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Last week the U.S. Department of Education released aggregate two-year cohort default rates for fiscal year 2009. The new numbers capture total counts of student loan borrowers who entered repayment in FY 2009 and had defaulted by the end of FY 2010.

Individual college’s CDRs will not be made public until September, but the aggregate figures show some alarming trends. Across all colleges, about 328,000 borrowers who entered repayment in 2009 defaulted by the end of 2010 – about 89,000 more than the 239,000 borrowers who entered repayment in 2008 and defaulted by the end of 2009. More than half of this increase came from students who attended for-profit schools: about 51,000 of the 89,000.

As in previous years, for-profit colleges overall continued to have the highest rates of default. For the FY 2009 cohort, 15.2 percent of borrowers from for-profit colleges defaulted – more than twice the rate at public colleges (7.3 percent) and more than three times the rate of non-profit colleges (4.7 percent). For-profit colleges also experienced the biggest increase between 2008 and 2009 rates – a 31 percent jump compared to 22 percent at public colleges and 18 percent at non-profits.

With a sharp uptick in the number of students defaulting, the new data clearly demonstrate the need for adequate protections for borrowers and accountability for schools. Last week we submitted comments to the Department with suggestions for where regulations could be strengthened on both of these fronts.

Check out our comments to the Department here.

Learn more about cohort default rates on our resource page, and see the new data from the Department on their site.

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In February 2011, the U.S. Department of Education released “unofficial trial three-year cohort default rates” (CDRs) for colleges around the country based on students who entered repayment on their federal student loans in FY2008. The purpose of these unofficial rates is to help colleges prepare for the release of official three-year CDRs next year, which will be based on students who entered repayment in FY2009. Only if a college’s official rate exceeds certain thresholds is a school subject to sanctions.

This week, the Department informed schools that the unofficial trial FY2008 CDRs released in February reflected defaults in the first 3.3 years of repayment, rather than the first three years of repayment, and the Department issued recalculated rates for just the first three years. Because the recalculated rates cover a shorter period of time, the rates for all schools are slightly lower, but they reveal the same troubling picture as the rates released in February:

  • Nearly half of all defaulters (47%) attended proprietary (for-profit) colleges even though only about 1 in 10 students attends these colleges;
  • The average CDR for proprietary colleges (22.3 percent) is still more than double the rates for public and non-profit colleges (9.7 and 6.8 percent, respectively);
  • Default rates rose more steeply in the third year of repayment at proprietary colleges (93 percent) than at other types of schools (60 and 69 percent at publics and non-profits, respectively);
  • Across all colleges, 176,000 former students defaulted in their third year of repayment, but their former schools are not currently being held accountable for these defaults; and
  • These data underscore the need for a strong gainful employment rule that will go into effect in 2012 to prevent taxpayer dollars from continuing to be wasted on ineffective or exploitative career education programs.

In early 2012, the Department will release draft official three-year FY2009 CDRs to colleges for their review before final official rates are released later in the year. This standard procedure for releasing official CDRs gives colleges time to review the data and appeal any potential sanctions before the official rates are finalized.

See our CDR resource page for quick links to individual colleges’ cohort default rates and federal student loan repayment rates, and other background information.

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For the past few years, we’ve analyzed the share of community college students, nationally and by state, who lack access to federal student loans because their colleges decided to not make them available. North Carolina has consistently ranked poorly in our analyses. To improve students’ access to this important source of aid, last year the state legislature required all community colleges to participate in the loan program by 2011-12. But this year, the legislature reversed course. It passed a bill (NC House Bill 7) that lets colleges opt out of the new requirement, which has not yet gone into effect.

Earlier today, North Carolina Governor Beverly Perdue took a historic step towards ensuring access to aid for the state’s community college students by vetoing House Bill 7. This issue is of critical importance in the state right now. With more students than ever seeking education and training at community colleges, North Carolina now ranks absolute last in the share of students with loan access in 2010-11 (as detailed in our new analysis to be released this month). While we don’t usually share such a major finding in advance, we wanted to call attention to the significance of Governor Perdue’s decision today.

You can read our letter to Governor Perdue asking her to consider a veto here, and our thank you letter to the Governor here.

- Debbie Cochrane Program Director

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The House Budget Committee’s FY2012 federal budget plan would cut Pell Grant funding to “pre-stimulus levels,” eliminating or slashing grants for more than nine million students. Assuming no other changes in the program, this would require a 62 percent cut in the maximum Pell Grant—from $5,550 in school year 2011-12 to $2,090 in 2012-13. [See our statement on the budget plan here.]

To try to justify such a drastic cut, the House Budget Committee references a 2005 study that found “little evidence” that Pell Grants lead to increases in in-state tuition at public colleges, but at private nonprofit four-year colleges, increases in Pell grants appeared to be matched with increases in tuition between 1989 and 1996.1 However, leading higher education economists agree that there is no clear link between Pell Grants and tuition levels. See our summary for more about research on this issue.

Economist Sandy Baum wrote last year, “There is no convincing evidence that increases in Pell Grants feed tuition increases in either public or private not-for-profit institutions.”2 Some studies have found no relationship, while others have found Pell Grants to be related to lower tuition prices. For example, a 2011 analysis found that “past increases in the federal Pell Grant maximum tend to reduce average [published] tuition today” at private nonprofit four-year colleges, by lowering the need for tuition discounting.3

In testimony before Congress, economist Bridget Terry Long noted, “Most studies conclude that colleges are not responding to federal aid, and studies that do provide limited support for the notion are plagued by mixed and sometimes contradictory results. Evidence suggests growth in tuition prices is instead related to a myriad of other internal and external factors.”4 Assessing the 2005 study cited by the House Budget Committee, Long explained, “[B]ecause these [private nonprofit four-year] institutions have few Pell recipients (i.e., they have few students impacted by the change in aid policy), the results seem attributable to factors other than government aid policy. Limitations with the data prevent more conclusive analysis.”5 According to the President’s FY2012 Budget Request, only 12% of Pell Grant recipients attend private nonprofit colleges.

For more information, see our summary of experts’ comments on this issue.

1Singell, Larry D., Jr. and Joe A. Stone. 2005. For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid. http://pages.uoregon.edu/lsingell/Pell_Bennett.pdf. Accessed April 5, 2011.

2Baum, Sandy. 2010. “Losing Ground.” New York Times, February 3. http://roomfordebate.blogs.nytimes.com/2010/02/03/rising-college-costs-a-federal-role/#sandy. Accessed April 6, 2011.

3Archibald, Robert B. and David H. Feldman. 2011. Why Does College Cost So Much? Oxford: Oxford University Press. 205.

4Long, Bridget Terry. 2006. College Tuition Pricing and Federal Financial Aid: Is there a Connection? Testimony before the U.S. Senate Committee on Finance. http://finance.senate.gov/imo/media/doc/120506bltest.pdf. Accessed April 6, 2011.

5Ibid.

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Delinquency By the end of October, U.S. colleges must meet a federal requirement to create online “net price calculators.” These calculators are intended to help prospective students and their families gauge college affordability, providing early individualized estimates of what particular colleges will cost them after grants and scholarships.

We took an early look at how colleges are approaching this requirement and found mixed results for how easy the calculators were to find, use, and understand.

Our recommendations include:

  • Colleges should make their net price calculators easy for prospective students and their families to find.
  • Colleges should create net price calculators that allow prospective students and their families to easily get and view results.
  • Colleges should make the results from their net price calculators easy for prospective students and their families to understand and compare.
  • Colleges should protect prospective students' information and clearly communicate how that information will be used.

Read the issue brief

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Delinquency The Institute for Higher Education Policy released the report Delinquency: The Untold Story of Student Loan Borrowing, which examined data on 8.7 million student loan borrowers and 27.5 million student loans, focusing on the 1.8 million borrowers who entered repayment in 2005. The report highlights the scope of student loan borrowers who become delinquent on their loans, but who do not default, and was featured in a New York Times article which also cited data from the Project on Student Debt.

Key findings include:

  • For every student loan borrower who defaults, at least two more borrowers become delinquent without default.
  • Two out of five student loan borrowers are delinquent at some point in the first five years after entering repayment.
  • Certain student loan borrowers—those considered more at risk than their peers—may require additional attention and information to prevent delinquency and default. For example, the rates of delinquency and default were generally much higher for borrowers who had not graduated than for those who had.
  • More than a third of borrowers were able to repay their loans in a timely manner, while 23 percent were able to postpone repayment by using deferment or forbearance to avoid delinquency.

Read the report

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In November, a new study presented at the Association for the Study of Higher Education (ASHE) conference purported that public and private nonprofit colleges respond to increases in state need-based grants by raising tuition and fees and reducing their own institutional grants, ultimately leading to an increase in their net price. That assertion later appeared as a headline in The Chronicle of Higher Education. However, a closer look at the study, conducted by Bradley Curs (University of Missouri, Columbia) and Luciana Dar (University of California, Riverside), casts serious doubt on that conclusion.

Although the study shows a relationship between average state need-based grants1 and colleges’ net price,2 there is little evidence or discussion of causality. In fact, some other variables in the study had stronger relationships with college costs. For example, at private nonprofit colleges, changes in endowment funding predicted net college price more than changes in state need- or merit-based grant aid.

More importantly, the authors’ claim that colleges “may undermine state policies to promote access to higher education for low-income students” simply isn’t supported by the research.3 At the ASHE conference, the paper was criticized for failing to support that claim with evidence of how college decisions are actually made. Additionally, data limitations in the study make it impossible to tell whether increased funding for state need-based grants raised or reduced net college costs for low-income students in particular. This means that even if the average net price for all students increased, lower income students may be paying less than they were before.

Given the difficulty of drawing meaningful conclusions from this study, we should not overlook other evidence that shows how need-based financial aid – most notably the federal Pell Grant – is an effective tool in increasing college access and affordability. Regarding federal grants, Curs and Dar cite the College Board’s most recent set of reports on student aid and college pricing, noting that “the most important indicator of college affordability, average net price paid by students, turned out to be lower in 2009-2010 than five years previous due in part to significant expansions in federal grant aid and tax benefits.”4

1The study defines average state need-based grants as state expenditures on need-based financial aid divided by the entire 18- to 24-year-old population in that state, regardless of whether they are enrolled in college.

2The study defines net price as published tuition and fees minus average institutional grant aid received by full-time freshmen.

3Curs, Bradley and Luciana Dar. 2010. Do Institutions Respond Asymmetrically to Changes in State Need- and Merit-Based Aid? 2010 Association for the Study of Higher Education Annual Meeting. Page 14.

4Curs, Bradley and Luciana Dar. 2010. Do Institutions Respond Asymmetrically to Changes in State Need- and Merit-Based Aid? 2010 Association for the Study of Higher Education Annual Meeting. Page 4.

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