Comments on the CollegeNET-PayScale Social Mobility Index

The last two years have seen a great deal of attention being placed on the social mobility function that many people expect colleges to perform. Are colleges giving students from lower-income families the tools and skills they need in order to do well (and good) in society? The Washington Monthly college rankings (which I calculate) were the first entrant in this field nearly a decade ago, and we also put out lists of the Best Bang for the Buck and Affordable Elite colleges in this year’s issue. The New York Times put out a social mobility ranking in September, which essentially was a more elite version of our Affordable Elite list, which looked at only about 100 colleges with a 75% four-year graduation rate.

The newest entity in the cottage industry of social mobility rankings comes from PayScale and CollegeNET, an information technology and scholarship provider. Their Social Mobility Index (SMI) includes five components for 539 four-year colleges, with the following weights:

Tuition (lower is better): 126 points

Economic background (percent of students with family incomes below $48,000): 125 points

Graduation rate (apparently six years): 66 points

Early career salary (from PayScale data): 65 points

Endowment (lower is better): 30 points

The top five colleges in the rankings are Montana Tech, Rowan , Florida A&M, Cal Poly-Ponoma, and Cal State-Northridge, while the bottom five are Oberlin, Colby, Berklee College of music, Washington University, and the Culinary Institute of America.

Many people will critique the use of PayScale’s data in rankings, and I would partially agree—although it’s the best data that is available nationwide at this point until the ban on unit record data is eliminated. My two main critiques of these rankings are the following:

Tuition isn’t the best measure of college affordability. Judging by the numbers used in the rankings, it’s clear that the SMI uses posted tuition and fees for affordability. This doesn’t necessarily reflect what the typical lower-income student would actually pay for two reasons, as it excludes room, board, and other necessary expenses while also excluding any grant aid. The net price of attendance (the total cost of attendance less all grant aid) is a far better measure of what students from lower-income families may pay, even though the SMI measure does capture sticker shock.

The weights are justified, but still arbitrary. The SMI methodology includes the following howler of a sentence:

“Unlike the popular periodicals, we did not arbitrarily assign a percentage weight to the five variables in the SMI formula and add those values together to obtain a score.”

Not to put my philosopher hat on too tightly, but any weights given in college rankings are arbitrarily assigned. A good set of rankings is fairly insensitive to changes in the weighting methodology, while the SMI does not answer that question.

I’m pleased to welcome another college rankings website to this increasingly fascinating mix of providers—and I remain curious the extent to which these rankings (along with many others) will be used as either an accountability or a consumer information tool.

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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.

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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.

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What Are Cohort Default Rates Good For?

Today marks the start of U.S. Department of Education’s annual release of cohort default rates (CDR), which reflects the percentage of students who default on their loans within three years of entering repayment. Colleges were informed of their rates today, with a release to the public coming sometime soon. This release, tracking students who entered repayment in Fiscal Year 2011, will the third year that three-year CDRs have been collected and completes a shift from two-year to three-year CDRs for accountability purposes.

Before this year, colleges were subject to sanctions based on their two-year CDRs. Any college that had a two-year CDR of more than 40% in one year could lose its federal student loan eligibility, while any college with a two-year CDR of over 25% for three consecutive years could lose all federal financial aid eligibility. (Colleges with a very small percentage of borrowers can get an exemption.) While this was a rare occurrence (fewer than ten colleges were impacted last year), the switch to a three-year CDR has worried colleges even as the allowed CDR over three years rose from 25% to 30%.

But as the methodology changes, we need to consider what CDR data are actually good for. Colleges take cohort default rates very seriously, and the federal government is likely to use default rates as a component of the often-discussed (and frequently delayed) Postsecondary Institution Ratings System (PIRS). But should the higher education community, policymakers, or the general public take CDRs seriously? Below are some reasons why the default data are far from complete.

(1) Students are tracked over only three years, and income-based repayment makes the data less valuable. I have previously written about these two issues—and why it’s absurd that the Department of Education doesn’t track students over at least ten years. Income-based repayment means that students can be current on their payments even if their payments are zero, which is good for the student but isn’t exactly a ringing endorsement of a given college’s quality.

(2) Individual campuses are often aggregated to the system level, but this isn’t consistent. One of the biggest challenges as a researcher in higher education finance is that data on loan and grant volumes and student loan default rates come from Federal Student Aid instead of the National Center for Education Statistics. This may sound trivial, but some colleges aggregate FSA data to the system level for reporting purposes while all NCES data are at the campus level. This means that while default data on individual campuses within the University of Wisconsin System are available, data from all of the Penn State campuses are aggregated. Most for-profit systems also aggregate data, likely obscuring some individual branches that would otherwise face sanctions.

(3) Defaults are far from the only adverse outcome, but it’s the only one with reported data. Students are not counted as being in default until no payment has been made for at least 271 days, but we have no idea of delinquency rates, hardship deferments, or forbearances related to financial problems by campus. As I recently wrote in a guest post for Access to Completion, the percentage of students having repayment difficulties ranges between 17% and 51%, depending on assumptions made. But we don’t have data on delinquency rates by campus, something which a lot of stakeholders would have interest in.

Does this mean cohort default rates are good for absolutely nothing? No. They’re still useful in identifying colleges (or systems) where a large percentage of borrowers default quickly and a substantial percentage of students borrow. And very low default rates can be a sign that either students are doing well in the labor market after leaving college or that they have the knowledge to enter income-based repayment programs. But for many colleges with middling default rates, far more data are needed (that the Department of Education collects and doesn’t release) to get a better picture of performance.

When the CDR data come out, I’ll have part 2 of this post—focusing on the colleges that are subject to sanctions and what that means for current and future accountability systems.

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Testimony to the Advisory Committee on Student Financial Assistance

Below is a copy of my September 12, 2014 testimony at the Advisory Committee on Student Financial Assistance’s hearing regarding the Postsecondary Institution Ratings System (PIRS):

Good morning, members of the Advisory Committee on Student Financial Assistance, Department of Education officials, and other guests. My name is Robert Kelchen and I am an assistant professor in the Department of Education Leadership, Management and Policy at Seton Hall University and the methodologist for Washington Monthly magazine’s annual college rankings. All opinions expressed in this testimony are my own, and I thank the Committee for the opportunity to present.

I am focusing my testimony on PIRS as an accountability mechanism, as that appears to be the Obama Administration’s stated goal of developing ratings. A student-friendly rating tool can have value, but I am confident that third parties can use the Department’s data to develop a better tool. The Department should not simultaneously develop a consumer-oriented ratings system, nor should they release a draft of PIRS without providing information about where colleges stand under the proposed system. I am also not taking an opinion on the utility of PIRS as an accountability measure, as the value of the system depends on details that have not yet been decided.

The Department has a limited number of potential choices for metrics in PIRS regarding access, affordability, and outcomes. While I will submit comments on a range of metrics for the record, I would like to discuss earnings metrics today. In order to not harm colleges that educate large numbers of teachers, social workers, and others who have important but lower-salary jobs, I encourage the Department to adopt an earnings metric indexed to federal poverty guideline. For example, the cutoff could be 150% of the federal poverty line for a family of two, or roughly $23,000 per year.

There are a number of methodological decisions that the Department must make in developing PIRS. I focus on five in this testimony.

The first decision is whether to classify colleges into peer groups. While supporters of the idea state it is necessary in order to have more fair comparisons of similar colleges, I do not feel this is necessary in a well-designed accountability system. I suggest combining all four-year institutions into one group and then separating two-year institutions based on whether more associate’s degrees or certificates were awarded, as this distinction affects graduation rates.

Instead of placing colleges into peer groups, some outcomes should be adjusted for inputs such as student characteristics and selectivity. This partially controls for important differences across colleges that are correlated with outcomes, providing an estimate of a college’s “value-added” to students. But colleges should also be held to minimum outcome standards (such as a 25% graduation rate) in addition to minimum value-added standards.

The scoring system and number of colleges in each rating tier are crucial to the potential feasibility and success of PIRS. A simple system with three or four carefully named tiers (no A-F grades, please!) is sufficient to identify the lowest-performing and highest-performing colleges. I would suggest three tiers with the lowest 10% in the bottom tier, the middle 80% in the next tier, and the highest 10% in the top tier. While the scores all have error due to data limitations, focusing on the bottom 10% makes it unlikely any college in the lowest tier has a true performance outside the bottom one-third of colleges. Using multiple years of data will also help reduce randomness in data; I use three years of data for the Washington Monthly rankings.

Finally, the Department must carefully consider how to weight individual metrics. While I would expect access, affordability, and outcomes to be equally weighted, the colleges in the top and bottom tier should not change much when different weights are used for each metric. If the Department finds the results are highly sensitive to model specifications, the utility of PIRS comes into question.

I conclude with three recommendations—two for the Department and one for the policy community. The Department must be willing to adjust ratings criteria as needed and accept feedback on the draft ratings from a wide variety of stakeholders. They also must start auditing IPEDS data from a random sample of colleges in order to make sure the data are accurate, as the implications of incorrectly-reported or falsely-reported data are substantial. Finally, the policy community needs to continue to push for better higher education data. The Student Achievement Measure project has the potential to improve graduation rate reporting, and overturning the federal ban on unit record data will greatly improve the Department’s ability to accurately measure colleges’ performance.

Thank you once again for the opportunity to present and I look forward to answering any questions.

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Rankings, Rankings, and More Rankings!

We’re finally reaching the end of the college rankings season for 2014. Money magazine started off the season with its rankings of 665 four-year colleges based on “educational quality, affordability, and alumni earnings.” (I generally like these rankings, in spite of the inherent limitations of using Rate My Professor scores and Payscale data in lieu of more complete information.) I jumped in the fray late in August with my friends at Washington Monthly for our annual college guide and rankings. This was closely followed by a truly bizarre list from the Daily Caller of “The 52 Best Colleges In America PERIOD When You Consider Absolutely Everything That Matters.

But like any good infomercial, there’s more! Last night, the New York Times released its set of rankings focusing on how elite colleges are serving students from lower-income families. They examined the roughly 100 colleges with a four-year graduation rate of 75% or higher, only three of which (University of North Carolina-Chapel Hill, University of Virginia, and the College of William and Mary) are public. By examining the percentage of students receiving Pell Grants in the past three years and the net price of attendance (the total sticker price less all grant aid) for 2012-13, they created a “College Access Index” looking at how many standard deviations from the mean each college was.

My first reaction upon reading the list is that it seems a lot like what we introduced in Washington Monthly’s College Guide this year—a list of “Affordable Elite” colleges. We looked at the 224 most selective colleges (including many public universities) and ranked them using graduation rate, graduation rate performance (are they performing as well as we would expect given the students they enroll?), and student loan default rates in addition to percent Pell and net price. Four University of California colleges were in our top ten, with the NYT’s top college (Vassar) coming in fifth on our list.

I’m glad to see the New York Times focusing on economic diversity in their list, but it would be nice to look at a slightly broader swath of colleges that serve more than a handful of lower-income students. As The Chronicle of Higher Education notes, the Big Ten Conference enrolls more Pell recipients than all of the colleges ranked by the NYT. Focusing on the net price for families making between $30,000 and $48,000 per year is also a concern at these institutions due to small sample sizes. In 2011-12 (the most recent year of publicly available data), Vassar enrolled 669 first-year students, of whom 67 were in the $30,000-$48,000 income bracket.

The U.S. News & World Report college rankings also came out this morning, and not much changed from last year. Princeton, which is currently fighting a lawsuit challenging whether the entire university should be considered a nonprofit enterprise, is the top national university on the list, while Williams College in Massachusetts is the top liberal arts college. Nick Anderson at the Washington Post has put together a nice table showing changes in rankings over five years; most changes wouldn’t register as being statistically significant. Northeastern University, which has risen into the top 50 in recent years, is an exception. However, as this great piece in Boston Magazine explains, Northeastern’s only focus is to rise in the U.S. News rankings. (They’re near the bottom of the Washington Monthly rankings, in part because they’re really expensive.)

Going forward, the biggest set of rankings for the rest of the fall will be the new college football rankings—as the Bowl Championship Series rankings have been replaced by a 13-person committee. (And no, Bob Morse from U.S. News is not a member, although Condoleezza Rice is.) I like Gregg Easterbrook’s idea at ESPN about including academic performance as a component in college football rankings. That might be worth considering as a tiebreaker if the playoff committee gets deadlocked solely using on-field performance. They could also use the Washington Monthly rankings, but Minnesota has a better chance of winning a Rose Bowl before that happens.

[ADDENDUM: Let's also not forget about the federal government's effort to rate (not rank) colleges through the Postsecondary Institution Ratings System (PIRS). That is supposed to come out this fall, as well.]

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Are “Affordable Elite” Colleges Growing in Size, or Just Selectivity?

A new addition to this year’s Washington Monthly college guide is a ranking of “Affordable Elite” colleges. Given that many students and families (rightly or wrongly) focus on trying to get into the most selective colleges, we decided to create a special set of rankings covering only the 224 most highly-competitive colleges in the country (as defined by Barron’s). Colleges are assigned scores based on student loan default rates, graduation rates, graduation rate performance, the percentage of students receiving Pell Grants, and the net price of attendance. UCLA, Harvard, and Williams made the top three, with four University of California campuses in the top ten.

I received an interesting piece of criticism regarding the list by Sara Goldrick-Rab, professor at the University of Wisconsin-Madison (and my dissertation chair in graduate school). Her critique noted that the size of the school and the type of admissions standards are missing from the rankings. She wrote:

“Many schools are so tiny that they educate a teensy-weensy fraction of American undergraduates. So they accept 10 poor kids a year, and that’s 10% of their enrollment. Or maybe even 20%? So what? Why is that something we need to laud at the policy level?”

While I don’t think that the size of the college should be a part of the rankings, it’s certainly worth highlighting the selective colleges that have expanded over time compared to those which have remained at the same size in spite of an ever-growing applicant pool.

I used undergraduate enrollment data from the fall semesters of 1980, 1990, 2000, and 2012 from IPEDS for both the 224 colleges in the Affordable Elite list and 2,193 public and private nonprofit four-year colleges not on the list. I calculated the percentage change between each year and 2012 for the selective colleges on the Affordable Elite list and the other less-selective colleges to get an idea of whether selective colleges are curtailing enrollment.

[UPDATE: The fall enrollment numbers include all undergraduates, including nondegree-seeking institutions. This doesn't have a big impact on most colleges, but does at Harvard--where about 30% of total undergraduate enrollment is not seeking a degree. This means that enrollment growth may be overstated. Thanks to Ben Wildavsky for leading me to investigate this point.]

The median Affordable Elite college enrolled 3,354 students in 2012, compared to 1,794 students at the median less-selective college. The percentage change at the median college between each year and 2012 is below:

Period Affordable Elite Less selective
2000-2012 10.9% 18.3%
1990-2012 16.0% 26.3%
1980-2012 19.9% 41.7%

 

The distribution of growth rates is shown below:

enrollment_by_elite

So, as a whole, less-selective colleges are growing at a more rapid pace than the ones on the Affordable Elite list. But do higher-ranked elite colleges grow faster? The scatterplot below suggests not really—with a correlation of -0.081 between rank and growth, suggesting that higher-ranked colleges grow at slightly slower rates than lower-ranked colleges.

enrollment_vs_rank

But some elite colleges have grown. The top ten colleges in the Affordable Elite list have the following growth rates:

      Change from year to 2012 (pct)
Rank Name (* means public) 2012 enrollment 2000 1990 1980
1 University of California–Los Angeles (CA)* 27941 11.7 15.5 28.0
2 Harvard University (MA) 10564 6.9 1.7 62.3
3 Williams College (MA) 2070 2.5 3.2 6.3
4 Dartmouth College (NH) 4193 3.4 11.1 16.8
5 Vassar College (NY) 2406 0.3 -1.8 1.9
6 University of California–Berkeley (CA)* 25774 13.7 20.1 21.9
7 University of California–Irvine (CA)* 22216 36.9 64.6 191.6
8 University of California–San Diego (CA)* 22676 37.5 57.9 152.5
9 Hanover College (IN) 1123 -1.7 4.5 11.0
10 Amherst College (MA) 1817 7.2 13.7 15.8

 

Some elite colleges have not grown since 1980, including the University of Pennsylvania, MIT, Boston College, and the University of Minnesota. Public colleges have generally grown slightly faster than private colleges (the UC colleges are a prime example), but there is substantial variation in their growth.

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Are Some Elite Colleges Understating Net Prices?

As a faculty member researching higher education finance, I’m used to seeing the limitations in federal data available to students and their families as they choose colleges. For example, the net price of attendance measure (measured as tuition and fees, room and board, books, and other expenses less any grants received) is only for first-time, full-time students—and therefore excludes a lot of students with great financial need. But a new graphic-heavy report from The Chronicle of Higher Education on net price revealed another huge limitation of the net price data.

The report, titled “Are Poor Families Really Paying Half Their Income at Elite Colleges?” looked at the two ways that some of the most selective public and private colleges calculate household income. About 400 colleges require students to file the CSS/Financial Aid PROFILE (or PROFILE for short) in addition to the FAFSA in order to receive institutional aid; unlike the FAFSA, the PROFILE requires all but the lowest-income students to pay an application fee. Selective colleges require the PROFILE because it includes more questions about household assets than the FAFSA, with the goal of getting a more complete picture of middle-income and upper-income families’ ability to pay for college. This form isn’t really necessary for families with low incomes and little wealth, and can serve as a barrier to attending certain colleges –as noted by Rachel Fishman of the New America Foundation.

The Chronicle piece looked at income data from Notre Dame, which provided both the FAFSA and PROFILE definitions of income. The PROFILE definition of family income resulted in far fewer students in the lowest income bracket (below $30,000 per year) than the FAFSA definition. Because Notre Dame targets more aid to the neediest students, the net price using PROFILE income below $30,000 (the very lowest-income students) was just $4,472 per year, compared to $11,626 using the FAFSA definition.

Notre Dame reported net prices to the Department of Education using the FAFSA definition of family income, which is the same way that all non-PROFILE colleges report income for net price. But the kicker in the Chronicle piece is that apparently some colleges use the PROFILE definition of income to generate net price data for the federal government. These selective colleges look much less expensive than a college like Notre Dame that reports data like most colleges do, giving them great publicity. Reporting PROFILE-based net prices can also improve these colleges’ performance on Washington Monthly’s list of best bang-for-the-buck colleges, as we use the average net price paid by students making less than $75,000 per year in the metric. (But many of the elite colleges don’t make the list since they fail to enroll 20% Pell recipients in their student body.)

The Department of Education should put forth language clarifying that net price data should be based on the FAFSA definition of income and not the PROFILE definition that puts fewer students in the lower income brackets and results in a seemingly lower net price. Colleges can report both FAFSA and PROFILE definitions on their own websites, but federal data need to be consistent across colleges.

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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.

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Quick Thoughts on the Ryan Higher Education Budget Discussion Draft

Representative Paul Ryan (R-WI) released a proposal called Expanding Opportunity in America this morning, which covered topics including social benefits, the Earned Income Tax Credit, education, criminal justice, and regulatory reform. My focus is on the higher education section, starting on page 44.

First of all, I’m glad to see a discussion of targeting federal funds right at the start of the higher education section. Ryan notes concerns about subsidies going to students who don’t need them (such as education tax credits going to households making up to $180,000 per year) and the large socioeconomic gaps in college completion. This is important to note for both economic efficiency and targeting middle-income voters.

The policy points are below:

  • Simplify the FAFSA. Most policymakers like this idea at this point, but the question is how to do so. The document doesn’t specify how it should be simplified, or if it should go as far as the Alexander/Bennet proposal to knock the FAFSA back to two questions. Ryan supports getting information about aid available to students in eighth grade and using tax data from two years ago (“prior prior year”) to determine aid eligibility, both of which make great sense. I’ve written papers on both early aid commitment and prior prior year.
  • Reform and modernize the Pell program. Ryan is concerned about the fiscal health of the Pell program and is looking for ways to shore up its finances. He raises the idea of using the Supplemental Educational Opportunity Grant (SEOG)—a Pell supplement distributed by campuses—to help fund Pell. I’ve written a paper about how SEOG and work-study allocations benefit very expensive private colleges over colleges that actually serve Pell recipients. It’s a great idea to consider, but parts of One Dupont just may object. Ryan also suggests allowing students to use their Pell funds however they want (effectively restoring the summer Pell Grant), something which much of the higher education community supports.
  • Cap federal loans to graduate students and parents. This will prove to be a controversial recommendation, with the possibility of interesting political bedfellows. While many are concerned about rising debt and the fiscal implications, there are different solutions. The Obama Administration has instead proposed capping forgiveness at $57,500, while letting students borrow more. I’m conflicted as to what the better path is. Is it better to shift students to the private loan market to get any additional funds, or should they get loans with lower interest rates through the federal government that may result in a fiscal train wreck if loan forgiveness isn’t capped? The Ryan proposal has the potential to help slow the growth in college costs, but potentially at the expense of some students’ goals.
  • Consider reforms to the TRIO programs. TRIO programs serve low-income, first-generation families, but Ryan notes that there isn’t a lot of evidence supporting these programs. I admittedly don’t know as much about TRIO as I should, but I like the call for additional research before judging their effectiveness.
  • Expand funding for federal Work-Study programs. The proposal increases work-study funds through allowing colleges to keep expiring Perkins Loans funds instead of returning them to the federal government. This is the wrong way to proceed because Perkins allocations (and current work-study allocations) are also correlated with the cost of attendance. I would rather see a redistribution of work-study funds based on Pell Grant receipt instead of by cost of attendance, as I’ve noted previously.
  • Build stronger partnerships with post-secondary institutions. Most of this is empty platitudes toward colleges, but the last sentence is critical: “Colleges should also have skin in the game, to further encourage their commitment to outcome-based learning.” There seems to be some support on both sides of the aisle for holding institutions accountable for their performance through methods such as partial responsibility for loan defaults, tying financial aid to outcomes, or college ratings, but an agreement looks less likely at this point.
  • Reform the accreditation process. Ryan supports Senator Lee (R-UT)’s proposal to allow accreditors to certify particular courses instead of degree programs. This is a good idea in general, but the political landscape gets much trickier due to the existence of MOOCs, for-profit colleges (and course providers), and the power of the current higher education lobby. I’ll be interested to see how this moves forward.

Overall, the tenets of the proposal seem reasonable and some parts are likely to get bipartisan support. The biggest questions remaining are whether the Senate will be okay with the House passing Higher Education Act reauthorization components piecemeal (as they are currently doing) and what funding levels will look like for particular programs. In any case, these ideas should generate useful discussions in policy and academic circles.

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