How colleges can prevent default

Protecting Colleges and Students looks at how nine community colleges are helping student borrowers avoid default. The Association of Community College Trustees (ACCT) and The Institute for College Access & Success (TICAS) collaborated on the report.

CDR Report Cover Small for WebNot surprisingly, borrowers who left college without earning at least 15 credits were much more likely to default than more successful classmates at the nine colleges.

The default rate for low-income students varied. For example, Pell Grant recipients — typically with family incomes below $40,000 — were four percentage points more likely to default than non-recipients at one college, while the gap was 20 percentage points at another college.

Only 17 percent of community college students use federal loans, but more than a third of graduates “needed loans to get to graduation,” said J. Noah Brown, president of ACCT.

The report recommends that the U.S. Department of Education provide guidance on colleges’ options for managing student debt, make the National Student Loan Data System more user-friendly, improve counseling tools and streamline loan servicing.

Community colleges should  analyze who borrows and who defaults to inform their default-reduction strategies, the report recommends. In addition, colleges should provide counseling and information to borrowers when they need it and participate in the federal loan program.

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.

Nearly 1 million lack access to federal loans

Nearly one million community college students nationwide — about 8.5 percent of the total — can’t take out federal student loans because their college doesn’t participate in the program, according to a report by The Institute For College Access and Success (TICAS).

Denied access to “the safest and most affordable way to borrow for college,” some students turn to “more costly and risky forms of borrowing such as credit cards or private loans,” reports At What Cost?  Others reduce their “chances of graduating by working longer hours or cutting back on classes.”

“Most community college students still don’t use loans to pay for their education, but for those who need to borrow, federal student loans can make the difference between graduating and having to drop out,” said Debbie Cochrane, TICAS’s research director and the report’s lead author. “Only 17% of community college students take out loans, but 37% of community college associate’s degree graduates have federal loans.”

Native-American, African-American, and Latino community college students were the most likely to lack access, reports TICAS.

The report takes a closer look at California, Georgia, and North Carolina.

Community colleges can avoid defaults by helping students borrow wisely, argues TICAS, citing Albany Technical College in Georgia.

“Barring access to federal student loans doesn’t keep students from borrowing—it just keeps them from borrowing federal loans, which are the safest option,” said Cochrane.

Community college students could lose access to Pell Grants if their college has a high default rate, said the American Association of Community Colleges in astatement. “Some community colleges are faced with a loss of eligibility later this year.”

If a college participates in the federal loan program, financial aid officers can’t limit loans to students who are unlikely to be able to make loan payments.

If colleges could control overborrowing and not risk Pell eligibility, they’d be more willing to offer federal loans, AACC’s David Baime told Inside Higher Ed.  “We strongly believe that the penalty of losing the Pell eligibility for nonpayment of loans doesn’t make much sense and we wish that policy would be changed,” he said. “The threat of that loss is tremendous, and it’s a very serious concern for colleges.”

Community colleges, along with other types of institutions of higher education, have been pressing Congress to give them the power to limit the amount their students can borrow in federal loans, as a tool to safeguard against overborrowing.

This year, colleges and universities face sanctions for high default rates. A community college in rural Texas could lose eligibility for federal student aid.

CC defaults soar, despite low debt

Community colleges are struggling to pay back their student loans, writes Andrew Kelly in Forbes.  While two-year public colleges charge low tuition, the default rate is high.

Only about 20 percent of community college students borrow, and 70 percent borrow less than $6,000. But low graduation rates put even small borrowers at risk of owing more than they can repay.

“Unfortunately, less debt does not equal fewer defaults,” writes Kelly. “And default’s consequences, like wage garnishment and severe credit damage, can hurt borrowers even more than a bloated loan balance.”

Policymakers should turn their attention from total debt to students’ ability to repay, Kelly argues. Income-based repayment plans “try to do exactly this, but they are far too generous to graduate students,” who often have high debts and high incomes.

The “front-end problem” is that “student loan programs encourage attendance at any program, at any college, and at any price.”

That means we subsidize a lot of failure. According to my analysis of the most recent federal data, about 37 percent of loan disbursements in the Stafford and Parent PLUS programs (loans for undergraduates) in 2012-2013 went to colleges with six-year graduation rates that were 40 percent or lower. That’s a lot of loans to people whose chances of finishing a degree are worse than flipping a coin.

What we need are policies that push students toward more effective and affordable options on the front end: better consumer information, income-share agreements, and risk-sharing that gives colleges skin in the game.

 The Student Loan Ranger has advice for community college students on how to avoid the debt trap. 

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.

Boomerang

Annie Kasinecz, 27, lives with her mother in Downers Grove, Illinois. She borrowed $75,000 to earn a degree in advertising and public relations at Loyola University in Chicago. Now working as a project coordinator, she’s lived at home rent-free for four years.  Credit Damon Casarez for The New York Times

The Boomerang Kids Won’t Leave home, predicts the New York Times Magazine. With college loans and low-paying jobs, they can’t afford to pay rent.

One in five people in their 20s and early 30s is currently living with his or her parents. And 60 percent of all young adults receive financial support from them. That’s a significant increase from a generation ago, when only one in 10 young adults moved back home and few received financial support.

. . . Those who graduated college as the housing market and financial system were imploding faced the highest debt burden of any graduating class in history. Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000. . . . And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree.

The photographer, who lives at home and freelances, was graduated from an art college with $120,000 in debt. 

Alexandria Romo, 28, also a Loyola graduate, earned an economics degree but says she “had no idea what I was doing when I took out those loans” at the age of 18. She borrowed $90,000. Romo wishes she’d been taught about student loans, math and finance before borrowing at 12.5 percent interest. Romo lives at home in Austin and works at a security-guard company. Her dream is to be an environmentalist.

Community college students may struggle to graduate, but they don’t run up huge debts in the process.

Ed Trust: Cut off aid to low-quality colleges

Every year, $15 billion goes to “college dropout factories” and “diploma mills,” according to Tough Love, a new Education Trust report. These are four-year colleges and universities in the bottom 5 percent nationally in graduation rates and student loan repayment rates. In addition, some institutions — including some state universities — admit few low- and moderate-income students eligible for Pell Grants. Tough Love proposes linking federal aid, tax benefits and charitable deductions to minimum standards for access and success:

Pell, full-time freshman enrollment: 17 percent

Six-year, full-time freshman graduation rate: 15 percent

Student loan repayment rate (three-year cohort default rate: 28 percent)

Colleges would have three to four years to meet the standards, the report proposes.

“The federal government writes a $180 billion check annually to thousands of colleges and universities using taxpayer dollars to fund schools from the highest performing to the lowest, with virtually no consideration of institutional performance on access, success, or student loan repayment measures,” said Michael Dannenberg, director of higher education and education finance policy and a co-author of the report. “Schools falling beneath the bottom fifth percentile on these measures represent the ‘worst of the worst,’” said Mary Nguyen Barry, higher education policy analyst and co-author. “Establishing goals without consequences . . . won’t protect students from a lifetime of mounds of debt, a meaningless degree, or no degree at all.”

Many for-profit colleges enroll a high percentage of low-income, non-white and adult students. They tend to have low graduation rates and high default rates. However, also in the bottom 5 percent are a number of historically black colleges as well as “minority-serving” institutions with heavy Latino and Native American enrollments. Linking aid to student success would be politically difficult.

Elite universities and private colleges that can’t afford much financial aid tend to admit few Pell-eligible students. These “engines of inequality” have a lot of political clout too.

Carnevale: Link loans to value

President Obama’s student loan plan, which limits repayment to 10 percent of the borrower’s disposable income, closes the barn door after the horse is gone, says Anthony Carnevale, director of Georgetown’s Center on Education and the Workforce, on NPR.  The fundamental question about college debt is whether students are “getting value for money,” says Carnevale.

Are we helping people cope with debts they never should have taken on in the first place?

Students and their parents don’t always think through what they’re spending for college and what they’re likely to get for it, says host Michel Martin.  If students know they’ll only have to pay 10 percent of their income — with the unpaid balance forgiven in 10 to 20 years — might they be tempted to think “it’s not going to be that big of a deal?”

That’s a risk, says Carnevale. If the system isn’t linking loans to long-term earnings, it will continue to be ineffecient.

Ultimately, the taxpayer pays for that as do many of the students who find these loans still overwhelming. That is, it’s not as helpful if you’ve built the loan and it’s going to burden you for a number of years. Just have somebody help you with the burden. The real issue is ensuring that you minimize the burden in the first place by linking value — economic value — to the loan.

The loan policy will help some people, he says. More fundamentally, we need to “ensure the young people know what they’re getting into when they borrow and make sure they’re not borrowing trouble down the road.”

Stop telling 18-year-olds to follow their “passion” — and run up huge debts, writes economist Peter Morici in the Baltimore Sun.

Easy access credit has pushed up college tuition far faster than inflation generally and even health care costs. University presidents are happy to pad bureaucracies and indulge faculty who would rather undertake research than teach, if students can borrow money to pay for it all.

College primarily “is about acquiring skills that have value in the marketplace,” writes Morici.

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.”

For-profits offer flexibility — at a price

For-profit colleges charge $35,000 for an associate degree, on average, more than four times the cost at the average community college, writes Ashlee Kieler in the Consumerist. Why does anyone go to a for-profit college? Flexibility and convenience draw many students, she writes. And for-profit colleges spend heavily on marketing.

In 2000, for-profit colleges enrolled 3 percent of postsecondary students. By 2009, that had soared to 9 percent, reports College Board. Community colleges’ share dropped from 43 percent to 40 percent.

For-profit college students see a more convenient and flexible learning experience, according to a report from Stanford’s National Center For Postsecondary Improvement. “Freed from the traditional academic schedules and even from many of the fixed costs of infrastructure and expensive facilities, the [school] is able to offer courses at more convenient times and in more convenient locations.”

For-profit colleges were leaders in offering online and evening courses to students with jobs and family responsibilities.

For-profit colleges also tend to have names that sound more like a traditional university — some even have “university” in their names — which has a certain aspirational appeal to it. The phrase, “I went to Heald College” may have a better ring to it than “I went to Bucks County Community College,” even if the student got the same or better education at the school with the clunkier name.

For-profit colleges rarely make students take remedial courses before taking courses than count for a credential. Instead, basic skills instruction is integrated into for-credit courses. That’s a policy some community colleges are trying.

Like community colleges, the for-profit sector enrolls many students who are 25 to 40 years old. However, for-profit college students are much more likely to be living in poverty, reports the  Institute for Higher Education Policy. They use federal grants and loans to pay for college.


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“Only 35 percent of community college students take out loans to pay for school,” says Suzanne Martindale, staff attorney at Consumers Union. By contrast, “86 percent of for-profit college students take out loans.”

However, Kieler doesn’t mention another reason students may choose a for-profit college. On average, two-year for-profit colleges, which focus on job training, have much higher completion rates than community colleges, which have academic and job training missions. For-profit vocational programs are very structured. Some community colleges are adding structured pathways to improve completion rates.