POLICY BRIEF. Student loan default rates continue to rise. The most recent data from the U.S. Department

Transcription

1 POLICY BRIEF Whose Fault is Student Loan Default? The Need for Better Data from Proprietary Institutions By: Jacob P. K. Gross Student loan default rates continue to rise. The most recent data from the U.S. Department of Education indicate that the 2010 three-year cohort default rate (i.e., the percentage of borrowers who entered repayment in 2010 and defaulted within three years) was 14.7 percent, up from 13.4 percent the prior year. 1 This increase has prompted a national debate over who is responsible for rising default rates. Though there is no simple way to resolve this debate, increasing attention is being paid to the role of postsecondary institutions, and in particular proprietary (a.k.a. for-profit) institutions, in fostering practices that result in high student loan default rates. The 2008 passage of the Higher Education Opportunity Act resulted in a change in how cohort default rates (CDR) were calculated, moving from a two- to a three-year window for tracking students. Data released by the U.S. Department of Education 2 indicate that default rates at proprietary institutions could more than double under this new metric, going as high as 25 percent. Though nonprofit institutions could also see an increase, it is likely to be much lower in the range of 3 to 4 percent. Abstract This policy brief calls for states to collect more data from proprietary (a.k.a. for-profit) postsecondary institutions, so as to better assess the causes of these insitutions disproportionately high student loan default rates. States already have an important tool for collecting data from proprietary institutions via statewide longitudinal education databases (SLEDs). About The Author Jacob P. K. Gross is an assistant professor in the Department of Leadership, Foundations and Human Resource Education at the University of Louisville. He is also a WISCAPE affiliate.

2 Beginning this year, institutions will face sanctions for high default rates under the new three-year CDR metric, including the potential they could lose eligibility for federal financial aid. Proprietary institutions, which rely heavily on federal financial aid to generate revenue, are rightly being called to account for their disproportionately high rates. Students at proprietary institutions account for 46 percent of students who default, yet these institutions enroll just 13 percent of postsecondary education students nationally. High default rates at these institutions might be explained by the high dependence of their students on loans. According to the latest data on students at twoyear colleges from the National Postsecondary Student Aid Study (NPSAS:12), about 17 percent of students at nonprofit community colleges took out loans compared to 64 percent at proprietary colleges, which likewise focus on associate of certificate credentialing. 3 In addition, students at proprietary two-year colleges borrowed about $2,500 more on average than their peers at nonprofit community colleges. Spokespeople and lobbyists for proprietary institutions tend to downplay their responsibility for high default rates and shift culpability to students. The Association of Private Sector Colleges and Universities (APSCU) argues that proprietary institutions serve students that traditional higher education does not, therefore meeting an important social need, 4 and these students are more vulnerable to default. Proprietary institutions enroll a greater proportion of adults (over 25), women, firstgeneration and low-income students, veterans, and students of color than nonprofit institutions. Spring 2011 enrollment data from the Integrated Postsecondary Education Data System (IPEDS) show that among proprietary two-year institutions, Students at proprietary institutions account for 46 percent of students who default, yet these institutions enroll just 13 percent of postsecondary education students nationally. 27 percent of enrollees were African American and 22 percent were Hispanic, 5 while at public two-year institutions 15 and 18 percent were African American and Hispanic, respectively. Data suggests that students of color tend to borrow more, are less likely to complete a degree, and face higher unemployment rates than their white peers, making these students more likely to default on their loans. APSCU concludes that higher cohort default rates at proprietary institutions are a consequence of who they enroll. Citing a 2009 Government Accountability Office (GAO) report, 6 ASPCU states, Facts show that the economic condition of the borrower, not the quality of the institution or its tax status, determined default rates. Economically disadvantaged students default at similar rates, regardless of the type of institution attended. 7 This perspective has been contested by policymakers (e.g., Senator Tom Harkin) and, increasingly, scholars (see below). The GAO report referenced above provides a comparison of default rates by sector. While informative in some respects, descriptive comparisons of loan default rates by sector cannot tell us to what extent defaulting is a function of student or institutional characteristics. In addition, the report draws broad conclusions about institutions based on unspecified research literature. Another literature review 8 showed that few studies had looked at institutional contributions to default at the time the GAO report was written in Recent research casts doubt on the notion that institutions are not at least partially responsible for default rates. For instance, a 2012 study by Deming, Goldin, and Katz 9 found that proprietary institutions default rates were higher than 2

3 other sectors, even after accounting for student characteristics and academic outcomes. Another study reached similar conclusions: Students attending two- or four-year proprietary institutions were two to three times more likely to default than students at public institutions. 10 Nonetheless, we know relatively little about the relationships among institutional practices, institutional sector, student characteristics, and loan default. This lack of knowledge is particularly acute for proprietary institutions because of a paucity of basic data on students academic performance data that are routinely collected from public institutions around the country. State governments have an important role to play in holding proprietary institutions accountable by filling this data gap. Indeed, states are increasingly taking on this role. The National Conference of State Legislatures 11 has identified some states that are beginning to collect basic data from proprietary institutions. For example, Maryland s legislature passed a bill granting the Maryland Higher Education Commission authority to regulate proprietary institutions, including routine collection of enrollment, graduation, and retention data. This is an important step in the right direction, but more action is needed by states to bring proprietary institutions in alignment with the data reporting requirements faced by public institutions. Using SLEDs to Fill the Data Gaps States already have an important tool for collecting data from proprietary institutions via statewide longitudinal education databases (SLEDs). Since 1973, states have routinely collected student data from their public colleges and universities using these systems. 12 SLEDs received national attention in 2005 when the More action is needed by states to bring proprietary institutions in alignment with the data reporting requirements faced by public institutions. Commission on the Future of Higher Education, established by then-secretary of Education Margaret Spellings, called for the creation of a national student-level database for increased transparency and accountability among our nation s colleges and universities. Although Spellings proposal never garnered enough support for implementation, states have continued to develop their longitudinal data systems with financial assistance from the federal government. To date, every state has taken steps to build or expand their datacollection efforts. Most states now link K-12 and early childhood data (46 states) as well as K-12 and postsecondary data (43 states). As many as 14 states have linked education and workforce data. Other student-level databases exist at the national level, including the National Student Clearinghouse, the National Student Loan Data System, and the records maintained by the National Collegiate Athletic Association. Although no truly national database exists, our capacity to process data and glean policy-relevant information is growing. Taken together, SLEDs offer a wealth of data about the educational trajectories of our youth as well as adults who return to college. Although SLEDs are not a panacea and have many limitations (e.g., states do not routinely merge default data with other postsecondary enrollment data), they provide policymakers, parents, students, and other constituents with important information about student, teacher, and institutional effectiveness. For example, questions about the efficacy of financial aid or the role of student academic preparation in college choice and completion can all be better understood using SLED data. Largely absent, however, is data from proprietary institutions. 3

4 Analysis of state data-collection efforts by the Data Quality Campaign found that only seven states collect any type of data from proprietary institutions. In contrast, 36 states collect enrollment data from their public two-year institutions. A comparison (see Table 1) of data collected by states for two-year public versus proprietary institutions reveals a stark difference in the information available by sector. Although a number of states collect enrollment, retention, and degree completion data (37, 27, and 27 states, respectively) from proprietary institutions via the National Student Clearinghouse and other vendors (See Table 2 on next page), the information is limited and includes little to no data on remedial education, academic performance, or credit accumulation. Next Steps To better assess the causes of loan default, we must have data that enable us to understand the academic arc of students at all institutions, both proprietary and nonprofit. A number of recommendations follow. First, states should use their regulatory authority over postsecondary institutions to collect the same data from proprietary institutions that they do from nonprofit institutions, including data on remediation, academic performance, and credit accumulation. The administrative and technical infrastructure to collect this data should largely be in place via SLEDs. In addition, calls for accountability (e.g., the Obama Administration s proposed Postsecondary Institutional Rating System) should extend throughout the entire postsecondary education sector. Next, these data can be used to ascertain to what extent proprietary institutions contribute to the success (or lack thereof) of their students. A good first step is for states to use data from proprietary institutions to understand what factors impact the likelihood of a student graduating with a certificate or degree. Extant research points to the importance of students completing their program of study and earning a credential to reduce their likelihood of default. Post-graduation employment also reduces the likelihood of default. Although the capacity to link education and workforce data is varied, many states are moving in this direction. Collecting key data from proprietary institutions now will enable policymakers and researchers down the road to better understand the contribution of these institutions to the post-graduation employment of their graduates. Table 1: Data elements collected by states Two-year public Two-year for-profit Enrollment 36 6 Remediation 35 3 Credit accumulation 30 2 Retention 27 3 GPA 24 2 Degree completion

5 Table 2: Data elements available via the National Student Clearinghouse or other vendors Two-year public Two-year for-profit Enrollment Remediation 3 1 Credit accumulation 5 3 Retention GPA 1 0 Degree completion Of course, collecting more data from proprietary institutions will not be sufficient for lowering student loan default rates among students who enroll in these institutions. For it to be useful, data requires analysis and reporting capacity as well as the political will to translate findings into action. These are complicated (and potentially costly) needs. However, we cannot disentangle student and institutional factors in loan default without first acquiring important data from all postsecondary institutions. If proprietary institutions are serious about addressing loan default, they should release their student data. Absent a voluntary effort, states should take the same steps they took decades ago with public institutions and mandate data collection and sharing. As Congress begins debate on the reauthorization of the Higher Education Act, a little data would go a long way to introduce evidence into what has too often been a predictable and polemical debate about who is at fault for student loan default. 5

6 Endnotes 1 www2.ed.gov/offices/osfap/defaultmanagement/index.html Data Quality Campaign, 2012 State Analysis U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (IPEDS), Spring 2011 Enrollment Gross, J. P. K., Cekic, O., Hossler, D., & Hillman, N. (2009). What matters in student loan default: A review of the research literature. Journal of Student Financial Aid, 39(1), Deming, D.J., Golden, C., Katz, L.F. (2011). The for-profit postsecondary school sector: Nimble critters or agile predators? 10 Hillman, N. W. (2014). College on Credit: A Multilevel Analysis of Student Loan Default. The Review of Higher Education, 37(2), Ewell, P. T., Schild, P. R., & Paulson, K. (2003). Following the mobile student: Can we develop the capacity for a comprehensive database to assess student progression? Indianapolis, IN: Lumina Foundation for Education Research Reports. Retrived from researchreports/nchems.pdf. 6

7 POLICY BRIEF University of Wisconsin Madison 353 Education Building 1000 Bascom Mall Madison, WI Telephone: Fax: Website: The Wisconsin Center for the Advancement of Postsecondary Education (WISCAPE) promotes the creation and sharing of ideas for addressing Wisconsin s postsecondary education challenges. The production and dissemination of publications are a major part of this effort. WISCAPE Policy Briefs are succinct analyses that provide policymakers, practitioners, and others with knowledge and recommendations based on the latest research and best practices in the field. Credits Editing and Layout: Kari Dickinson and Rachel Nathanson Send questions about WISCAPE publications to: Kari Dickinson, Communications Manager, , kadickinson@wisc.edu Recommended citation for this publication: Jacob P. K. Gross (2014). Whose Fault is Student Loan Default? The Need for Better Data from Proprietary Institutions (WISCAPE ). Madison, WI: University of Wisconsin-Madison, Wisconsin Center for the Advancement of Postsecondary Education (WISCAPE).