Completion, default rates can be misleading

Commonly used college quality measures, such as graduation rates and loan defaults, are inadequate and sometimes misleading, writes Ben Miller, a senior policy analyst for the New America Foundation, on EdCentral.

Completion statistics for community colleges and other two-year-or-less institutions are especially inaccurate, he writes. It’s not just that the federal data misses part-timers and transfers. Completion data also confuses success rates in short-term certificate programs with longer-term associate degrees.

. . . many certificate programs run for no more than a year. These programs thus present fewer opportunities for students to drop out. That’s why colleges that predominantly grant certificates tend to have quite high completion rates and also the reason that for-profit institutions often appear to have better graduation rates than the largely associate-degree-granting community colleges.

A low completion rate is a sign of low quality, but a high completion rate may signify a quick, easy program with very little return on students’ time and money.

Cohort default rates also can be misleading, especially for community colleges with very few borrowers, writes Miller.

For example, Gadsden State Community College in Alabama has a 20 percent default rate but that’s based on five borrowers out of an enrollment of over 8,967. This makes it impossible to draw any conclusions about a college based upon less than 0.05 percent of the college.

On the other side, a low cohort default rate might be just as much an indication of successful loan management than success. The cohort default rate only measures whether students default within a certain time window. Students who default after that period or who are extremely delinquent but never default are not counted in the rate. The usage of income-based payment plans can also distort cohort default rates, since a borrower could be earning such a low income from their program that they have to make little to no payments, making it more difficult to default.

Passage rates on licensure or certification exams, such as in nursing, do measure learning outcomes. However some programs — especially in teaching — ensure a 100 percent pass rate by denying diplomas to students who haven’t passed the exam.

Aid on a postcard

two-question postcard could replace the lengthy Free Application for Federal Student Aid (Fafsa) under a bipartisan bill introduced in the Senate. Students would be asked their family size and household income two years earlier.

The Financial Aid Simplification and Transparency Act, introduced by Sen. Lamar Alexander, R-Tenn., and Sen. Michael Bennet, D-Colo., also would let students know about their financial aid prospects before they apply to colleges, restore year-round Pell Grants and simplify student loans. Students would be offered two repayment options: income-based repayment and the standard 10-year repayment plan.

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“Every year, 20 million students waste millions of hours and countless dollars on a 100-question application form that only needs to be the size of a postcard,” Alexander said in a statement.

Year-round Pell Grant would be paid for by eliminating subsidized loans,

Simplifying Fafsa Will Get More Kids Into College, argue Alexander and Bennet in a New York Times op-ed. Some students give up on going to college because they can’t handle the form, they write.

The two-question Fafsa would be accurate for 95 percent of students, argue Susan M. Dynarski and Judith E. Scott-Clayton in College Grants on a Postcard.

Students’ families would save almost 100 million hours a year — the equivalent of nearly 50,000 full-time jobs — with a simplified Fafsa, estimate Dynarski and Scott-Clayton.

Colleges, which now spend $432 million auditing aid applications, would  see much lower administrative expenses, they write.

Borrowing trouble

President Obama’s executive order expanding Pay As You Earn (PAYE) will provide some debt relief to some borrowers, writes Diana Carew, director of the Young American Prosperity Project at the Progressive Policy Institute. But it also will boost subsidies for a “broken higher-education financing model” and reinforce the idea that college attendance is the only postsecondary option.

While everyone needs some form of post-secondary education to earn a living, not everyone needs a bachelor’s degree, writes Carew.

The wage premium for college graduates is growing not because the degree is worth so much more, but because high school diplomas as worth so much less. In fact, real earnings for recent college graduates have been falling over the last decade, and underemployment remains at record highs.

. . . Moreover, the new tools of digital learning — such as online courses — should be driving education costs down, yet tuition continues to climb. That suggests the entire financing model for higher education needs reform. And because there are too few viable pathways into the workforce after high school, our $100 billion per year federal student aid system is channeling people into four-year colleges who may be better suited for less expensive options.

Expanding PAYE may help some borrowers now, but it  almost certainly “will exacerbate the burden on the federal student aid system in the long run, argues Carew. “Borrowers have less incentive to make smart borrowing decisions, or complete in a timely manner. And schools have less incentive to control costs.”

Expanding PAYE “won’t do much to make college more affordable,” writes Clare McCann on The Hill.  It will affect only people who’ve left college and already are eligible for income-based repayment. They must be Direct Loan borrowers — but most pre-2007 borrowers used the now-defunct Federal Family Education Loan program instead.

Few borrowers have opted for income-based repayment so far because the plans are so complex, she writes. “Gimmicks like this one don’t help much — in fact, they make the system even more complex.”

Obama extends 10% cap on loan repayment

Another five million people with student loans will be able to limit payments to 10 percent of their discretionary incomes. Loans will be forgiven in 20 years — or 10 years if they take public-service (government) jobs.

President Obama issued an executive order Monday extending generous repayment terms to more debtors. He also urged Congress to approve a bill to let 25 million borrowers refinance student loans at lower rates.

The biggest winners will be people who took on debt to pay for graduate school, notes the Christian Science Monitor.

All student borrowers – including those 5 million likely to be affected by this change – already had access to some form of income-based repayment, notes Jason Delisle, director of the New America Foundation’s Federal Education Budget Project. Under the previous terms, those who didn’t have access to PAYE (Pay As You Earn) could still do income-based repayment where they paid 15 percent of their incomes, after a $17,500 exemption, and had their debt forgiven after 25 years. In many ways, he says, those terms made much more sense, and were more fair, especially for students borrowing large sums of money to go to grad school, who are very unlikely to be able to pay off their loans in 10 or 20 years even with high incomes.

“Income-based repayment is vital, and it’s important we have it, but it’s very important we get the terms right,” says Mr. Delisle. “The payments are too low and the terms are too short for someone who’s borrowed to go to grad school.”

Burdened with student loan debt, young people can’t buy their first home, Obama said.

That’s saying “we need to help [student loan debtors] with debt so they can go into even more debt”  with a mortgage, Delisle said. Student loans already helped these borrowers consume beyond their means, he said.

Encouraging students to borrow more for college also enables colleges to keep raising tuition.  “It’s dealing with the symptoms and not the disease,” says Richard Vedder, director of the Center for College Affordability.

Some low-income, minority and first-generation students think their loans will be forgiven, reports Sophie Quinton on National Journal.

“A lot of students will take out loans because they hear that if you’re in a certain job it gets paid off. That’s not always the case,” says Lauren Ellcessor, 28, a counselor at the Educational Opportunity Center in Norfolk, Va.

. . . “I get the quote: ‘I’m here to get Obama’s plan to get rid of my student loans,’ ” Ellcessor says. It’s not that easy, she tells clients.

Loan forgiveness should be eliminated, argue Brookings’ researchers Beth Akers and Matthew Chingos. It encourages students to borrow more and stick the taxpayers with the bill. Frugality is not rewarded.

Nationwide, student loan debt tops $1 trillion.

Gainful employment regs for everyone?

The Gainful Employment Rule Is Coming For Everyone, warns Edububble. For now, the for-profit colleges are being forced to “generate a real return for their students,” but it won’t stop there, he writes.

Once the world starts getting the bill for Income-Based Repayment, this will be the only choice for the Republic. Come after the source of the pain and that means all of those twits studying cross-disciplinary BioTheater and other overpriced courses like English or even Bio.

. . . There are too many defaults and the government is just going to have to shut down the free money fountain.

The gainful-employment rule applies to career programs at public and private nonprofit colleges, as well as to for-profits. If too many students in a career program default on loans or run up a high level of debt relative to their earnings, that program’s students would lose access to federal student aid. Community colleges, which have a rising number of borrowers and high default rates, are plenty worried about it already.

The U.S. Education Department’s revised proposal is “flawed, arbitrary, and biased,” and will shut millions of students out of college, contends the Association of Private Sector Colleges and Universities, which represents the for-profit sector, reports the Chronicle of Higher Education.

A 100-age report by economists at Charles River Associates, funded by the for-profit trade group, attacked the regulations for using the level of students’ earnings rather than their earnings gains to measure a program’s effectiveness.

While the Education Department estimates 31 percent of students would be affected, potentially losing access to student aid, the report predicts as many as 44 percent would be enrolled in programs that fail the federal test.

Coupled with income-based repayment, the proposed rules would protect programs whose graduates have very low earnings, writes Ben Miller on EdCentral. “Allowing programs to pass solely based on the annual debt-to-earnings measure makes it possible for a program with sub-poverty wages to still avoid failing the metrics.”

Making college affordable

Are there better ways to pay for higher education? The Lumina Foundation has commissioned papers on new models of financial aid by a wide array of authors.

In Redefining College Affordability, Education Optimists Sara Goldrick-Rab and Nancy Kendall propose offering two free years at a public college to every high school graduate.

• All eligible students can attend any public college or university (2-year or 4-year) for free for the first two years

• Through a redirection of current federal financial aid funding, the federal government pays tuition for all students, and provides additional performance-based top-up funding for institutions that serve low-income students.

• Participating institutions cannot charge tuition or additional fees to students

• State funding for higher education will be redirected to cover books and supplies for all students

Student living expenses would be covered by a state and local stipend, a federally funded work-study job and access to federal loans.

California Competes’ College Considerator “tells users how likely they are to graduate and how long it will take based on a combination of their own self-described backgrounds and plans (such as working, or going part time) and the colleges’ graduation rates.”

The Considerator estimates “debt hazard” and predicts the “break-even age” – how old the graduate would be when the cumulative benefits of college surpass the costs.

Several papers looked at income-based repayment schemes:

· Can Income-Driven Repayment Policies be Efficient, Effective, and Equitable? Nicholas Hillman, University of Wisconsin-Madison, Jacob Gross, University of Louisville

· Estimating the Costs and Benefits of Income-Based Student Loan Repayment Systems: Beth Akers, Brookings Institution, Matthew Chingos, Brookings Institution

· From Income-based Repayment Plans to an Income-based Loan System: Robert G. Sheets, George Washington Institute for Public Policy, George Washington University, Stephen Crawford, George Washington Institute for Public Policy, George Washington University

· Should All Student Loan Payments Be Income-Driven? Benefits, Trade-offs, and Challenges: Lauren Asher, The Institute for College Access & Success (TICAS), Diane Cheng, The Institute for College Access & Success (TICAS), Jessica Thompson, The Institute for College Access & Success (TICAS)

In I’ll Pay for College, But It’s Not a Loan, National Journal looks at proposed legislation letting students fund their college costs by selling investors a percentage of future income for a fixed period. Because the money isn’t a loan, the petroleum engineering major who decides to become a poet couldn’t default. 

Pay It Forward is flawed — but fixable

Michigan has joined Oregon in proposing a “Pay It Forward” student lending system, writes Susan M. Dynarski. Students would pay no tuition up front and pay back a fixed percentage of their income after college. The idea is flawed but fixable, writes Dynarski.

In both the Michigan and Oregon versions of Pay It Forward, a borrower pays a fixed percentage of income for a fixed number of years. A high earner would pay much more than she borrowed; a low earner would pay much less.

The problem is that people expecting high earnings won’t participate voluntarily. Yale tried it in the 1970s and failed. Future artists were all for it, but future investment bankers opted out.

In a Hamilton Project proposal, Dynarski proposes a change in income-based repayment — or Pay It Forward — that would encourage aspiring high earners to participate.

Denominate debt in dollars, and let borrowers pay their debt. If a student borrows $25,000 and (due to pluck and luck) earns enough that she has paid back the principal plus interest after just ten years, she will stop paying into the program. If a borrower instead runs into hard times and still owes money after 25 years, the balance will be forgiven.

In this way, both Pay It Forward and my income-contingent repayment would subsidize low earners without driving away high earners, concludes Dynarski.

Rubio: Dream the affordable American Dream

Education and the American Dream was the theme of Florida Sen. Marco Rubio’s keynote speech at Making Community Colleges Work, a Next America session sponsored by National Journal at Miami Dade College.

The son of immigrants, Rubio used Pell Grants, student loans, work study and summer jobs to pay for a four-year degree and law school. He started his career as an attorney with $100,000 in student loans.

To find a good-paying job, “it is vital that you get the right degree geared toward the right industry,” Rubio said.

Nationally, majors such as business, liberal arts, and hospitality have underemployment rates at or above 50 percent. There are simply more graduates than jobs in these industries. Meanwhile, engineering, health services and education all have underemployment rates less than 25 percent. 

Students and their families need to be equipped with the information necessary to make well-informed decisions about which majors at which institutions are likely to yield the best return on investment. This is why I, along with Senator Ron Wyden, proposed the “Student Right to Know Before You Go Act,” which aims to give students reliable data on how much they can expect to make versus how much they can expect to owe.

Rubio called for making income-based repayment the universal method for student loans.  He also proposed an alternative to student loans known as Income Share Agreements.

Let’s say you are a student who needs $10,000 to pay for your last year of school. Instead of taking this money out in the form of a loan, you could apply for a “Student Investment Plan” from an approved and certified private investment group. In short, these investors would pay your $10,000 tuition in return for a percentage of your income for a set period of time after graduation – let’s say, for example, 4 percent a year for 10 years.

This group would look at factors such as your major, the institution you’re attending, your record in school – and use this to make a determination about the likelihood of you finding a good job and paying them back. . . . Your only obligation would be to pay that 4 percent of your income per year for 10 years, regardless of whether that ends up amounting to more or less than $10,000.

Income Share Agreements are a great idea, writes Richard Vedder. Investors “buy equity in students as opposed to lending to them.” The risk shifts from students to investors.

Rubio also called for better career and vocational education in high school, apprenticeships and “more pathways for working parents” at the community college level.

Reforming the “broken accreditation system” would open the door to “new, innovative and more affordable competitors,” he said. He proposed a new accrediting agency for online education. With standardized tests to demonstrate competency, students could learn online or on the job and earn a low-cost job certification or degree.

How to fix income-based repayment

The federal income-based repayment needs to change, write Jason Delisle and Alex Holt on EdCentral.

Under IBR (in its current form), the government will provide more in loan forgiveness to someone with a high income and a master’s degree than it will provide in Pell Grants to a student from a low-income family attending a four-year college. . . . those who borrow and spend more get larger government benefits than those who make more prudent choices or use their own money to finance a graduate degree.

Those large subsidies for graduate students should be redirected to struggling undergrads, they write. Once that’s done, IBR should be the universal repayment plan, not just an option for the savvy borrower.

Borrowers who take “public service” jobs receive loan forgiveness after 10 years instead of 20, no matter how much they earn, Delisle and Holt write. One out of four jobs count as “public service.”

A public service job is one with a federal, state, or local government agency, entity, or a non-profit organization with a 501(c)(3) designation, or a non-profit that provides: emergency management, military service, public safety, or law enforcement services; health services; education or library services; school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. . . . PSLF applies to almost any job so long as it is not at a for-profit business.

Income-based repayment plans won’t ruin repayment rates for career programs, writes Ben Miller, who’s been tracking gainful employment negotiations.

Keep the “public service loophole” out of gainful employment regulations, Delisle advises.

The Education Department doesn’t want the public to know how much it pays its debt collectors, adds Persis Yu.

Debt hits $29,400 for 2012 grads

Seventy-one percent of last year’s college graduates were in debt with an average of $29,400 in student loans per borrower, reports the Project on College Debt. The debt load increased by 10.5 percent from the year before, according to Student Debt and the Class of 2012.debt

Graduates will have trouble paying back their loans: 18.3 percent of young college graduates are unemployed or working fewer hours than they wish. However, low earners can qualify for income-based repayment, which links repayment to earnings, and Pay As You Earn,  which forgives unpaid debt in 20 years rather than 25.

The report’s recommendations include increasing need-based grants, improving financial aid information and limiting aid eligibility at college with low graduation rates. 

Nearly three-quarters of Americans worry about college costs, according to a Bellevue University survey.  Fifty-five percent said they’d pursue a degree if it wouldn’t put them into debt; 40 percent said obtaining more education is worth taking on more debt.

In another survey, 42 percent of young people blame colleges and universities for rising student debt and 30 percent blame the federal government.