in tuition per year for a full-time student alongside $406 in fees. Since the scholarship only covers tuition, the state may pressure colleges to increase fees in an effort to reduce program costs. This happened in Massachusetts for years and still happens in Georgia, both states with large merit-based grant aid programs. Over time, it is quite possible that the value of the grant fails to keep up with inflation as a result—particularly if the state shifts funding from appropriations to student aid and colleges scramble for another revenue source.

Challenge 3: Will the state be able to manage a large “groan” program? Perhaps the most controversial portion of New York’s program is the requirement that students must live and work in the state after college for the same number of years that they received the grant; if they fail to do so, the grant converts to a loan (also known as a “groan” to financial aid wonks). Many people have raised concerns about the fairness of this idea, but here I’ll touch on the logistics of the program. Can the state of New York track students after graduation and see where they both live and work? Will they feel pressures to exempt students who live out of state but work in New York and pay state income taxes? What will the terms of the converted loans look like? There are a lot of unanswered questions here, but it is clear that the state must invest in a larger student loan agency in order to manage this complex of a program.

As Governor Cuomo prepares for a likely presidential bid in 2020, he is counting on the tuition-free college proposal to be one of his signature policy ideas. Some of the biggest concerns with this legislation may take years to develop, but even a period of two or three years may be enough to see whether the program can work effectively around some of the significant concerns noted here.

How Popular Was the IRS Data Retrieval Tool?

The financial aid application season for the 2017-18 academic year started out on a high note for current and prospective students. Thanks to the adoption of “prior prior year” or “early FAFSA,” students could file the FAFSA beginning October 1 instead of the following January 1 for the 2017-18 academic year. Students took advantage of this change in large numbers, with about 5.4 million students completing the FAFSA before the previous opening date of January 1.

But FAFSA filing hit a significant roadblock in early March when the federal government quietly pulled access to the IRS Data Retrieval Tool (DRT), which allowed students to quickly and seamlessly transfer their tax records from the IRS to the FAFSA. The tool was down for nearly a week before the IRS issued a statement explaining that the site had been taken offline due to security concerns—and now it looks like the Data Retrieval Tool will be down until next fall at the earliest. Students can still complete the FAFSA by inputting information from their 2015 tax returns, but this is an extra hurdle for many students to jump.

It is possible that the DRT outage is already affecting FAFSA filing rates. Nick Hillman of the University of Wisconsin-Madison (one of the best higher ed finance researchers out there) and his sharp grad students Valerie Crespin-Trujillo and Ellie Bruckner) have been tracking FAFSA filing trends among high school students since the start of this application cycle. Their latest look at filing trends (which they update every Friday) shows the following, which suggests a possible dip due to the DRT outage.

One question that hasn’t been addressed yet is how many students were actually using the DRT when it was pulled. Unlike the great data that Federal Student Aid makes available on FAFSA filing trends, far less data are available on DRT usage. But I was able to find two data points that provide some insights about how many FAFSA filers used the DRT. The first data point came from Federal Student Aid’s 2016 annual financial report, which listed the DRT as a priority for the department. As the highlighted text below shows, about half of all applicants who filed taxes used the DRT in the 2014-15 filing season.

A tidbit of more recent data comes from a presentation that Federal Student Aid made to a conference of financial aid professionals last fall. As shown below, 56% of the 2.2 million FAFSA filers in October 2016 used the DRT. Early FAFSA filers may have different characteristics than filers across the whole application cycle, but this again shows the popularity of the DRT.

Another important group of students use the Data Retrieval Tool—students who are enrolling in income-driven repayment plans. These students have to certify their income on an annual basis (and a majority of borrowers already struggle to do this on time), which becomes more time-consuming without the DRT. It’s still possible for students to do by submitting documentation of income, but the loss of the DRT makes that a lengthier process. I was unable to find any information about DRT usage among people in income-driven repayment programs, but my gut instinct is that it’s a fairly high percentage of borrowers.

The bottom line here—the lengthy outage of the IRS Data Retrieval Tool doesn’t mean that students can’t apply for federal financial aid or income-driven student loan repayment programs. But it does create an additional roadblock for millions of students, their families, and financial aid offices to navigate. Only time will tell whether the DRT outage is associated with lower FAFSA or income-driven repayment filing rates, but a small negative effect seems plausible.

Thanks to Carlo Salerno of Strada Education for inspiring me to dig into the numbers. Twitter conversations can be useful, after all!

Should Part-Time Students Have Their Borrowing Limited?

One of the key higher education policy interests of Senate Health, Education, Labor, and Pensions chairman Lamar Alexander (R-TN) has been to limit student borrowing in an effort to help reduce rising student loan debt. I’ve written in the past about how “overborrowing” is not as big of a concern as students not borrowing enough for college, but there is one group of students that may actually benefit from not being able to take out the maximum allowed amount in student loans.

Currently, students who attend college part-time can borrow the same amount as full-time students as long as there is space in their financial aid package. This can be a concern for students, as it means that they can run out of federal loan eligibility before they complete a bachelor’s degree. Current federal loan limits are the following:

Year in college Dependent student Independent student
First $5,500 $9,500
Second $6,500 $10,500
Third $7,500 $12,500
Fourth and beyond $7,500 $12,500
Lifetime $31,000 $57,500

 

This equates to about four and a half years of borrowing at the maximum for dependent students and five years for independent students. Given that a sizable percentage of students complete a bachelor’s degree in more than five years, running out of loan eligibility before graduation can be a real concern for students. This is particularly true among students who begin at a community college, where tuition is relatively low compared to at a four-year college. If a student reasonably expects to take six years to complete a bachelor’s degree, then she and her financial aid office should have a conversation about how to best preserve her loan eligibility for when she needs it the most.

A fairly straightforward way to reduce the number of students who exhaust their loan eligibility would be to allow students to get a certain amount of money per credit hour. Students can currently receive a Pell Grant for up to 12 full-time equivalent semesters, with full-time defined as taking at least 12 credits. The current loan limit could be divided by 12 (roughly $2,600 per semester), or this could be done on a per-credit basis (perhaps $200 per credit) to recognize that students who take more classes need to work less.

A completely different proposal would allow students to use their student loan eligibility in any way they see fit. For example, dependent students could use their $31,000 in two years if desired—as long as they had space in their aid package. This idea of an education line of credit was raised by Jeb Bush in his short-lived presidential campaign, but it is unclear what Senator Alexander thinks of this proposal. At this point, it seems like the idea of limiting borrowing for part-time students at an individual college’s discretion is the most likely policy outcome.

How Much Did A Coding Error Affect Student Loan Repayment Rates?

Mistakes happen. I should know—I make more than my fair share of them (including on this blog). But some mistakes are a little more noticeable than others, such as when your mistake has been viewed more than a million times. That is what happened to the U.S. Department of Education recently, when they found a coding error in the popular College Scorecard website and dataset.

Here is a description of the coding error from the Department of Education’s announcement:

“Repayment rates measure the percentage of undergraduate borrowers who have not defaulted and who have repaid at least one dollar of their principal balance over a certain period of time (1, 3, 5, or 7 years after entering repayment). An error in the original college scorecard coding to calculate repayment rates led to the undercounting of some borrowers who had not reduced their loan balances by at least one dollar, and therefore inflated repayment rates for most institutions. The relative difference—that is, whether an institution fell above, about, or below average—was modest.  Over 90 percent of institutions on the College Scorecard tool did not change categories (i.e., above, about, or below average) from the previously published rates. However, in some cases, the nominal differences were significant.”

As soon as I learned about the error, I immediately started digging in to see how much it affected loan repayment rates. After both my trusty computer and I made a lot of noise trying to process the large files in a short period of time, I was able to come up with some top-level results. It turns out that the changes in loan repayment rates are very large. Three-year repayment rates fell from 61% to 41%, five-year repayment rates fell from 61% to 47%, and seven-year repayment rates fell from 66% to 57%. These changes were quite similar across sectors.

repay_fig1_jan17

Difference between corrected and previous loan repayment rates (pct).
Corrected Previous Difference N
All colleges
  3-year 41.0 61.0 -20.0 6,090
  5-year 47.1 61.1 -14.0 5,842
  7-year 56.7 66.3 -9.6 5,621
Public
  3-year 46.6 66.8 -20.2 1,646
  5-year 54.2 68.9 -14.7 1,600
  7-year 62.1 72.1 -10.0 1,565
Private nonprofit
  3-year 57.7 77.5 -19.8 1,386
  5-year 63.7 77.3 -13.6 1,375
  7-year 70.4 79.3 -8.9 1,338
For-profit
  3-year 30.5 50.4 -19.9 3,058
  5-year 35.0 48.9 -13.9 2,850
  7-year 46.9 56.5 -9.6 2,700
Source: College Scorecard.

 

For those who wish to dig into individual colleges’ repayment rates, here is a spreadsheet of the new and old 3, 5, and 7-year repayment rates.

Fixing the coding error made a big difference in the percentage of students who are making at least some progress repaying their loans. (And ED’s announcement yesterday that it will create a public microdata file from the National Student Loan Data System will help make these errors less likely in the future as researchers spot discrepancies.) This change is likely to get a lot of discussion in coming days, particularly as the new Congress and the incoming Trump administration get ready to consider potential changes to the federal student loan system.

How to Improve Income-Driven Repayment Plan Cost Estimates

The Government Accountability Office (GAO) took the U.S. Department of Education (ED) behind the proverbial woodshed in a new report that was extremely critical of how ED estimated the cost of income-driven repayment (IDR) programs. (Senate Republicans, which asked for the report, immediately piled on.) Between fiscal years 2011 and 2017, ED estimated that IDR plans would cost $25.1 billion. The current estimated cost is up to $52.5 billion, as shown in the figure below from the GAO report.

gao_fig1

The latest estimate from the GAO—and the number that got front-page treatment in The Wall Street Journal—is that the federal government expects to forgive $108 billion of the estimated $352 billion of loans currently enrolled in income-driven repayment plans. Much of the forgiven loan balances are currently scheduled to be taxable (a political hot topic), but some currently unknown portion will be completely forgiven through Public Service Loan Forgiveness.

gao_fig2

The GAO report revealed some incredible concerns with how ED estimated program costs. Alexander Holt of New America has a good summary of these concerns, calling them “gross negligence.” In addition to the baffling choices not to even account for Grad PLUS loans in IDR models until 2015 (!) and to not assume borrowers’ incomes increased at the rate of inflation (!!), ED ran very few sensitivity analyses about how different reasonable assumptions would affect program costs. As a result, the estimates have not tracked tremendously closely with reality over the last several years.

But there are several reasonable steps that could be taken to improve the accuracy of cost estimates within a reasonable period of time. They are the following:

(1) Share the current methodology and take suggestions for improvement from the research community. This idea comes from Doug Webber, a higher ed finance expert and assistant professor at Temple University:

ED could then take one of two paths to improve the models. First, they could simply collect submissions of code from the education community to see what the resulting budget estimates look like. A second—and better—way would be to convene a working group similar to the technical review panels used to improve National Center for Education Statistics surveys. This group of experts could help ED develop a set of reasonable models to estimate costs.

(2) Make available institutional-level data on income-driven repayment takeup rates and debt burdens of students enrolled in IDR plans. This would require ED to produce a new dataset from the National Student Loan Data System, which is no small feat given the rickety nature of the data system. But, as the College Scorecard shows, it is possible to compile better information on student outcomes from available data sources. ED also released information on the number of borrowers in IDR plans by state last spring, so it’s certainly possible to release better data.

(3) Make a percentage of student-level loan data available to qualified researchers. This dataset already exists—and is in fact the same dataset that ED uses in making budget projections. Yet, aside from one groundbreaking paper that looked at loan defaults over time, no independent researchers have been allowed access to the data. Researchers can use other sensitive student-level datasets compiled by ED (with the penalty for bad behavior being a class E felony!), but not student loan data. I joined over 100 researchers and organizations this fall calling for ED to make these data available to qualified researchers who already use other sensitive data sources.

These potential efforts to involve the research community to improve budget estimates are particularly important during a Presidential transition period. The election of Donald Trump may lead to a great deal of turnover within career staff members at the Department of Education—the types of people who have the skills needed to produce reasonable cost estimates. I hope that the Trump Administration works to keep top analysts in the Washington swamp, while endeavoring to work with academics to help improve the accuracy of IDR cost projections.