Federal and State Policy

This post was revised on March 28 to include supplemental mandatory funding that would also be eliminated under the House proposal to cut all mandatory funding

While the Trump administration’s budget raids $3.9 billion in discretionary Pell Grant funding in fiscal year 2018 and remains silent on Pell Grant mandatory funding, House Republicans on the Education and Workforce Committee have made clear their plan to eliminate all $77 billion in mandatory Pell Grant funding over ten years.

This House plan to eliminate mandatory Pell funding would have profoundly harmful effects for students and put college further out of reach for millions of Americans. Mandatory funding currently pays for $1,060 of the current maximum Pell Grant (almost one fifth of the $5,920 grant in school year 2017-18), which already covers the lowest share of the cost of attending college in over 40 years.  

The $7.2 billion in mandatory Pell Grant funding in FY 2018 alone is the equivalent of the average Pell Grant awards for 2.0 million students—one in four students receiving Pell Grants. This is more than all the Pell Grant recipients attending college in Texas, Florida, Illinois, Wisconsin, and Ohio combined (1.9 million students).

Prior harmful cuts to Pell Grants, combined with an improving economy, have reduced program costs and created temporary reserve Pell Grant funding. Student advocates and more than 100 members of Congress have called for using this reserve to restore some of the lost purchasing power of Pell Grants and to reinstate access to grants year round. Rather than invest these reserve funds in Pell Grants for students, the president’s budget simply cuts $3.9 billion in FY 2018. The House plan that would restore grants year round while cutting $77 billion over 10 years means Congress will almost certainly drain the reserve funds, briefly hiding the full magnitude and consequences of eliminating mandatory Pell Grant funding.

The House proposal to eliminate all mandatory funding would cut Pell Grant funding by $7.2 billion in FY 2018 alone. Even if Congress used all the Pell Grant reserve funds to replace the Pell mandatory funding in FY 2018, it would lead to a $2.7 billion Pell Grant funding gap the next year (FY 2019). To close this gap, Congress would have to eliminate grants entirely for more than 700,000 students or cut all students’ grants by an average of almost $350, or both eliminate and cut grants. The funding gap would increase each year, requiring even more severe Pell Grant cuts going forward.

It is unconscionable to create a Pell Grant funding crisis by eliminating all mandatory funding and try to mask it using the program’s temporary reserve. Rather than making deep cuts to Pell Grants, Congress should instead invest existing Pell Grant funding in helping students whose urgent needs include restored access to grants year round, an increase in the maximum award, and an extension of the grant’s inflation adjustments that expire after this year (FY 2017). 

Graphics provided by Young Invincibles.

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It’s clear we need more student aid in California, and $1.5 billion could go a long way to reduce our state’s gaping inequities in college affordability and completion if spent right. However, the California Assembly’s $1.5 billion “Degrees Not Debt Scholarship” proposal unveiled today is unlikely to achieve those goals. While we applaud the desire to dedicate substantial new resources towards financial aid, and the proposal’s recognition that the cost of college extends well beyond the cost of tuition, the Assembly plan would provide generous awards to students with little or no need, and far less help to those with the biggest affordability barriers and most burdensome debt.

Here are our top questions and concerns:

  • How will the scholarships reduce debt burdens, as the program name suggests? We estimate that a low-income UC student would receive about $2,000 more in aid than they currently do, while a student with a six-figure income could get more than $15,000 more per year.  Yet half of all UC graduates who leave school with debt have family incomes under $52,000. Further, UC students who graduate with loans have average debt around $21,000. From the perspective of debt reduction, giving higher income students $15,000 per year is excessive, especially when most don’t borrow, and giving lower income students an additional $2,000 per year is not nearly enough.
     
  • What will the impact be on students of color? Cal Grant recipients at public colleges are more likely to be Latino, Black, Native American, or Pacific Islander, and more than half of UC and CSU students in these groups have family incomes of $50,000 or less.[1] Yet while low-income students’ disproportionate debt burden shows that their Cal Grants are not sufficient to address their needs, Cal Grant recipients would get smaller “Degrees Not Debt” scholarships than those with six-figure incomes. Many of the higher income students, who are disproportionately white, don’t even need the aid as defined under federal and state law.
     
  • Why does the plan leave out students at the schools where affordability challenges are often most severe? In many regions across the state, low-income community college students face higher college costs than UC or CSU students, yet community college students aren’t eligible for the scholarships. The Assembly’s separate proposal to increase Cal Grants for full-time community college students will help the small proportion of students who get a Cal Grant. But hundreds of thousands of students at the community colleges – as well as other colleges – can’t get Cal Grants because the program isn’t sufficiently funded, and half of them are living in poverty. Those students would get no additional support under the Assembly plan. Why should UC students with six-figure incomes get scholarships of $15,000 when high-achieving community college students living in poverty can’t get a Cal Grant worth a small fraction of that? For perspective, for a billion dollars, the state could give every eligible Cal Grant applicant an award.
     
  • Why does the Assembly plan diverge so sharply from the plan developed by the LAO, at the Assembly’s request? Last year, the Legislature, championed by the Assembly, tasked the Legislative Analyst’s Office with developing a proposal to create debt-free college options for California. Fully two-thirds of the LAO’s $3.3 billion proposal was slated to support community college students, so that students at all public colleges had a viable, full-time, debt-free path to graduation. The high share of estimated LAO program costs needed to help community college students underscores how important community college students are to the state, and how far the state is from supporting them sufficiently. Yet the Assembly “Degrees Not Debt Scholarship” proposal leaves them out. Why don’t students at community colleges, where most of the state’s low-income students and students of color enroll, deserve the option to enroll full time, too, when full-time enrollment greatly increases students’ odds of completion? Wouldn’t giving community college students a true full-time option help more of them transfer to UC and CSU?

California has major problems with college affordability and completion, but neither will be solved by the “Degrees Not Debt Scholarship” proposal. We hope that legislators will commit to retooling the proposal so that it addresses the realities facing California’s low- and truly middle-income college students.


[1] Author’s analysis of  the National Postsecondary Student Aid Study, 2007-08, the most recent publicly available data on California segments’ enrollment by race/ethnicity and income.

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Yesterday, the U.S. Department of Education announced it was giving schools about three additional months to comply with two requirements under the gainful employment regulation finalized in 2014. This delay is troubling given the urgent need to protect students and taxpayers from career education programs that consistently leave students with debts they cannot repay.  

In January, the Department released the first set of official career education program rates under the gainful employment rule. Fully three-quarters of the rated programs passed the modest standards outlined in the rule, which measure graduates’ debt compared to their incomes to ensure that federally-funded career education programs at public, non-profit, and for-profit colleges are complying with the statutory requirement that they “prepare students for gainful employment in a recognized occupation.” In fact, nine out of 10 colleges with rated career education programs had no failing programs, including the for-profit college chains American Public University, Capella University, Concorde Career College, ECPI University, Empire Beauty School, Grand Canyon University, and Strayer University.

But 803 programs (9%) failed the test because they consistently leave students with more debt than they can repay. Some of these programs were at schools that have since closed, including ITT Tech and Westwood College. But many other failing programs are still enrolling students and receiving hundreds of millions of taxpayer dollars. What do these programs look like? Here are some examples.

  • Florida Technical College in Orlando charges $31,555 for its associate’s degree in medical assisting, and its graduates typically earn only $14,500 a year – less than the federal minimum wage working full-time – and owe over $17,000 in federal student loan debt.
  • McCann School of Business and Technology in Hazelton, PA charges $30,860 for its associate’s degree in medical assisting, and it has only a 7% on-time completion rate and a 46% job placement rate. Its graduates typically earn only $20,300 – less than the average earnings of high school graduates – but graduates of this program at all McCann School locations in 2014-15 had over $26,000 in student loan debt.
  • Art Institute of Pittsburgh charges $44,804 for its associate’s degree in graphic design, yet only 12% of completers finish on-time, and those who graduate typically earn less  than $22,000 per year and have over $40,000 in federal student loan debt. 

These and other failing programs are leaving students worse off than before they enrolled, and taxpayer dollars should not be subsidizing them.

The good news is programs like these are now required to warn current and prospective students that they failed and will lose eligibility for federal grants and loans next year if they do not improve. This warning requirement was not affected by the Department’s announcement yesterday. And other failing programs have stopped enrolling new students, including all of the failing programs at the University of Phoenix, and Harvard University’s graduate certificate program in theater arts, where students typically graduated with $78,000 in debt but earned only $36,000.

Even better news? There are thousands of career education programs offered at locations across the country and online that are not leaving graduates with huge debts they cannot repay, including programs at for-profit, public, and non-profit colleges whose graduates earn over $60,000 a year. Many programs where graduates have manageable or no debt are offered near programs that are failing or in the zone requiring improvement. For instance, two for-profit colleges in Harrisburg, Pennsylvania, offer medical/clinical assisting certificate programs, but the graduates of Keystone Technical Institute typically earn $10,000 more and have significantly less debt than graduates of the Brightwood Career Institute. In Miami, Florida, graduates of the public Miami Dade College’s medical/clinical assisting certificate program typically have no debt and earn twice as much as the graduates of the same program at the nearby for-profit Florida Education Institute, where graduates also have thousands of dollars of debt.

Thanks to the gainful employment rule, career education programs are required to disclose key information like their cost, typical graduate earnings and debt levels, and job placement rates so students can make more informed decisions about where to enroll. Programs that fail the rule’s minimum standards also have to warn current and prospective students. And to protect taxpayers from subsidizing programs that consistently underperform and leave students worse off, failing and zone programs have to improve in order to continue to receive federal funding.

In anticipation of the rule, many schools have already improved their programs, ended failing programs, lowered their prices, and/or started providing more career placement assistance. These are positive reforms, but the hundreds of failing and zone programs demonstrate that far more improvement is needed to ensure that the more than $24 billion in federal grants and loans spent each year on career education programs are improving, not ruining, people’s lives. 

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Debbie Cochrane, TICAS vice president, provided expert testimony on college affordability before a joint hearing of the California Assembly’s Higher Education Committee and Budget Subcommittee on Education Finance on Monday, February 27. Her testimony described which students face the greatest affordability barriers, and included new TICAS research showing the severity of the affordability problem for California’s low-income students, and why free tuition is not the solution. (Debbie Cochrane's testimony starts at the 20:35 mark.)

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California Governor Jerry Brown last week released his proposed 2017-18 California state budget, which includes a proposal to phase out the Middle Class Scholarship (MCS) program. The MCS program, created in 2013, was designed to serve California students from families with incomes above typical Cal Grant income thresholds (above about $80,000 at the time) and up to $150,000 who don’t receive much other grant aid. For reference, median household income in California is just under $62,000 in 2015 dollars.

Since the program was created, we have raised questions about whether the money would be better spent on the lower income students who face the highest financial hurdles getting to and through college. We still believe this to be the right question. However, data from the California Student Aid Commission (CSAC) show that some lower income students do receive MCS awards. During the 2015-16 academic year, about 6,300 students (13% of all MCS recipients) had incomes within the Cal Grant B income range (up to about $50,000 for a family of four), and an additional 12,700 students (26% of all MCS recipients) had incomes within the higher Cal Grant A range (up to about $90,000 for a family of four). We estimate that these 19,000 students – who represent 39% of all MCS recipients in 2015-16 – received up to 51% of MCS grant dollars.

Why is a program designed to help upper-middle-income students also helping lower income students? Because there are substantial gaps in the state Cal Grant program, which is designed to help lower income students pay for college. Most critically, there are not enough Cal Grants available for all students who apply and meet the financial and academic requirements. Whereas recent high school graduates are entitled to a Cal Grant, all other eligible Cal Grant applicants must compete for a very limited number (25,750) of awards. In 2015-16, there were 14 eligible applicants competing for every grant, with over 300,000 turned away. The CSAC data suggest that some of these students who qualify for but don’t get a Cal Grant end up getting an MCS grant instead.

The huge gap between the number of applicants eligible for competitive Cal Grants and the number of awards available contributes to the substantial affordability challenges facing low-income students. While not by design, the MCS program has helped to fill a narrow slice of that gap, and it is important that the Legislature protect this progress if the MCS does get phased out. Redirecting the $117 million annual MCS allocation to the better targeted Cal Grant program would result in over 18,000 more competitive awards per year, increasing qualified applicants’ chances of receiving a competitive grant from one in 14 to about one in eight. And redirecting $60 million – the 51% of annual MCS spending that we estimate goes to students with family incomes within Cal Grant thresholds – is the least that should be done, particularly if the goal of phasing out the MCS program is to protect financial aid for lower income students.

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While the President’s proposed budget fully funds the scheduled increase in the maximum Pell Grant and continues to tie it to inflation after 2017, the House Budget Committee’s FY17 budget eliminates the $120 increase scheduled for 2017-18 and freezes the maximum grant at $5,815 for 10 years.

In the 1980s, the maximum Pell Grant covered more than half of the average annual cost of attending a four-year public college. Cutting the maximum grant and freezing it for the next 10 years would reduce the share of covered costs from an already record low of 29 percent in 2016-17 to just 21 percent by 2026-27, making college even less affordable. 

 

Sources: Calculations by TICAS on data from the College Board, 2015, Trends in College Pricing 2015, Table 2, http://bit.ly/1Pyv2sJ, and U.S. Department of Education data on the maximum Pell Grant. Calculations for 2017-18 through 2026-27 assume that the maximum Pell Grant is frozen at the 2016-17 level. College costs are defined here as average total in-state tuition, fees, and room and board costs at public four-year colleges. Projected college costs for future years were estimated by using the average annual increase in costs over the most recent five years.  

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Starting today, all borrowers with federal Direct student loans have access to a new repayment plan with monthly payments limited to 10% of your discretionary income. You can enroll regardless of when you borrowed. If you’re having trouble affording your monthly payments – or just want the assurance of payments based on your income – check out the Revised Pay As You Earn (REPAYE) plan and see if it’s right for you.

REPAYE and other “income-driven” plans can help keep monthly payments manageable, but may not be the best fit for everyone. Depending on how your income changes over time, you may pay more in total than you would under some other repayment plans, such as the 10-year standard plan.

Here is some key information for borrowers considering REPAYE:

  • How much will I pay each month? Your monthly payment will be 10% of your “discretionary income” (that’s your income minus 150% of the poverty level for your family size). If your income is very low, payments can be as little as $0 until your income rises. To see what your payment would be in REPAYE and other plans, you can use the U.S. Department of Education’s easy online Repayment Estimator.
     
  • How long will I be making payments? Up to 20 years if you borrowed only for undergraduate education, or up to 25 years if you took out any federal loans for graduate school. If you reach the time limit and have not yet fully repaid the loan, the remaining balance will be forgiven (but under current IRS rules, it will be treated as taxable income). If you work full-time for the government or a nonprofit organization, you may be eligible to have your loans forgiven after 10 years of payments, tax-free. Find out more about Public Service Loan Forgiveness here.
     
  • Which types of loans are eligible? REPAYE is available for all federal Direct student loans that are not in default. If you have other types of federal loans (such as FFEL* or Perkins Loans), you can consolidate them into a Direct Consolidation Loan, which would then be eligible for REPAYE. Click here and here for information about the pros and cons of consolidating. Neither Parent PLUS loans nor consolidation loans that include Parent PLUS loans are eligible for REPAYE.**
     
  • How do I sign up? Apply online at StudentLoans.gov (look for the “Income-Driven Repayment Plan Request”), where you may be able to electronically transfer your tax information into the application form. Alternatively, you can request a paper application from your loan servicer. No matter how you apply, you can check a box asking for the plan with the lowest initial payment you qualify for. These plans are always available for free – you never have to pay a fee to enroll.
     
  • What if I am already in an income-driven repayment plan? You can change federal loan repayment plans at any time. If you’re already in Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR), switching into REPAYE may lower your monthly payments and shorten the total time you have to repay. However, if you switch plans, any unpaid interest will capitalize (i.e., be added to your loan principal), causing interest to accrue on a higher loan balance. Also, if you have to consolidate your FFEL loans to make them eligible for REPAYE, any IBR payments you made before consolidating will not count toward your maximum repayment period in REPAYE. 

For a high-level view of how REPAYE compares to the four other income-driven plans, we created a summary chart. To estimate your monthly payments and eligibility for REPAYE and other plans, visit the Department of Education’s online Repayment Estimator. For more detail about how REPAYE is different from other income-driven plans, see the Department’s blog post. You can find out more about all the income-driven plans at the Department’s website and our website for borrowers, IBRinfo.org

What is next for income-driven repayment? While REPAYE is good news for many borrowers, it is confusing to have five different income-driven plans for federal student loans.  There is broad and bipartisan support for Congress to streamline them into one improved income-driven plan. REPAYE is a good starting point for developing that new plan, but there are still important ways to improve it, including limiting payments to 20 years for all borrowers, as we and thousands of others have urged, and eliminating the taxation of forgiven debt.                                                          

* Most federal loans issued before July 1, 2010 were made through the Federal Family Education Loan (FFEL) program. If you’re not sure which type of federal loans you have, log in and check your record on StudentAid.gov. If you don’t want to consolidate your FFEL loans into a Direct Consolidation Loan, you may be able to enroll in a different plan called Income-Based Repayment (IBR). However, your monthly payments may be higher and you may end up paying for a longer period of time than you would under REPAYE.

** The only income-driven plan available for Parent PLUS loans is the Income-Contingent Repayment (ICR) plan, and the Parent PLUS loan must first be consolidated into a Direct Consolidation Loan to become eligible for ICR. For more information about ICR, click here

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Today, the Department of Education announced a new income-driven repayment plan called Revised Pay As You Earn (REPAYE), which is expected to become available in December of this year. Under this new plan, all borrowers with federal Direct student loans will be able to cap their monthly payments at 10% of discretionary income, regardless of when they borrowed or their debt-to-income ratio.

REPAYE will become the fifth income-driven plan available to federal loan borrowers, and it can be hard to tell which plan does what and is available to whom. To help, we put together a high-level summary of the income-driven plans, including REPAYE.

See chart below and click here for a printable version with footnotes.


To find out more about REPAYE and the other student aid changes announced today, check out our press release here.  

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Once again, the country is facing the possibility of Congress failing to raise the debt limit and the federal government defaulting on its obligations. When we faced this situation in 2013, we blogged about the impact it might have on federal student loans, so we thought we’d look again now.

No one really knows for sure what impact the government defaulting would have. However, when the government came close to defaulting in 2011, J.P. Morgan issued a report entitled “The Domino Effect of a US Treasury Technical Default.” It concluded that “any delay in making a coupon or principal payment by the Treasury — even for a very short period of time — would almost certainly have large systemic effects with long-term adverse consequences for Treasury finances and the US economy.” The report estimates that a default would likely lead to a 20 percent decline in foreign demand for Treasuries over a one-year period, increasing the yields on 10-year Treasury notes by 50 basis points.

So how much would a 50 basis point increase in Treasury yields cost college students and their families in higher interest payments on their student loans? For a college freshman who starts school in fall 2016, takes out the annual maximum in subsidized and unsubsidized Stafford loans, and graduates in four years, it will increase the cost of college by about $1,000. That’s a 10% increase in interest payments over 10 years on the $27,000 she borrowed. If the government’s defaulting were to increase rates by 100 basis points, it would increase this student’s costs by $2,000 — a 20% increase in interest payments. For a graduate student who starts a two-year program next year, borrows the annual maximum in unsubsidized Stafford loans, and finishes in 2018, a 50 basis point increase would cost him about $5,000 more and a 100 basis point increase would cost him over $10,000 more in interest payments over a 25-year repayment period. (See the tables below for more details.)

In addition, J.P. Morgan and others expect that a default would slow economic growth, lowering family incomes and making it even harder for those already struggling to pay for college.

 

 

 

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Whatever you might have thought of the Administration’s plan to rate colleges, its current plan to provide a new tool to help consumers compare colleges could be a big win for students and families. There is broad bipartisan agreement on the need for better consumer information on college costs and outcomes. In fact, last year the U.S. House of Representatives passed bipartisan legislation requiring the Education Department “to create a consumer-tested College Dashboard that would display key information students need when deciding which school to attend.”

The Administration has not provided much detail about what it is developing other than that it will release this summer an easy-to-use web tool that lets students and families compare colleges based on criteria important to them. So what key information do students and families need to know and what would make the tool most helpful?

Here are some of the things that we and others have publicly recommended for an improved consumer information tool, building off of the current College Scorecard.

Let users compare colleges by degree level, selectivity, and location. Students should be able to filter schools in ways that align with common college selection criteria: which degree I want, what my odds are of getting in, and where the school is located. Additional filters could be considered, but the comparison groups should not be defined by characteristics that bear little resemblance to how a prospective student is likely to consider colleges (e.g., a school’s sector or Carnegie classification). Additionally, national context should always be provided so students will see if there’s a significant gap between the schools they’re looking at and schools overall.

Provide graduation rates for all students and for Pell Grant recipients. Everyone agrees that students and families need to know what share of students graduate. Given the wide gap at some schools between the graduation rates of Pell recipients and non-Pell recipients, it’s important to provide both. Schools are currently required to disclose the graduation rate for Pell recipients, but not all schools comply and those data can be difficult to find. It will be helpful to have both graduation rates side-by-side.

Provide cumulative debt at graduation. Likewise, it’s critical that students and families know what share of a school’s graduates have loans and how much they typically owe. As the table below shows, schools in the same state with similar costs and proportions of low-income students can have very different borrowing rates and average debt levels. 

Source: Calculations by TICAS on data for 2012-13 from the U.S. Department of Education and Peterson's. Cumulative debt data copyright 2014 Peterson's, a Nelnet company.
Note: Figures for “tuition and fees” and “cost of attendance” are for in-district/in-state students at public colleges. Figures for “% low income” reflect the share of 12-month undergraduate enrollment receiving Pell Grants (enrollment as reported by colleges on the Department’s FISAP form).

Currently, the Administration’s College Scorecard shows the median debt of all former students entering repayment, regardless of whether they graduated or dropped out. This makes colleges with high drop-out rates look like a good deal, because students who left the school after borrowing for only a semester or two bring the median debt level down. For instance, the College Scorecards for the University of Phoenix Online (Phoenix) and University of California at Berkeley (Berkeley) show similar median federal debt for borrowers entering repayment ($17,476 at Phoenix vs. $16,436 at Berkeley). However, only 7% of first-time students seeking a bachelor’s degree at Phoenix graduate in six years, compared to 91% at Berkeley. In fact, undergraduates at Phoenix are more than twice as likely to borrow federal loans as students at Berkeley, and they borrow significantly more on average each year.

Instead of providing debt when entering repayment, we recommend using currently available data for average cumulative federal debt at graduation until more comprehensive data are available. Average debt at graduation should be accompanied by the school’s borrowing rate, so students know how common it is for graduates to have any debt.

Flag schools under investigation. TICAS and 47 other organizations recently urged the Department to flag colleges in the comparison tool that are the subject of public federal or state investigations, lawsuits, or settlements. Students deserve to know when a college’s practices are under heightened scrutiny from regulators, just as investors in publicly traded for-profit colleges are required to be notified of such events. No doubt fewer students would have enrolled in schools owned by Corinthian Colleges if they had known of the many open investigations and lawsuits, fewer students would have been harmed, and fewer students would need loan discharges. 

Indicate the default risk. Students should know what share of a school’s students default on their loans. This can be determined by multiplying a school’s cohort default rate (CDR) by its borrowing rate, producing the school’s student default risk indicator (SDRI). By itself, the CDR only tells you the share of federal loan borrowers at a school who default, which may be very different from the share of students who default. For instance, the College Scorecard for Los Angeles Southwest College says it has a 66.6% default rate. However, that default rate is based on just two students defaulting at a school with nearly 11,000 students, so the typical student’s risk of defaulting at this school is actually extremely low.[1] The Department currently has the data to calculate the SDRI for each school and should provide that instead.

Pretest the tool with consumers: Ultimately, to be effective, this tool must be consumer tested, especially with low-income and first-generation students.

The Administration clearly listened to feedback on its college ratings framework. We hope it considers these recommendations as well so that the new college comparison tool gives students and families the information they need to make more informed decisions and helps encourage colleges to focus more on their affordability and student outcomes.


[1] Based on Los Angeles Southwest College’s FY2011 cohort default rate and its 12-month enrollment in 2011-2012.

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