Higher Education

Clearinghouse Data Leave More Questions than Answers, and We Need Answers

August 14, 2013
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Twenty-nine percent of first-time community college students transferred to a four-year college within six years, according to a new report from the National Student Clearinghouse. About 8 in 10 of those transfer students completed a bachelor’s degree or were still enrolled in the four-year school after six years. These are just a few of the interesting and important findings of the report, many of which were previously unknown.

The report, which looked at students who enrolled at a four-year institution for the first time in the 2005-06 academic year and had previously been enrolled in a two-year college, found that 72.5 percent of those students transferred to public colleges, while 19.7 percent enrolled at private nonprofit institutions, and 7.8 percent enrolled at private for-profit schools. The choice of the type of institution to which a student transferred seemed to make a difference in his success. Nearly 65 percent of students who transferred to public four-year schools graduated within six years of transferring, and about 60 percent of students who transferred to private nonprofit schools did. Meanwhile, only about 35 percent of transfer students at private for-profit schools graduated within six years.

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At all three types of institutions, students who enrolled full-time graduated at higher rates than students who were enrolled either part-time or who mixed part-time and full-time enrollment while in school.

● At public institutions, 84 percent of full-time students graduated within six years of transferring, while only one in four part-time students did;
● At private nonprofit schools, 79 percent of full-time students graduated within six years, while 31 percent of part-time students did;
● At private for-profit schools, the results weren’t quite as good for the full-time students. Only 57.7 percent of full-time students graduated within six years, while 18.1 percent of part-time students did.

Perhaps most surprising are the aggregate results the Clearinghouse reports. Students who began at two-year colleges and transferred to four-year schools graduated at a higher rate (71.1 percent) than students who attended four-year institutions throughout their academic careers (65.0 percent). But don’t be misled. That number excludes the many community college students who never transfer. Research suggests only about 29 percent of two-year college students transferred to a four-year school, when about half had once stated an intention to transfer – and the Clearinghouse report doesn’t specify its own figures for this category.

The Clearinghouse report offers unique and important insights in answering questions about higher education, like the one addressed in this report: What happens to students who transfer from community colleges? That’s because no one – not even the U.S. Department of Education – has data on higher education as granular as the Clearinghouse data.

The National Student Clearinghouse, originally the National Student Loan Clearinghouse, was developed twenty years ago to help schools track borrowers and that is now used to help schools comply with federal reporting requirements. Schools voluntarily provide the Clearinghouse with extensive student-level data.

But because of a ban passed by Congress in 2008, the Department may not gather student-level data or offer a sort of public Clearinghouse – instead, it only maintains the Integrated Postsecondary Education Data System (IPEDS), which offers a profoundly limited look at aggregate, institution-level data. Because of this limitation, IPEDS is unable to answer some of the most simple and fundamental questions, like what happens to community college students who transfer.

It’s an important question, given that IPEDS shows a graduation rate of only 17.9 percent at two-year schools. That’s because the IPEDS definition doesn’t consider transfers in the graduation rates, despite the fact that community colleges consider transferring students to four-year degree programs one of their primary missions. Without student-level data, there’s no way to give community colleges much-deserved credit for transferring those students -- many of whom, the Clearinghouse report shows, ultimately do complete their degrees.

The data from the Clearinghouse report are interesting, but they’re not enough. We need a public version of the Clearinghouse to answer the other questions important to students and families, researchers, and policymakers. We still don’t know how many community college students wanted to earn a four-year degree and never transferred. We don’t know which specific institutions are helping transfer students graduate and which aren’t serving those populations well. Those, and a whole host of other questions, could—and should—be answered with a national student-level database.

University of Virginia: Proving Me Right Since 1819

August 12, 2013
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The University of Virginia is no stranger to controversy. Just over a year ago, in June 2012, the school’s governing body, the Board of Visitors, voted to oust the president after less than two years at the helm.

The dethroned President Teresa Sullivan was popular among faculty and students; the ousters on the Board of Visitors, led by Virginia real estate mogul Helen Dragas, were less thrilled with her performance. Sullivan fell out of favor with the board, the Washington Post noted, “because of her perceived reluctance to approach the school with the bottom-line mentality of a corporate chief executive.” After students, faculty, and administrators turned out to defend Sullivan and criticize Dragas, the board reinstated Sullivan.

Flash forward to 2013. In April, Sullivan was at the forefront of the charge to increase the university’s tuitionby 3.8 percent and 4.8 percent for in-state and out-of-state students respectively. Last week, Sullivan was one of the chief supporters of a plan to cut back on the AccessUVa program, the school’s financial aid commitment to low- and moderate-income students that began in 2004. Whereas previously the school covered all costs for students from families making up to twice the federal poverty line (about $47,000 per year for a family of four), the school will now only cover part of the cost, with the student needing to borrow the remaining amount.

The proposal to raise tuition eventually passed the Board of Visitors in a 14-2 vote, as did the proposal to scale back financial aid. The main dissenter in both cases? Helen Dragas.

***

I’m not normally in favor of a person selectively picking examples that support a pre-existing position, but in this case I am the one doing it so I am willing to make an exception.

A short while ago, I argued in The Atlanticthat the high-tuition, high-aid model was not working. Facing too many funding priorities, it was difficult for schools to keep aid in line with tuition when aid is an easy target for cuts. This parallels closely to the world of social insurance, in which means tested programs for the poor fail to have the same widespread level of support that universal benefit programs do.

The recent decisions at UVA showcase this theory in practice. An article about the April tuition hikes made the point clearly: “In its current form, AccessUVa is diverting a widening stream of university money from other priorities the university is trying to fund, such as faculty salaries, which increasingly lag behind competing schools’.”

This adds further confirmation to the idea that in many cases, even at elite public universities, financial aid and tuition will not rise together. A more likely situation is that tuition will rise and financial aid will fall, putting the burden on low-income students to either not enroll or take on more debt. In either case, the ability for low-income students to maintain access to higher education decreases. Unlike some schools – in which the “other priorities” that take away support for low-income students include funding for ‘merit aid’ and new buildings – UVA’s problems are not so cut and dry. But the problem with high-tuition, high-aid still remains.

In some ways, the financial aid program at UVA is a victim of its own successes: it has worked well enough to attract and enroll low-income students that the school says it now costs too much money. Previously, UVA was able to keep its financial aid costs low because it enrolled extremely few low-income students: in 2004, a mere 8.7 percent of students received federal Pell Grants, a number that actually decreased through 2007. While the share is still very low today relatively to other elite institutions – only 12-13 percent of the undergraduate student body receives Pell Grants – the almost 50 percent increase in the number of low-income students, likely due both to AccessUVa and the impact of the recession, has made the budget pressures of the program more apparent.

This is not to put the blame squarely on the shoulders of the university (or, perhaps, we probably shouldn’t be blaming anyone at all). As UVA is quick to note, it receives lower state appropriations for higher education than many other flagships. The state’s southern neighbor, North Carolina, provides nearly three times as much funding per full time student at the University of North Carolina Chapel Hill than Virginia does for its flagship campus. UVA provides this handy chartto show that it receives less funding per in-state student than its competitors. Of course, this chart handpicks which schools it wants to compare to UVA and leaves out other prominent public schools like University of Texas at Austin, which receive less state appropriations than UVA. When I selectively choose examples to help prove my point it’s acceptable, but when other people do it’s far less enjoyable.

Additionally, the school emphasizes that it needs to pay its faculty more to stay competitive – which it cannot do given the increasing amount of money it is using for financial aid. The UVA budget claims that it wants to move its compensation ranking higher on the list produced by the Association of American Universities (AAU). This premise means, however, that UVA is competing with both public and private universities. If fair compensation has to match that of private elite universities, it is not surprising that UVA falls behind. A quick comparison with other large, top-tier public schools based on AAUP data shows that UVA’s faculty compensation, while behind UC-Berkeley and Michigan, is similar to that of Texas and Maryland. So while the concerns about adequate faculty pay are legitimate, it is important to keep in mind how the school defines the competition.

Thus, the pressures facing UVA, while perhaps overstated, are indeed real – and the state’s low level of funding has been a primary contributor to UVA’s funding woes. However, it would also be wrong to let UVA completely off the hook. As Kevin Carey pointed out last year, UVA has an endowment of $5 billion, making it the wealthiest public school per capita in the country. And part of the reason it is struggling is because previously it enrolled very few low-income students. If the school’s distribution of students was unequal before, the best response to an increase in low-income students cannot be to try to make them go away by making college more expensive. By moving further toward a high-tuition, high-aid model, the school has exposed itself to a greater possibility that access for low-income students will continue to fall away.

***

The third part of a trilogy is always difficult to judge ahead of time, and we may well have to wait until next summer before the third installment of the Dragas-Sullivan showdown occurs. There is an equal chance that it will be a positive development (think: Return of the King) or a negative one (think: Spider-Man 3).

Without knowing more about the internal deliberations and perspectives of each player in this saga, it would be unfair to cast Sullivan’s decisions as a pure embrace of corporate bottom line strategies. But they will certainly make it more difficult for students to afford college, both deterring potential students from enrolling and adding to the student debts of those who do. As Dragas pointed out in the Washington Post, “This goes against our mission of affordable excellence and undermines [university founder Thomas] Jefferson’s insistence that excellence and access were both essential to perpetuating a democracy.”

For those who watched last year’s ouster with a combination of confusion and horror, to view Dragas as the crusader for low-tuition and more access feels a bit strange. And given the many concerns that Dragas voicedabout the state of the budget during the saga, it is unclear what other cuts she would favor to help make up the shortfall. For all we know, it could involve gutting huge swaths of certain departments, which, too, would conflict with a vision of academic excellence.

The policymakers and administrators watching, though, should take note: the combination of decreased state funding, adverse economic conditions, increasing numbers of high-achieving low-income students, and the systemic problems of the high-tuition high-aid model has shifted more of the costs of higher education onto the backs of low- and moderate-income students. This is not just a problem at UVA: all of the incentives in the higher education system are designed to continually push out low- and moderate-income studentsin favor of the rich. As a leading institution, hopefully next summer will see UVA: Episode III in which the school – and state – leads the charge to make quality public higher education available to students of all backgrounds.

Joshua Freedman is a Policy Analyst for the Economic Growth Program at the New America Foundation

Georgetown Law Is Giving Away a Free Education, and You're Paying for It

August 8, 2013
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Lawyers are trained to exploit the letter of the law on behalf of their clients. How we feel about that usually depends on whose side of the case the lawyers are on. Now, one of the nation’s leading law schools is exploiting a huge loophole in federal financial aid law, and taxpayers are clearly on the losing side. If other schools catch on, the result could be an undeserved bonanza for wealthy lawyers and expensive law schools even as other federal aid programs, like Pell Grants, face looming budget cliffs.

The story begins seven years ago when the federal government created two separate programs that, when combined, created the loophole: Grad PLUS loans and Income-Based Repayment for student loans. Under the Grad PLUS program, graduate and professional students can borrow to pay for the entire cost of their education, including living expenses, at just about any school and at whatever price the school sets. Income-Based Repayment, in its most recent iteration, caps recent and future students’ payments on those loans between zero and 10 percent of annual income and forgives any remaining debt after 10 years for those working in virtually any government or non-profit job, or after 20 years for all others.

While both programs have their flaws, on their own they work largely as lawmakers intended. But when schools and students strategically combine them, like ammonium nitrate fertilizer and gasoline, the result is financially explosive. So powerful, in fact, Georgetown Law can promise that students enrolled in its Loan Repayment Assistance Program (LRAP) “might not pay a single penny on their loans -- ever!” 

Here’s how it works:

Under Georgetown’s LRAP, students take out Grad PLUS loans to cover the full cost of attending law school (around $75,000 per year, which includes living expenses). After they graduate, they enroll in Income-Based Repayment. If they work in government or non-profit jobs, Georgetown pays 100 percent of their loan payments for 10 years, after which IBR’s loan forgiveness wipes away the remaining balance. The students pay nothing for their education.

On the surface, it seems like Georgetown Law is taking a loss on students who go into public service. But the truth is far more sinister. Georgetown loses little if any money from this scheme because the school simply includes the cost of the loan repayment program in its tuition. And since the federal government issues loans for whatever amount Georgetown charges, students just take out more loans to cover that cost.

See the problem? Neither Georgetown nor its students are financing the program. You are, as a taxpayer by providing them with access to unlimited loans and unlimited loan forgiveness.

But don’t take our word for it. Assistant Dean for Financial Aid Charles Pruett recently told students in a taped seminar that, “It's not really Georgetown [who finances the program], it's you guys, because LRAP is primarily funded through tuition." And remember: those students take out federal loans to pay that tuition, and will ultimately have those loans forgiven.

Pruett explains in a journal article that combining Grad PLUS and IBR “makes it possible for law schools to create or restructure LRAP programs in a way that provides significant debt relief to graduates in public service at the lowest possible cost to the law school… The central idea behind coordinating LRAP and federal benefits [is to have] federal programs do most of the heavy lifting.” (emphasis added)

That’s nice lawyer-ese. After Georgetown bears the “lowest possible cost” the “heavy lifting” left for taxpayers is a whopping $158,888 per student. That is, by our estimate, the average amount of debt a Georgetown LRAP participant stands to walk away from under IBR. Compare that to what the federal government provides as a maximum Pell Grant benefit of $34,000 over six years for low-income undergraduate students.

Pruett and his colleague Phil Schrag have encouraged other law schools to launch programs like Georgetown’s, and several have (e.g. Berkeley and Duke). In fact, there is nothing to stop all graduate schools from adopting these schemes and expanding them to graduates beyond those in so-called public service jobs once they understand that the apparent cost of covering a student’s loan payments is really no cost at all; nothing prevents a school from simply hiking tuition by the same amount. But those tuition hikes never translate into higher loan payments for student or school—only bigger loan forgiveness after 10 or 20 years under IBR.

This cannot be what most lawmakers had in mind when they created IBR, loan forgiveness for public service, or Grad PLUS loans. Fortunately, they need only make a few tweaks to head off the abuse.

First, impose a $30,000 cap on the amount of debt non-profit or government workers can have forgiven under IBR. That is slightly below the maximum the government would provide an undergraduate from a low-income family under the Pell Grant program. Graduate students shouldn’t qualify for more de facto grant aid than low-income undergraduate students. The cap allows for significant loan forgiveness but does not give schools a blank check to raise tuition. It also ensures that students have skin in the game when they decide how much to pay and borrow for school. Borrowers who still struggle to repay after having $30,000 forgiven can continue to repay under IBR and have debt forgiven after 20 years.

Lawmakers should not limit the amount forgiven at the 20-year mark. That provision is a safety net for borrowers who legitimately struggle to repay their loans for an extended period. Therefore, the only way to fully check the financing schemes is to limit the amount graduate and professional students can borrow. An annual $25,000 limit and an aggregate $75,000 limit for all federal loans would solve the problem. Those limits could be higher, but lawmakers should then require graduate students to repay for 25 years before they could receive loan forgiveness.

Pruett, the assistant dean at Georgetown Law all but admits lawmakers would be justified in reining in the programs. In response to a student who wonders when Congress might shut the schemes down, he says the year 2017. Why? “My concern is… that’s when the first large wave of forgiveness may happen, and that’s when, if someone wakes up to what they’ve done, that’s probably when it’s going to be.” In the meantime, Georgetown Law graduates can look forward to U.S. taxpayers footing the bill for most of their education.

Here’s your wakeup call, Congress.

 

Click here for a group of clips where Georgetown Law explains how the program works.

Click here for a full explanation of how we arrived at $158,888 as the average loan forgiveness figure.

The Scariest Student Loan Figure is $14,500

August 6, 2013

This post also appeared on our sister blog, Higher Ed Watch.

Yesterday, the Consumer Financial Protection Bureau (CFPB) released a new set of data that give the best look to date at the repayment plans of borrowers and the status of their loans. Depending on how much you like to assert gloom and doom in the loan portfolio, the headline-grabbing figure is likely to be either: $3 out of every $10 loan dollars are in deferment, forbearance, or default or only about 20 percent of loan dollars in repayment are in income-based plans. But the figures also show how focusing on absolute debt balances to highlight struggles can be misleading and context matters when it comes to loan performance.

A general assumption in much student debt coverage is that someone with high balances is likely to struggle and default. But this chart from the CFPB suggests that narrative isn't quite so straightforward:

Average Balance By Repayment Status

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What this shows is that borrowers in default had by far the lowest debt balances of anyone who had actually entered repayment. (The in-school figure is only a bit higher, but that's also capturing everyone from the fifth-year senior with loan debt from each year and someone just starting out with a small Stafford loan.) That may seem counterintuitive, but it should not be surprising. Research shows that program completion is a major factor in whether or not a student defaults on his or her loans. And since students have annual loan limits, someone who drops out early in their college career can only accumulate so much debt. This means high-debt borrowers are more likely to have finished their programs and are thus at less risk of default. 

The low debt levels of defaulters should make us rethink the way we portray student debt in two ways. First, some people may actually be served by borrowing more, not less.* Think about a dropout who already has student loan debt. They may get a little bit of an earnings return for having completed some college, but not as much as if they'd finished. For that individual, they might actually be better served with more debt if that would help them complete.

*I'm assuming no changes to the financial aid system. In general, more grant aid that's invested more intelligently would better.

Second, flashy debt balances make for good press but not necessarily good policy. I'm just as compelled and saddened by the latest story on the New York University graduate student with $100,000 in debt as the next guy, but I'm a lot more worried about the person earning minimum wage with $5,000 in debt.  The most an undergraduate student of any type can borrow through the federal programs is $57,500, and that's as an independent; dependent students are capped at $31,000. Sure those balances can get bigger with interest, but it's unlikely to hit that magic six figures before ending up in a worse circumstance like default. But even those undergraduates with high debt balances are likely to be in four-year bachelor's degree programs where their expected returns are much higher.

Instead, we should be worrying about these low balance dropouts, such as someone who attended a certificate program for a year and did not finish. For these borrowers, even a few thousand dollars could be an economic shock they cannot recover from. 

Income-Based Repayment May Not Be Helping

Instead of defaulting, the low-debt defaulters should be taking advantage of income-based repayment. But, the debt numbers released on IBR demonstrate that the intended beneficiaries are falling through the cracks while graduate students with high debt balances are taking advantage of the program. 

Repayment Plans of Direct Loan Borrowers

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Income-based repayment is portrayed as a safety net to help low-income students manage their loan payments. Though not explicitly stated, the assumption is that these individuals are likely to be undergraduates just getting started on their careers. But the chart above suggests that the average IBR participant is likely to have graduate school debt. The roughly 900,000 borrowers with Direct Loans enrolled in IBR have an average loan balance of $55,900--a figure that's essentially impossible for undergraduate borrowers to hit. An dependent undergraduate can only borrow up to $31,000, which means someone borrowing the maximum would have to make no payments for seven years and avoid losing IBR eligibility by defaulting in order to hit that level. While an independent undergraduate student could borrow that much, in practice they tend to take out less debt than a dependent student. That leaves graduate students, who can borrow up to $138,500 in Stafford loans, plus an essentially uncapped amount in PLUS loan debt.

We can't know from these numbers, alone, exactly who these borrowers are, but here are some educated guesses as to why graduate students might be more likely to use IBR. Students selecting IBR have to navigate a multitude of repayment options and then complete paperwork that is notoriously complicated and difficult to use. This creates an immediate disposition toward not making choices and just using the standard 10-year repayment plan, which the table above shows is the  most popular option. While struggling dropouts would likely benefit from IBR, they’ve probably lost touch with their school and probably aren’t getting much support in choosing the right repayment plan. Borrowers with advanced degrees and proactive financial aid offices, on the other hand, have a significant incentive to make sure higher debt balances don’t become unmanageable. (There is evidence that graduate schools exert a significant amount of effort helping students enroll in IBR.)

Based upon Safety Net or Windfallan analysis of IBR and other repayment plans conducted by Jason Delisle and Alex Holt last year, it's likely that these high-debt borrowers in IBR are either pursuing Public Service Loan Forgiveness (PSLF) or in low-paying jobs. That's because the analysis showed that someone with high debt and moderate to high income would be better served in the extended graduated repayment plan than using IBR. (This is no longer true with the new Pay As You Earn option, which is the best deal for high debt, high income borrowers.) So someone making the best repayment plan choice here would either be trying to get the 10-year PSLF or be unable to find a high-paying job. And we know there are plenty of bad graduate schools out there with abysmal employment numbers or unemployed law students. 

The mismatch between those going into default and those in IBR suggests that the program needs to be drastically simplified, and perhaps become the default option instead of the 10-year payment plan. Alternatively, payments could be done through employer withholding, as suggested by the Petri-Polis ExCEL Act. Regardless of the exact solution, in a world where those going into default have loan balances one-quarter the size of those using income-based plans, we need to do a better job making sure the policy solution is actually helping those who need it most. 

The Scariest Student Loan Figure is $14,500

August 6, 2013

This post also appeared on our sister blog, Ed Money Watch.

Yesterday, the Consumer Financial Protection Bureau (CFPB) released a new set of data that give the best look to date at the repayment plans of borrowers and the status of their loans. Depending on how much you like to assert gloom and doom in the loan portfolio, the headline-grabbing figure is likely to be either: $3 out of every $10 loan dollars are in deferment, forbearance, or default or only about 20 percent of loan dollars in repayment are in income-based plans. But the figures also show how focusing on absolute debt balances to highlight struggles can be misleading and context matters when it comes to loan performance.

A general assumption in much student debt coverage is that someone with high balances is likely to struggle and default. But this chart from the CFPB suggests that narrative isn't quite so straightforward:

Average Balance By Repayment Status (in thousands of dollars)

What this shows is that borrowers in default had by far the lowest debt balances of anyone who had actually entered repayment. (The in-school figure is only a bit higher, but that's also capturing everyone from the fifth-year senior with loan debt from each year and someone just starting out with a small Stafford loan.) That may seem counterintuitive, but it should not be surprising. Research shows that program completion is a major factor in whether or not a student defaults on his or her loans. And since students have annual loan limits, someone who drops out early in their college career can only accumulate so much debt. This means high-debt borrowers are more likely to have finished their programs and are thus at less risk of default. 

The low debt levels of defaulters should make us rethink the way we portray student debt in two ways. First, some people may actually be served by borrowing more, not less.* Think about a dropout who already has student loan debt. They may get a little bit of an earnings return for having completed some college, but not as much as if they'd finished. For that individual, they might actually be better served with more debt if that would help them complete.

*I'm assuming no changes to the financial aid system. In general, more grant aid that's invested more intelligently would better.

Second, flashy debt balances make for good press but not necessarily good policy. I'm just as compelled and saddened by the latest story on the New York University graduate student with $100,000 in debt as the next guy, but I'm a lot more worried about the person earning minimum wage with $5,000 in debt.  The most an undergraduate student of any type can borrow through the federal programs is $57,500, and that's as an independent; dependent students are capped at $31,000. Sure those balances can get bigger with interest, but it's unlikely to hit that magic six figures before ending up in a worse circumstance like default. But even those undergraduates with high debt balances are likely to be in four-year bachelor's degree programs where their expected returns are much higher.

Instead, we should be worrying about these low balance dropouts, such as someone who attended a certificate program for a year and did not finish. For these borrowers, even a few thousand dollars could be an economic shock they cannot recover from. 

Income-Based Repayment May Not Be Helping

Instead of defaulting, the low-debt defaulters should be taking advantage of income-based repayment. But, the debt numbers released on IBR demonstrate that the intended beneficiaries are falling through the cracks while graduate students with high debt balances are taking advantage of the program. 

Repayment Plans of Direct Loan Borrowers

Income-based repayment is portrayed as a safety net to help low-income students manage their loan payments. Though not explicitly stated, the assumption is that these individuals are likely to be undergraduates just getting started on their careers. But the chart above suggests that the average IBR participant is likely to have graduate school debt. The roughly 900,000 borrowers with Direct Loans enrolled in IBR have an average loan balance of $55,900--a figure that's essentially impossible for undergraduate borrowers to hit. An dependent undergraduate can only borrow up to $31,000, which means someone borrowing the maximum would have to make no payments for seven years and avoid losing IBR eligibility by defaulting in order to hit that level. While an independent undergraduate student could borrow that much, in practice they tend to take out less debt than a dependent student. That leaves graduate students, who can borrow up to $138,500 in Stafford loans, plus an essentially uncapped amount in PLUS loan debt.

We can't know from these numbers, alone, exactly who these borrowers are, but here are some educated guesses as to why graduate students might be more likely to use IBR. Students selecting IBR have to navigate a multitude of repayment options and then complete paperwork that is notoriously complicated and difficult to use. This creates an immediate disposition toward not making choices and just using the standard 10-year repayment plan, which the table above shows is the  most popular option. While struggling dropouts would likely benefit from IBR, they’ve probably lost touch with their school and probably aren’t getting much support in choosing the right repayment plan. Borrowers with advanced degrees and proactive financial aid offices, on the other hand, have a significant incentive to make sure higher debt balances don’t become unmanageable. (There is evidence that graduate schools exert a significant amount of effort helping students enroll in IBR.)

Based upon Safety Net or Windfallan analysis of IBR and other repayment plans conducted by Jason Delisle and Alex Holt last year, it's likely that these high-debt borrowers in IBR are either pursuing Public Service Loan Forgiveness (PSLF) or in low-paying jobs. That's because the analysis showed that someone with high debt and moderate to high income would be better served in the extended graduated repayment plan than using IBR. (This is no longer true with the new Pay As You Earn option, which is the best deal for high debt, high income borrowers.) So someone making the best repayment plan choice here would either be trying to get the 10-year PSLF or be unable to find a high-paying job. And we know there are plenty of bad graduate schools out there with abysmal employment numbers or unemployed law students. 

The mismatch between those going into default and those in IBR suggests that the program needs to be drastically simplified, and perhaps become the default option instead of the 10-year payment plan. Alternatively, payments could be done through employer withholding, as suggested by the Petri-Polis ExCEL Act. Regardless of the exact solution, in a world where those going into default have loan balances one-quarter the size of those using income-based plans, we need to do a better job making sure the policy solution is actually helping those who need it most. 

Twice the Price: Report Provides New Detail on Veterans in College

August 2, 2013
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More than 60 percent of higher education benefits provided to veterans under the Post-9/11 GI Bill went to just 5 percent of schools in 2011, many of which had decidedly mixed outcomes for students, according to a new report from the Government Accountability Office (GAO). The report also looked at student demographics and outcomes at the institutions that received the most funding from the Department of Veterans Affairs (VA).

But even with all the information included in the report, it is perhaps most notable for addressing just how little we know about the $12 billion a year spent on veterans benefits. Last month, New America’s Federal Education Budget Project produced a background and analysis page on military and veterans education spending. In trying to put together that information, we learned firsthand that with virtually no public information about even the enrollment of veterans or their outcomes at specific institutions, it is astoundingly difficult to piece together funding and other data around higher education for servicemembers and veterans.

The new GAO report goes a long way in providing new information that may be valuable to policymakers. (None of the information is provided by institution, so it’s not likely to be of much use for students.)

The number of veterans receiving education benefits has increased by nearly two-thirds in the past few years following the 2008 enactment of the Post-9/11 GI Bill. That law provided much more generous benefits to recipients who served on or after September 11, 2001, including full tuition and fees at public colleges and universities, or about $19,000 annually toward a private school.

With increased spending on veterans’ benefits has come greater Congressional inquiry into the use of these dollars and the outcomes of recipients, particularly at for-profit colleges. Sen. Tom Harkin (D-Iowa), the chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee has held several hearings on the use of veterans benefits at for-profit institutions as part of his larger multi-year investigation into the sector. The GAO report does provide some insight into many of the questions that Harkin and other members of Congress have been asking.

The report shows, for example, that for-profit institutions have been major beneficiaries of increased spending on veterans’ education benefits. For-profit schools received 34 percent of all federal education benefits for veterans and 37 percent of Post-9/11 GI Bill dollars in 2011, despite making up only about 13 percent of total enrollment across the country.

Veterans’ spending and outcomes at for-profit schools have been of particular interest because of a rule known as the “90/10 rule,” which says institutions cannot receive more than more than 90 percent of revenue from federal student aid. Though veterans benefits are a source of federal support, they do not count toward the 90 percent limit. Many argue that exclusion allows schools to game the rule and actually rake in more federal dollars, given that every $1 received in veterans benefits means the institution can take in up to $9 more in federal student aid. The GAO report bears that out – the schools that received the most VA funding were further from violating the 90 percent rule than schools that received less VA spending.

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But that’s not because more students went to those colleges – for those most part, it’s because students paid about double the tuition to attend for-profit schools. Public colleges received 45 percent of veterans education dollars to enroll more than half of all veterans in 2011.

Outcomes for veterans and servicemembers have been varied. At for-profit colleges, students had graduation rates about 6 percentage points higher than the rates at public schools – though not for 4-year degrees, just 2-year. (Private non-profit schools were similar to for-profit schools in graduation rates.)

Still, retention rates – which measures year-over-year re-enrollment of students – were about 6 points lower at for-profit schools than at public and private non-profit colleges. Students at for-profit schools (and the taxpayers who fund veterans education programs) paid double the price to attend those schools. And student loan borrowers (VA and non-VA) at for-profit colleges also had default rates that topped public schools.

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For more background information on servicemembers and veterans education programs, check out our Federal Education Budget Project page. FEBP also maintains the most comprehensive database publicly available on education funding, demographics, and outcomes for every state, school district, and institution of higher education in the country. Check it out for more information on college-level financial aid, graduation rates, student loan default rates, and more.

Would Fraudulent Beauty Schools Still Have Been Committing Fraud if They Were a Legitimate Operation?

July 29, 2013

The New York Times has a story up today about students who attended cosmetology schools in New York City nearly two decades ago and are still stuck with significant debts even after the institutions have been shut down for misuse of federal money. It's an incredibly sad story and illustrates the strange disconnect in existing regulations by which if your school closes just after or while you are enrolled you can get your federal loans discharged, but not if it closes much after. And though circumstances such as these do not occur all that frequently, the amount of chaos school closings can wreak should not be understated (see Kelly Field's great piece in this week's Chronicle of Higher Education on this).

But there's an unexplored side to this story--even if the closed beauty schools hadn't been engaging in outright fraud, the woman profiled in the story likely would not have ended up in better financial circumstances. According to Amarilis Madera, the focal point of the story, the school she attended promised her a steady career and a good job. And as proof of how it didn't, the author cites the $25,000 a year job Madera currently holds in a daycare program. That's definitely not a great salary. It's also about $2,300 higher than what the median person working as a cosmetologist can expect to earn in a year. Madera was undoubtedly duped out of thousands of dollars, but she very well might be making more money in her occupation than she would have had the institution even been a legitimate operation.

In general, arguments over what's considered a ripoff in higher education revolve around institutions that fail to provide an education remotely comparable to what had been promised. But that's not all we should be concerned about--the programs that provide exactly the training promised, but base it on a fundamentally flawed presentation about their economic return may be almost as dangerous to students as outright fraud.

Bipartisan Student Loan Interest Rate Bill: Compromise vs. Trivial Talking Points

July 23, 2013

The Senate is expected to vote today to approve a bill that would change how the government sets interest rates on federal student loans. The Bipartisan Student Loan Certainty Act of 2013 (S. 1334) was developed by a bipartisan group of senators and is backed by the White House. But there are still a few holdouts. One of their main beefs with the bill is that if interest rates rise over the next 11 years exactly as the Congressional Budget Office projects, the bill would save taxpayers $715 million compared to current law. Let’s put the $715 million in savings into context.

The full post is on Ed Money Watch.

Bipartisan Student Loan Interest Rate Bill: Compromise vs. Trivial Talking Points

July 23, 2013

The Senate is expected to vote today to approve a bill that would change how the government sets interest rates on federal student loans. The Bipartisan Student Loan Certainty Act of 2013 (S. 1334) was developed by a bipartisan group of senators and is backed by the White House. But there are still a few holdouts, including student advocacy groups and some Senate Democrats, particularly Senate Health, Education, Labor, and Pensions (HELP) Chair Tom Harkin (D-IA). Senator Harkin did ultimately co-sponsor the bill despite his stated misgivings.

One of their main beefs with the bill is that if interest rates rise over the next 11 years exactly as the Congressional Budget Office projects, the bill would save taxpayers $715 million compared to current law. 

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Sen. Harkin, et al., have turned that figure into a key talking point – the bill reduces the budget deficit “on the backs of students” – but in actuality, it is a trivial matter. Let’s put the $715 million in savings into context.

Financial Literacy Advocates, Call Your Office

The Congressional Budget Office expects the federal government to issue $1.4 trillion in student loans over the next 11 years. So changing the interest rates on $1.4 trillion in loans in a way that is estimated to increase interest payments by $715 million is hardly a meaningful increase – it’s effectively a rounding error. Imagine how silly Senator Harkin and the student advocates would sound if they went out to dinner, racked up a bill of $1,400.72, and then decided they got a raw deal because of the 71.5 cents on the end of the $1,400 bill.

I’ll Gladly Pay You Tuesday for a Hamburger Today

Just about everyone understands that what the CBO projects for the next one, two, and six years is more likely to occur than what the budget office projects for seven and 11 years out. The bipartisan interest rate bill is projected to cost $25 billion over the next six years, $8.1 billion of which will occur in 2013 and $12.7 billion of which will occur in 2014. The bill’s sponsors mainly rely on interest payments in the later years of an 11-year estimate to maybe offset those big costs. In other words, the bill gladly pays budget hawks on Tuesday for tens of billions spent to lower interest rates on student loans today.

Recall that the House-passed interest rate proposal was engineered to save money over six and 11 years to avoid the spending-now/savings-later gamble present in the bipartisan interest rate bill. But now that Republican senators are willing to take that $25 billion gamble, and the president is too, House Republicans look set to go along with it. That sure looks like a victory for anyone who wants to spend more, not less, on student aid.

Normally, the budget hawks balk at a spend-now/save-later deal, but instead they’ve endorsed the bipartisan interest rate bill. Meanwhile, Sen. Harkin and the advocacy groups seem to believe that $715 million in projected savings over 11 years is a good reason to take a pass on $25 billion in spending over the next six.

Big Compromise and Good Policy vs. Trivial Talking Point

The bill is likely to pass the Senate this week, and it’s no wonder why – it lowers interest rates for all borrowers this year, ends the arbitrary rates in place since 2006, makes interest rates sensitive to the economy, and was crafted by Republicans and Democrats who compromised to reach an agreement. An 11-year projection showing that the bill might produce a miniscule amount of savings sure looks like a trivial reason to oppose the bill.

Aspirations Versus Assets in Children's Savings Accounts

July 15, 2013
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This post originally appeared on our sister blog, Higher Ed Watch.

This morning, our colleagues in the Assets Building Program at New America hosted an event around the release of Building Expectations, Delivering Results--a comprehensive bi-annual report that lays out the state of reserach around college savings accounts and presents interesting ideas around how these instruments could be used to help lower-income students. (You can read the whole report and see nice graphical representations of some of the findings at Save4Ed.com and go here to watch the video of the event.) It was an engaging conversation around what research already tells us about accounts, as well as where we still have some tough questions to answer. I particularly recommend listening to Dana Goldstein's discussion of talking to two students who made differing use of accounts and how it framed their behavior, as well as William Elliott's challenging assumptions around whether low income families can actually save or not. 

Our Assets Building colleagues also kindly invited me to participate on the panel, where I talked about how the structure for accounts would differ a lot from a government perspective based upon whether or not you wanted to maximize asset accumulation or drive increased expectations. I also laid out an idea for how better leveraging state funds through an account-like structure could be a promising way to achieve the latter goal. I've posted my remarks after the jump, but I highly recommend giving the report a read.

Prepared remarks for the event

It strikes me that the discussion around accounts focuses on two big benefits: (1) as a tool to help build aspirations so students are better prepared for college and (2) as a way to accumulate assets to help cover costs.

But those two goals are actually quite different and accounts designed to achieve each of them would not look the same. I’d argue that creative use of the account structure would be very effective at building aspirations, but actually seeding them with Federal dollars entails some very significant policy hurdles.

So I wanted to take a couple of minutes to discuss some of the difficulties that would apply in actually tapping into Federal dollars to fund accounts and then suggest an alternative way to consider the account structure that could help with the aspirational goals.

There are three big impediments to a Federal-based account system: cost, infrastructure, and conditions.

Cost is probably the biggest impediment because the largest source of higher ed support for postsecondary education, Pell Grants, are mostly funded through the discretionary process. That means that each year Congress has to come up with sufficient funds to cover the majority of the program’s cost.

What this means is that if you spend Federal dollars today that a kid would otherwise have gotten in the future, you don’t get credit for reduced future spending. It’s treated as a cost. And seeding accounts for millions of kids throughout their elementary and secondary education would probably add billions in additional spending that woudl have to compete with finding dollars to close significant shortfalls in the Pell Grant program over over the coming years.  

The next consideration would be infrastructure. The Pell Grant program also provides cash benefits to students, but as a just-in-time voucher when they go to college. But running that program is streamlined because the Federal government relies upon 7,500 middlemen in the form of colleges and universities to actually award the funds, make sure they are properly accounted for, etc. 

So a Federal-based account system would require either finding a way to set up accounts with millions of kids on an individual basis or you’d need to find ways to encourage states or someone else to set up their own structures to work with. That’s achievable, but would be very complicated to do.

Finally, Federal dollars come with more strings attached than a marionette. When I was at the Department of Education we worked to set up a savings account demonstration project through GEAR UP, which is a college access program that works with students in middle and high school. But for that structure to work with federal dollars required a series of complicated rules, such as having federal funds be properly maintained in their own separate account, limiting their investment into essentially riskless government assets, not to mention lots of restrictions around withdrawals and oversight. I think these challenges were among the main reasons why no one ultimately applied for the project.

But let’s say instead of being focused on an actual cash transfer, you wanted to optimize accounts to build students’ aspirations and behavior. If that’s your goal, then you could modify what some states are already doing to include accounts and avoid a lot of the challenges I just discussed.

The emphasis here would be less on moving actual dollars and more on having students understand the path that it takes to get to college and telling them about available college resources sooner.

This would be based on what’s known as “promise programs,” which a few states and localities are experimenting with. In these programs, the state signs agreements with low-income middle school students where in exchange for free tuition students agree to do things like take a college prep curriculum maintain a reasonable GPA—like a 2.0—fill out the FAFSA and apply to colleges.

But those programs don’t give students an intermediate sense of building to their goals—you either get the benefit at the end of four years or you don’t.

This is where accounts could help improve these programs. Rather than waiting until the end of four years to receive either all or none of the benefit, states could reward intermediate progress toward the goals by giving students “shares” of a college education. Such a structure strongly indicates how striving and doing well in earlier grades really is directly related to the end goal of college. And could include benefits for major benchmarks on the way to college--such as passing Algebra II.

This structure would be easier to set up, since states could control the details and make use of the funds they already put toward financial aid (especially so-called merit aid) and operating subsidies to cover the costs. You could even leverage the ill-targeted Federal education tax benefits if you were looking for some extra cash to encourage states to act.

Adding a Pell-related role to this structure could also be done through an expansion of existing unused flexibilities. Right now, low-income families find out about Pell eligibility more or less in the spring semester of senior year when they fill out the FAFSA.  But that’s really too late to guide aspirations or deal with college cost anxiety that could shape earlier behavior.

So why not expand an existing authorized but never used demonstration program to guarantee Pell awards for students based upon their eighth grade income? This would send a strong message to kids about a significant source of aid availability without needing to stand up a new system. Extra Pell costs would likely be minimal but could be addressed with a few design tweaks.

Again, it’s about what you see as the most important role for accounts. An account funded by state and federal college “shares” would send strong behavioral signals, but lacks the asset accumulation that comes with seeding actual Federal dollars. But that strategy carries a great degree of complications. And so are you think about design and goals its worth keeping in mind what the end result you are hoping for is and the challenges to getting there.

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