How Well Do Default Rates Reflect Student Loan Repayment?

This post initially appeared at the Brown Center Chalkboard blog.

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

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

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

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

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

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


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



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


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

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Which Colleges Enroll First-Generation Students?

The higher education world is abuzz over the Obama Administration’s Saturday morning release of a new College Scorecard tool (and underlying trove of data). In my initial reaction piece, I discussed some of the new elements that are available for the first time. Earnings of former students are getting the most attention (and have been frequently misinterpreted as being the earnings of graduates only), but today I am focusing on a new data element that should be of interest to students, researchers, and policymakers alike.

The Free Application for Federal Student Aid has included a question about the highest education level of the student’s parent(s), but this information was never included in publicly available data. (And, yes, the FAFSA application period will be moved up three months starting in 2016—and my research on the topic may have played a small role in it!) In my blog post on Saturday, I showed the distribution of the percentage of first-generation students (as defined as not having a parent with at least some college) among students receiving federal financial aid dollars. Here it is again:


I dug deeper into the data to highlight the ten four-year public and private nonprofit colleges with the lowest and highest percentages of first-generation students (among those receiving federal aid) in 2013. The results are below:

Four-year private nonprofit colleges with the fewest first-generation students, 2013.
Name Pct First Gen
California Institute of Technology 5.9
Wheaton College (IL) 8.3
Oberlin College (OH) 8.5
Elon University (NC) 8.6
Dickinson College (PA) 9.0
Macalester College (MN) 9.1
University of Notre Dame (IN) 9.7
Carnegie Mellon University (PA) 9.8
Hobart William Smith Colleges (NY) 9.8
Rhode Island School of Design 10.6
Source: College Scorecard/NSLDS.
Note: Only includes students receiving Title IV aid, excludes specialty colleges.
Four-year public colleges with the fewest first-generation students, 2013.
Name Pct First Gen
College of William and Mary (VA) 13.2
University of Vermont 14.1
Georgia Institute of Technology 16.5
University of North Carolina School of the Arts 17.4
University of Virginia 17.6
New College of Florida 18.0
University of Michigan-Ann Arbor 18.0
SUNY College at Geneseo 18.4
Clemson University 18.5
University of Wisconsin-Madison 19.1
Source: College Scorecard/NSLDS.
Note: Only includes students receiving Title IV aid, excludes specialty colleges.

Just 5.9% of students receiving federal financial aid at the California Institute of Technology were defined as first-generation in 2013, and eight other private nonprofit colleges were under 10% (including Oberlin, Notre Dame, and Carnegie Mellon). The lowest public college was the College of William and Mary, where just 13% of students were first-generation. Several flagships check in on the list, including Vermont, Virginia, Michigan, and Wisconsin (where I got my PhD).

The list of colleges with the highest percentage of first-generation students is quite different:

Four-year private nonprofit colleges with the most first-generation students, 2013.
Name Pct First Gen
Colorado Heights University 75.6
Beulah Heights University (GA) 66.0
Heritage University (WA) 64.3
Grace Mission University (CA) 64.1
Hodges University (FL) 63.3
Humphreys College (CA) 60.5
Selma University (AL) 59.8
Mid-Continent University (KY) 59.7
Sojourner-Douglass College (MD) 59.2
University of Rio Grande (OH) 58.5
Source: College Scorecard/NSLDS.
Note: Only includes students receiving Title IV aid, excludes specialty colleges.
Four-year public colleges with the most first-generation students, 2013.
Name Pct First Gen
Cal State University-Los Angeles 64.0
Cal State University-Dominguez Hills 60.2
Cal State University-Stanislaus 60.2
Cal State University-San Bernardino 59.4
Cal State University-Bakersfield 58.2
University of Texas-Pan American* 56.9
University of Arkansas at Monticello 56.1
University of Texas at Brownsville* 55.2
Cal State University-Fresno 53.4
Cal State University-Northridge 53.1
Source: College Scorecard/NSLDS.
Note: Only includes students receiving Title IV aid, excludes specialty colleges.
* These two colleges are now UT-Rio Grande Valley as of Sept. 1.

Six private nonprofit and three public four-year colleges had at least three-fifths of their federal aid recipients classified as first-generation students, ten times the rate of Caltech. The top-ten lists for both public and private colleges include many minority-serving institutions, as well as a good chunk of the Cal State University System. These engines of social mobility deserve credit, as do some flagship institutions that do far better than average in enrolling first-generation students. UC-Berkeley, where 37% of aided students are first-generation, also deserves special commendation.

There are a lot of great data elements present in the College Scorecard data that go beyond earnings. I hope that they get attention from researchers and are disseminated to the public.

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Comments on the New College Scorecard Data

The Obama Administration’s two-year effort to develop a federal college ratings system appeared to have hit a dead-end in June, with the announcement that no ratings would actually be released before the start of the 2015-2016 academic year. At that point in time, Department of Education officials promised to instead focus on creating a consumer-friendly website with new data elements that had never before been released to the public. I was skeptical, as there were significant political hurdles to overcome before releasing data on employment rates, the percentage of students paying down their federal loans, and graduation rates for low-income students.

But things changed this week. First, a great new paper out of the Brookings Institution by Adam Looney and Constantine Yannelis showed trends in student loan defaults over time—going well beyond the typical three-year cohort default rate measure. They also included earning data, something which was not previously available. But, although they made summary tables of results available to the public, these tables only included a small number of individual institutions. It’s great for researchers, but not so great for students choosing among colleges.

The big bombshell dropped this morning. In an extremely rare Saturday morning release (something that frustrates journalists and the higher education community to no end), the Department of Education released a massive trove of data (fully downloadable!) underlying the new College Scorecard. The consumer-facing Scorecard is fairly simple (see below for what Seton Hall’s entry looks like), and I look forward to hearing about whether students and their families use this new version more than previous ones. I also recommend ProPublica’s great new data tool for low-income students.


But my focus today is on the new data. Some of the key new data elements include the following:

  • Transfer rates: The percentage of students who transfer from a two-year to a four-year college. This helps community colleges, given their mission of transfer, but still puts colleges at a disadvantage if they serve a more transient student body.
  • Earnings: The distribution of earnings 10 years after starting college and the percentage earning more than those with a high school diploma. This comes from federal tax return data and is a huge step forward. However, given very reasonable concerns about a focus on earnings hurting colleges with public service missions, there is also a metric for the percentage of students making more than $25,000 per year. Plenty of people will focus on presenting earnings data, so I’ll leave the graphics to others. (This is a big step forward over the admirable work done by Payscale in this area.)
  • Student loan repayment: The percentage of students (both completers and non-completers) who are able to pay down some principal on loans within a certain period of time. Seven-year loan repayment data are available, as illustrated here:


In the master data file, many of these outcomes are available by family income, first-generation status, and Pell receipt. First-generation status is a new data element to be made available to the public; although the question is on the FAFSA, it’s never been made available to researchers. For those who are curious, here’s what the breakdown of the percentage of first-generation students (typically defined as students whose parents don’t have a bachelor’s degree) by institutional type:


There are a lot of data elements to explore here, and expect lots of great work from the higher education research community in upcoming months and years using these data. In the short term, it will be fascinating to watch colleges and politicians respond to this game-changing release of outcome data on students receiving federal financial aid.

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New Paper and Testimony on Risk Sharing

The concept of risk sharing, in which colleges are held at least partially financially responsible for the outcomes of their students, has become a hot topic of political discussion in recent months. The idea has gained bipartisan support–in least in theory–as presidential candidates Hillary Clinton and Scott Walker have both supported the basic principles of risk sharing. Yet by potentially penalizing colleges with high student loan default rates, risk sharing systems have the incentive to reduce access to higher education while not actually incentivizing colleges to improve.

With generous support from the Lumina Foundation, I set out to sketch out a risk sharing system with the goal of increasing accountability for poor outcomes while recognizing differences in the types of students colleges serve. I released the resulting paper this week and testified in front of the U.S. Department of Education’s Advisory Committee on Student Financial Assistance on the topic. (My testimony is below.) I welcome your comments on risk sharing, as the goal of this paper and testimony is to advance a thoughtful conversation on what a fair and effective system could look like.

For more reading on risk sharing, I highly recommend the thoughtful takes of the American Enterprise Institute’s Andrew Kelly and Temple University’s Doug Webber.


Testimony to the Advisory Committee on Student Financial Assistance

Hearing on Higher Education Act Reauthorization

Robert Kelchen

Good afternoon, 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. All opinions expressed in this testimony are my own, and I thank the Committee for the opportunity to present.

My testimony today will be on the topic of risk sharing in higher education, which is typically defined as holding colleges financially accountable for their students’ performance. It is a topic that has been discussed by politicians on both sides of the aisle, including legislation recently introduced by Republican Senator Orrin Hatch and Democratic Senator Jeanne Shaheen that would require colleges to pay a percentage of students’ loans that were not paid on in the previous year.[1] But simple risk sharing proposals like this provide colleges with incentives to reduce borrowing by either leaving the Direct Loan program or reducing non-tuition expense allowances included in the cost of attendance.

In a recently-released policy paper funded by the Lumina Foundation, I introduced a risk sharing proposal that attempts to hold colleges accountable for their performance with respect to both Pell Grant and federal student loan dollars.[2] My proposal would reward colleges for strong performance on Pell Grant success and student loan repayment rates, while requiring colleges with weaker performance to pay a penalty to the Department of Education from a source other than institutional aid dollars.

The federal government’s portion of my proposed risk-sharing system would have three main components:

  • First, penalties or rewards for Pell Grant recipients’ performances would be separate from penalties or rewards for student loan performance. This would end the current situation in which colleges face incentives to opt out of federal student loans in order to protect Pell Grant dollars.[3]
  • Second, the federal government would provide better tracking and reporting of outcomes for students receiving federal financial aid. The set of metrics available to examine performance is extremely limited, and could be improved by either overturning the ban on federal student unit record data systems or committing to providing additional subgroup performance information using IPEDS and the National Student Loan Data System.
  • Third, in order to make more accurate comparisons about student loan performance across campuses, federal guidelines for how the non-tuition components of the cost of attendance are defined would be helpful. Research has found large variations in the off-campus room and board and other expense allowances, which are determined by individual colleges, within a given metropolitan area.[4] Colleges need to be placed on a more level playing field for accountability purposes.

Colleges would be required to meet three criteria to receive Title IV funds:

  • First, colleges must agree to put “skin in the game” by being willing to match a percentage of Title IV loan or grant aid with institutional funds if their performance falls below a specified benchmark.
  • Second, colleges must participate in the Federal Direct Loan program in order for their students to receive Pell Grant dollars, giving students access to credit while not directly putting Pell dollars at risk.
  • Third, colleges must be willing to meet heightened accreditation and consumer information provision standards.

Colleges’ performance would be compared to similar institutions using peer groups based on the characteristics of students served, types of degrees and certificates offered, and the level of resources different colleges possess. Notably, by using institutional selectivity, per-student revenues, and endowment values as grouping characteristics, a college would be compared to more selective colleges if it tried to become more selective—limiting its ability to game the system.

The Pell Grant portion of risk sharing would be based on outcomes such as Pell recipients’ retention rates, graduation rates, transfer rates, and the number of graduates. Colleges with performance a certain percentage below the peer group average would have to pay a penalty equal to a percentage of Pell funds awarded out of their own budget, while colleges a certain percentage above the average would receive a bonus to use to supplement need-based financial aid programs.

The student loan portion of risk sharing would be based on outcomes such as cohort default rates 3-5 years after entering repayment, the percent of students current on their payments, and the percentage of students making payments of at least $1 of principal. I would also include PLUS loans in the risk sharing metric. Colleges performing substantially above the peer group average would get additional work-study funds, while colleges performing substantially below average would face a penalty.

The implementation of any risk sharing proposal must be carefully considered in order to avoid perverse incentives and to gain support from colleges and policymakers. Lessons from state performance-based funding program show that implementing over a period of several years is important, as is some method for colleges to limit penalties until they can change their organization.[5] Colleges that can present clear plans for improvement that are supported by their accreditor should be able to get reduced penalties and logistical support from the federal government for a limited period of time.

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

[1] Student Protection and Success Act (S. 1939, introduced August 5, 2015).

[2] The paper is available at

[3] Hillman, N. W. (2015). Cohort default rates: Predicting the probability of federal sanctions. Educational Policy, 29(4), 559-582. Hillman, N. W., & Jaquette, O. (2014). Opting out of federal student loan programs: Examining the community college sector. Paper presented at the Association for Education Finance and Policy annual conference, San Antonio, TX.

[4] Kelchen, R., Hosch, B. J., & Goldrick-Rab, S. (2014). The costs of college attendance: Trends, variation, and accuracy in institutional living cost allowances. Madison, WI: Wisconsin HOPE Lab.

[5] For example, see Dougherty, K. J., & Natow, R. S. (2015). The politics of performance-based funding: Origins, discontinuations, and transformations. Baltimore, MD: Johns Hopkins Press.

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Do SAT-Mandatory States Explain Declining Scores?

Yesterday, I wrote about how it was likely the case that some of the decline in SAT scores  was due to states and districts requiring students to take the SAT. At the request of several esteemed readers, I did a back-of-the-envelope calculation to see how much of the change in SAT scores over the last five years is due to states requiring all students to take the SAT (hat tip to Kan-Ye Test (love the name!) for pointing me to the data). Between 2011 and 2015, Delaware, the District of Columbia, and Idaho moved from having some of their students take the SAT (14,765) to having all of their students (32,236) take the SAT. Meanwhile, the average SAT score fell from 1500 to 1490.

Based on 2011 state-by-state data, I recalculated average 2015 SAT scores while substituting 2011 participation levels and scores for 2015  levels and scores in those three states. Erasing the additional 17,471 test-takers (and their average SAT of 1292) from those three states was enough to raise the average SAT score of 1.6 million other test-takers by 2.1 points. These three states explain approximately 21% of the decline in SAT scores, as outlined below.

Required SAT states explain at least 21% of the decline in SAT scores since 2011
States Num. students Avg. SAT
DC, DE, & ID (2011) 14,765 1445
DC, DE, & ID (2015) 32,236 1362
All others (2015) 1,614,887 1493
Total (using ’11 DC, DE, & ID) 1,629,652 1492
Total (using ’15 DC, DE, & ID) 1,647,123 1490

I’d still love to see the College Board pull out data from the districts which moved to require the SAT, as it’s entirely possible that half of the decline in SAT scores could just be due to students who were required to take the test. They’ve got the data, and I hope they take a look!

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Why SAT Scores Going Down May Be Just Fine

The average score for students taking the venerable SAT exam in 2014-2015 was 1490, seven points below last year’s scores and the lowest score since the writing section was added in 2005. Not surprisingly, this drop is generating a lot of media coverage—much of it focused on how high schools are failing America’s children. But while high schools may very well be a concern (and those of us in colleges shouldn’t get off without criticism, either), I contend that the decline in SAT scores may be just fine.

The simple reason for my lack of concern is that the decline may very well be due to more students taking the exams in response to new state laws and district rules in several states requiring or encouraging testing. For example, Idaho required beginning in 2012 that students had to take the ACT or SAT to graduate—and that the state would cover SAT costs for students. In 2011-2012, 27% of Idaho students took the SAT and got an average score of 1613, while practically all Idaho students in 2014-2015 took the SAT and got an average score of 1372. (The District of Columbia, Delaware, and Maine—the other three jurisdictions where basically everyone takes the SAT—had similarly low scores.) Either Idaho high schools imploded over a three-year window, or the types of students who weren’t previously taking the test didn’t have the same level of ability on standardized tests as the 27% of students who were likely considering selective four-year colleges.

The chart below shows the relationship between the percentage of students taking the SAT and scores (data available via the Washington Post). The R-squared is 0.82, suggesting that 82% of the variation in state-level test scores can be explained by the percentage of students tested in each state.


What I would like to see is some comparisons across similar types of students over time. Among students who signal a clear intent to go to a four-year college, are SAT scores declining? Or is the entire decline driven by different students taking the test? And are students considering college for the first time because they took the SAT and did reasonably well? There is value to everyone taking a standardized test across states (given the differences in state high school exams), but it’s inappropriate to look at trends over time with such large differences in the types of students taking the test.

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Who Would Use Income Share Agreements to Pay for College?

This post first appeared at the Brookings Institution’s Brown Center Chalkboard blog.

In response to concerns over the rising price of college and increasing amounts of student loan debt, the Obama Administration has worked to expand income-based repayment programs for those with federal student loans. In late 2015 or early 2016, the U.S. Department of Education will likely allow students with any federal loans to enroll in a more-generous version of income-based repayment that would cap monthly payments at 10 percent of discretionary income (i.e., earnings above 150 percent of the federal poverty line) for 20 years for undergraduate students and 25 years for graduate students, with any remaining balances forgiven by the federal government.

Although this new version of income-based repayment has the potential to benefit up to six million Americans with student loan debt, concerns have been raised about this more generous program. First, the price tag is estimated at $15.3 billion over 10 years, or roughly 5 percent of forecasted Pell Grant expenditures during this period. Second, graduate students, who are more likely to have six-figure student loan debt and enroll in income-based repayment programs at higher rates, will see more benefits than undergraduate students with smaller amounts of debt but worse career options. Finally, as more students enroll in income-based repayment plans, colleges have fewer reasons to control costs due to students’ ability to access credit.

An interesting alternative to federal student loans that has emerged in recent years has the potential to shift the financial risk of paying for college away from the federal government and students, instead placing the risk in the private sector. Income share agreements (ISA) function somewhat similarly to income-based repayment plans, as students pledge to pay a predetermined percentage of their annual income in exchange for funds to pay for college. However, unlike federal income-based repayment plans, the percentage of income and the length of the repayment period are negotiated between a private investor and the student instead of being the same across all students. Students who major in economically desirable fields, such as engineering and business, at top colleges are likely to get better repayment terms than students majoring in less-profitable but socially important fields, such as education and nursing, at more typical colleges.

Given the current generosity of income-based repayment programs—and the likelihood that the federal government loses money on many students today—I have to wonder how many students would use ISAs once potential legal issues around their operation in the United States are resolved. Students in less-lucrative fields or those who plan to work in public service careers are unlikely to get better terms from the private sector than the federal government. These students would be likely to continue using federal student loans, although it is possible that ISAs could partially replace Parent PLUS loans as a financing source should parents not want to take out loans for their children when ISAs are available.

This leaves two groups of students who are likely to be interested in ISAs. The first group is those students who are either attending colleges that do not offer their students federal loans (primarily for-profit colleges and community colleges), or those attending short-term training programs such as coding ‘boot camps’ that do not currently qualify for federal student aid. Something in the neighborhood of two million students attend these colleges and programs, which results in a fairly sizable market. However, all of these programs tend to be relatively inexpensive, meaning that the per-student profit for an ISA provider will be fairly small.

The group of students who would be more lucrative for ISA providers would be those students enrolled in profitable degree programs at traditional undergraduate and graduate institutions. Because these programs tend to be expensive, the contract would need to be designed so the provider could make a profit on a large initial investment. However, students could lock in paying a lower percentage of their income than what they would expect to pay under income-based repayment if their expected earnings are high enough.

But students with high expected incomes may stay away from ISAs because they may expect to pay more in an ISA than under the standard federal repayment plan (a fixed monthly payment over 10 years). It would be difficult for ISA providers to undercut the federal government’s price in today’s environment of reasonably low interest rates, but it could be possible for students who have the highest likelihood of graduating and making a large salary because of the relatively low risk these students represent to a provider. Additionally, the presence of post-graduation private loan refinancing options such as Earnest and SoFi give successful graduates a way to lower their loan payments without giving up a share of their income.

Income share agreements have the potential to create another option for students looking to pay for college while seeking assurances they will not be overwhelmed by future payments. However, given the current generosity of federal income-based repayment programs and the likely hesitation of those who expect six-figure salaries to sign away a percentage of their income for years to come, the market for these programs may be somewhat limited. However, the federal government should encourage the development of private ISA providers in order to give students as many options as possible to finance their education while setting reasonable parameters for their operation that protect students from fraud and abuse.

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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.

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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.

The Conversation

Read the original article.

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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.

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