“Of the for-profit gainful employment programs that our department could analyze, and which could be affected by our actions today, the majority — the significant majority, 72 percent — produce graduates who on average earned less than high school dropouts.” So said Education Secretary Arne Duncan at a White House news conference on March 14. That earned two “Pinocchios” for lying from the Washington Post’s fact-checker.
Essentially, Duncan compares apples to oranges — with a few lemons thrown in — to make for-profit colleges look bad.
The Education Department estimates that high school dropouts average $24,492 year. The Labor Department puts the median annual wage at $18,580 to $22,860. A Census estimate is $20,241.
Then, Duncan compares employed dropouts’ earnings to all recent for-profit graduates. Comparing all dropouts to all for-profit graduates — or employed dropouts to employed graduates — would show a very different picture.
Comparing dropouts of all ages, including many with job experience, to less-experienced for-profit graduates also skews the results.
Duncan’s number looks at the number of programs that produce low-earning graduates, not at the number of graduates. “The Education Department does not have individual student data, so it could well be that most graduates do fine, especially from the larger programs,” reports the Post.
A third of community college programs’ graduates earn less than high school dropouts, by the Department’s measure, observes the Post. ”Graduates of 57 percent of private institutions — a list that includes Harvard’s Dental School but also child-care training programs — earn less than high school dropouts.”
For-profit colleges enroll many low-income, minority and adult students, who are the least likely to succeed in college. Tuition is higher, since the for-profits aren’t subsidized by taxpayers. Students depend heavily on federal loans and default rates are high.
Community college students averaged $2,300 in tuition in 2009-10 compared to $15,000 for students at for-profit two-year colleges, according to one study. However, 62.4 percent of students at for-profit two-year colleges complete a credential in six years, compared to 39.9 percent of community college students, according to the National Student Clearinghouse.
The new “gainful employment” rules are “awful,” ”unfair and discriminatory,” writes Richard Vedder on Minding the Campus. An Ohio University economist, Vedder directs the Center for College Affordability and Productivity.
The gainful employment rules apply to vocational programs at career colleges (primarily for-profit) and community colleges. If the goal is to stop wasting government money,”why not scrutinize students majoring in, for example, sociology, from Wayne State University?” asks Vedder. “Only 10 percent of students graduate in four years at Wayne State, and over twice as many default on loans as graduate in that time span.”
Moreover, while dropouts and loan defaults are high at many for-profits, when one corrects for the socioeconomic and academic characteristics of the students, the findings are decidedly more mixed. For example, the for-profits have roughly double the proportion of African-American students as do other institutions, and black students disproportionately come from low-income homes with high incidence of college attrition.
. . . I happen to disagree fundamentally with the “college for all” approach of the Obama Administration, but if you are going to pursue it, why attack the very providers who most aggressively are trying to help meet your goals? The for-profits disproportionately enroll poor first-generation students, and who are members of minorities. Moreover, accounted for properly (including state subsidies for public schools, taxes paid by for-profits, etc.), the for-profits use fewer of society’s resources per student.
The six-year completion rate for students at two-year for-profit colleges is 62.4 percent, the National Student Clearinghouse reports. At community colleges, which also enroll many disadvantaged students, the completion rate is 39.9 percent.
Finally, the “gainful employment” regulations say a borrower shouldn’t have to spend more than 12 percent of total income (20 to 30 percent of so-called discretionary income) to repay student loans. A person earning $35,000 a year with $4,800 annual loan repayments would not be considered gainfully employed. “If the individual in question went from a $20,000 job before going to school to a $35,000 job with a $4,800 loan commitment, that person has advanced considerably,” Vedder argues.
Repeal the Higher Education Act and “radically rethink federal provision of aid to students,” he concludes.
Students at a community college in rural Texas may lose all access to federal aid, including Pell Grants, because of a new regulation on defaults, reports Inside Higher Ed.
Community college students are defaulting on their student loans at high rates, writes Brittany Hackett, an editor at the National Association of Student Financial Aid Administrators, on Community College Daily. Although community college tuition remains relatively low, students are more likely to borrow and to take out larger loans than in the past. Many are using student loans to pay for living expenses, not for tuition and books, say financial aid counselors.
Community colleges now have the largest two-year cohort default rates (CDR) of any higher education sector, according to the U.S. Department of Education. The two-year community college CDR was 15 percent for the FY 2011 cohort, and the three-year community college CDR was nearly 21 percent for the FY 2010 cohort.
“Swirling” students may transfer to community college with loan debt accumulated elsewhere. Some “are already underwater before they get started,” says Laurie Wolf, executive dean of student services at Des Moines Area Community College. Students borrow to earn certificates in fields such as day care that pay very low wages.
Students pay lower interest rates on student loans than on credit cards, points out Lisa Hopper, director of financial aid at National Park Community College in Hot Springs, Ark.
Students have “found out about loans as an easy source of money, says Pat Hurley, associate dean of student financial aid services at Glendale Community College in California. She worries that students are borrowing almost entirely to pay for living expenses.
Federal law requires that schools award students the full amount for which they are eligible, regardless of whether they need to the money for academic expenses. Many high-risk students borrow, drop out and never earn enough to pay back their loans, which can’t be discharged in bankruptcy.
Financial aid counselors need flexibility to counsel community college students on their borrowing decisions and set loan limits, recommends a National Association of Student Financial Aid Administrators (NASFAA) task force.
Without federal student aid — loans, Pell Grants, tax credits — higher education would cost less and be less elitist, said economist Richard Vedder in a Nov. 15 speech in San Diego. While fewer people would enroll in college, those who do would be more likely to earn a degree and less likely to end up as sales clerks and bartenders. Colleges would hire fewer administrators.
Vedder recommends seven steps he thinks are “politically feasible.”
First, return the program to its roots: helping poor persons attend college. Right now, over 17 percent of students from families with incomes from $60,000 to $80,000 a year get Pell Grants—these individuals have above median incomes. Over a few years we should tighten eligibility significantly, reducing the number of Pell recipients by perhaps 50 percent. Similarly, PLUS loans to parents of high income kids should end. Tuition tax credits benefit families whose kids would go to college in the absence of the credit, mostly from above average incomes. Go to a single grant program and a single loan program.
Second, impose academic performance standards to continue receiving grants. Reward students who graduate in less than four years, and cut off aid for, say, students who are in their sixth year of full-time attendance.
Third, he’d get the federal government out of student loans and let private lenders “strengthen the tie between interest rates charged students and market rates.”
Fourth, make participating colleges have some skin in the game. If colleges accept students and promise them Pell grants or guaranteed loans, make them share in the burden of high levels of defaults on loans, or the failure associated with Pell recipients not graduating. This would lead to a needed reduction in lending to persons who lack the aptitude, background, or discipline for college level learning.
Fifth, he’d gear federal aid to the cost of a basic college education from a relatively low cost state university. Increases would be linked to the inflation rate to discourage colleges from raising tuition to capture increased aid.
In step six, Pell Grants would become a voucher for very low-income students tied to academic progress. “Top students could be paid extra for superior academic performance,” Vedder suggests.
Finally, he’d “encourage private investors to begin human capital equity funds.” Investors would pay college costs in return for a portion of the graduate’s future earnings for a set time period, Vedder writes. “A graduate from M.I.T. majoring in electrical engineering might have to pay 8 percent of his income for 12 years, while a graduate in anthropology from Central Michigan University might have to pay 15 percent for 20 years.” These market signals would be useful for students.
Directing aid to low-income students — and away from the middle class — doesn’t sound all that politically feasible to me. Setting performance standards also would generate a lot of resistance.
The “overeducated American” is a “myth,” states a new College Summit report. Workplace demand for college graduates is rising, according to Smart Shoppers: The End of the ‘College for All’ Debate? College graduates earn 80 percent more than high school graduates, the report estimates. Even in jobs that don’t require a degree, more-educated workers earn significantly more.
However, returns on the college investment have been exaggerated, concludes another new report, which focuses on higher education in California. The Economics of B.A. Ambivalence notes that most students take more than four years to complete a bachelor’s degree. In addition, some earn much less than others.
When the California Master Plan for Higher Education was enacted, in 1960, only 10 percent of Californians had a college degree, and the earnings gap between degree holders and non-degree holders was 35 percent. In 2010, they say, that earnings premium was 43 percent—higher than in the past, but still half the figure cited in the College Summit report. But, the researchers point out, the wage gap is higher now not because wages for college-degree holders have gone up, but because wages for people with only a high-school degree have gone down.
Graduating with burdensome debt is a higher risk, the researchers write.
College remains a good investment for the average California student and for American society. Nevertheless, it is true that more graduates now run the risk of not earning enough to make their investment in college worthwhile. This reality explains why many families of ordinary means are increasingly skeptical about paying for college.
“College is a ‘steppingstone’ to the middle class—not a ticket,” the authors warn. “It deserves the scrutiny an individual would give to any risky investment.”
They recommend better advising and more loan-repayment options.
Adults who’ve left school without a degree ask: Is College Worth It for Me? But few look at graduation and default rates when they choose a postsecondary option, reports Public Agenda. And many don’t understand that for-profit higher education will be more expensive.
Helping students avoid default is a new job for community and technical colleges, reports Community College Times. Despite relatively low tuition, more two-year college students are borrowing — and having trouble repaying their loans.
Amy Matteo graduated from Clover Park Technical College (CPTC) in Washington in 2012 with a pharmacy degree. She’d borrowed $20,000 to pay for tuition and expenses. It took her eight months to find a job. After six months, she was laid off.
. . . Matteo began to fall behind on her mortgage payments, and let her student loan repayments slide so she could take care of her housing costs first. Soon, she was on the verge of defaulting on her student loan, as email reminders about missing her $245-a-month loan payments piled up.
At that point, officials from CPTC contacted Matteo and urged her to take advantage of SALT, a third-party financial literacy program the college had just joined. Through SALT, Matteo was able to put her loan payments on pause until she can find a job.
The average two-year cohort default rate for community colleges was 15 percent in 2011, according to the National Association of Student Financial Aid Administrators (NASFAA). That compares to 9.6 percent for all colleges and universities.
SALT, developed by a nonprofit called American Student Assistance, is being used by more than 240 higher education institutions, including 94 community and technical colleges.
SALT is very interactive, with online videos, apps and “money 101” courses to help with budgeting, as well as the basics on student loans, “speaking the language our students speak,” said CPTC spokesperson Tawny Dotson. It provides immediate access to information in a variety of formats—such as downloadable PDFs, email or phone calls.
There is no charge to students who take advantage of SALT’s services, such as financial counseling and debt management. SALT can help them combine loan repayments from different services or change the repayment schedule but it can’t renegotiate interest rates.
Many Clover Park Tech students are “first-time college students, and they are not very well educated in money matters,” said Wendy Joseph, financial aid director.
Many community college dropouts don’t understand that they have to repay loans even if they left school without a degree, said NASFAA Policy Director Megan McClean. Many don’t know default could ruin their credit rating or lead to garnishment of wages.
Redesign Pell Grants, stretch out income-based loan repayment and simplify college cost estimates urged outside experts at a Hamilton Project forum today.
Pell Grants should provide guidance and support services tailored to recipients’ needs, write Sandy Baum of George Washington University and Judith Scott-Clayton of the Community College Research Center at Teachers’ College, Columbia.
They also propose dramatically simplifying eligibility and the application process and strengthening incentives for students to move quickly to a degree.
Income-based repayment should extend beyond the first 10 years after college, propose Susan Dynarski and Daniel Kreisman of the University of Michigan. Payments would rise and fall with a borrower’s income.
This model could prove less costly for taxpayers than the current system and it could even be less expensive; the proposal would reduce defaults and cut the cost of loan servicing, as well as eliminate what would become redundant policies, such as the student-loan interest deduction and the in-school interest subsidy. For the very small percentage of borrowers who take on significant student debt, the authors propose improving bankruptcy protection as well as tightening regulation of the private lenders who own most of these very large loans.
A better college cost calculator would help students from lower- and middle-income families to make informed college choices, writes Wellesley’s Phillip Levine. His Quick College Cost Estimator uses six basic financial inputs.
Student loan default rates continue to rise, reports the U.S. Department of Education. After two years, 10 percent of former students are in default; that rises to 14.7 percent after three years.
“The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. The department will expand outreach to explain loan repayment options.
Community colleges have the highest two-year default rate — 15 percent — of any higher education sector. After three years, the community college default rate tops 20 percent, nearly as high as the rate for two-year for-profit programs.
The official default rate understates borrowers’ pain, says Rory O’Sullivan,policy and research director at Young Invincibles, a Washington nonprofit group. The rate, which includes graduates and dropouts, shows the share of borrowers who haven’t made required payments for at least 270 days. It doesn’t include borrowers who are putting off payments through “forbearance” and those on federal income-based repayment programs. “It’s financial disaster for borrowers,” said O’Sullivan. “Defaults can dramatically affect their credit rating and make it harder to borrow in the future.”
Nearly a half-million student borrowers are in default within two years and 600,000 within three years, notes the National Association of Student Financial Aid Administrators.
Eight institutions with high default rates could lose eligibility in federal student aid programs.
The $1.2 trillion college debt crisis is crippling students, parents and the economy, writes Christopher Denhart on the College Affordability blog.
Two-thirds of college graduates have some debt, Denhart writes. The average borrower will graduate $26,600 in the red, according to the The Institute for College Access and Success (TICAS) Project on Student Debt. One in 10 graduates owe more than $40,000.
Student debt now totals $1.2 trillion, 6 percent of the overall national debt.
. . . national debt carries many consequences including slowing economic growth (translating into fewer jobs being created) and rising interest rates. Capital will not be as easy to access.
The majority of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, by the Department of Education. Translation: the creditor in this scenario is the U.S. tax payer, who if students default on these loans will be subject to carry the burden of these loans.
Community college students are borrowing too, writes Denhart. Thirty-eight percent of community college graduates in 2008 had student loans. The average debt load at a public two-year institution is $7,000.
One community college, Henry Ford Community College in Dearborn, Mich., is offering a one-time student debt amnesty program that will allow students who owed a balance prior to or including the winter 2012 semester to afford to return to the college. The program “offers the opportunity for students to pay 50% of what is owed on their account to settle their debt with the College.” Will this become a norm within the two-year degree space as more and more debt is accumulated?
“With more and more emphasis being placed on college education for all, raising costs of an already expensive degree, and underemployment of college graduates running rampant, student loan debt is a problem that will cripple economic possibilities and success to come,” Denhart concludes.
Accreditors appear to be the most lenient on two-year colleges in the North Central and Middle States, according to Education Sector. The analysis looked at two-year colleges with “a much higher default rate than we would expect based on their graduation rate,” suggesting low graduation standards and unprepared students.
Accreditation was toughest in the Western region.
Public community colleges “dominate the list of schools that are possibly too lenient in their graduation requirements,” writes Andrew Gillen, though “a disproportionate share of for-profits did not have enough data to be included.”