U.S. Attorney General Loretta Lynch announced on Monday that the Department of Justice (DOJ) has reached a settlement in its false claims case against the Education Management Corporation (EDMC), an operator of for-profit colleges and universities. The $95.5 million settlement is the largest ever in a higher education false claims case. EDMC will also forgive a total of $102.8 million in loans to over 80,000 students who attended its schools, which include Argosy University, the Art Institutes, Brown Mackie College, and South University, between 2006 and 2014.
The lawsuit was originally filed in 2007 by whistle-blowers within EDMC, who alleged that the organization was offering extra incentives to their admissions officers based on the number of students they enroll, a violation of the Incentive Compensation Ban in the Higher Education Act. Said Attorney General Lynch in her statement, “EDMC’s actions were not only a betrayal of their students’ trust; they were a violation of federal law.”
Reactions to the settlement have been mixed. While it is encouraging to see the DOJ take action against illegal and unethical practices at for-profit institutions, many student and consumer advocates have criticized the settlement for providing too little relief for students who accrued thousands of dollars of federal student loan debt at EDMC institutions.
Secretary of Education Arne Duncan has indicated that his Department is willing to listen to claims from students who believe that EDMC mislead them when if offered loans, but critics of the deal say listening is not enough. “I am disappointed that the department’s only plan for EDMC students is to hear their complaints,” said Robyn Smith, a lawyer at the National Consumer Law Center, who was quoted in The Chronicle.
Others have criticized the language of the settlement, which did not force EDMC to admit wrongdoing for its actions. Stephen Burd, a senior policy analyst at New America, laments the continued lack of accountability of for-profit institutions.
“Too many of these cases are settled without finding fault,” he said in the same Chronicle article, “and the for-profit industry has been able to say, ‘Oh, nothing is proven.’”
Despite its issues, this settlement is another step in the Federal Government’s continuing efforts to rein in the questionable behavior of for-profit colleges and universities. Last year, the Department of Education formed an interagency task force to more rigorously oversee for-profit institutions of higher learning. The Department of Defense also suspended all tuition assistance to the University of Phoenix, which targets veterans in its recruiting efforts.
Undergraduates who graduated with student loan debt from four-year colleges in 2014 owed an average of $28,950, according to a recently released report by The Institute for College Access and Success (TICAS). 69 percent of graduates have loan debt, the same figure as last year and slightly higher than it was in 2004 (65 percent). The average amount of debt per borrower is up 56 percent from 2004 – more than double the inflation rate over the same period – but only up 2 percent from 2013.
A number of factors have contributed to the rising student debt load over the past decade. States have decreased their investment in public higher education over the last ten years, causing students at public institutions to bear a higher percentage of the funding burden. Since 2004, the share of public higher education funding provided by states has dropped (from 62 percent to 51 percent) and the share paid by students and their families (in the form of tuition) has increased (from 32 percent to 43 percent).
In addition, the growth of Pell Grants has not kept up with rising costs. The TICAS report shows that between 2004 and 2012—the last year in which data is available—recipients of Pell Grants at public four-year colleges saw average cost of attendance rise by $7,400 and grant aid rise by just $2,900. At private, non-profit colleges the gap is even wider; costs rose by $14,400 and grants increased by $8,700.
Washington state is performing well with regard to student loans: only 58 percent of Washington bachelor’s degree recipients who graduated in 2014 had loans, and those who did had an average of $24,804, more than $4,000 below the national average. The University of Washington also looks good by these metrics: thanks in large part to the University’s commitment to institutional aid through programs such as Husky Promise, less than half of all UW undergraduates who graduated in 2014 had student debt and the average debt burden was $21,558, well below the state and national averages.
While Washington’s performance relative to its peers is laudable, student debt is still a major issue for many students. The TICAS report offers a series of proposals to mitigate the student debt load, among them doubling the size of Pell Grants, simplifying income-driven repayment plans, and improving student loan servicing to make it easier for students to pay back their loans. It is important that policymakers remain focused on reducing the student debt burden and continue working with institutions to make higher education accessible and affordable for all students during and after graduation.
 It’s important to note that borrowing rates and debt levels vary widely by state, college and sector.
 Because the federal government does not require colleges to report debt levels for their graduates, data in the TICAS report is based on voluntary reporting by institutions. Hardly any for-profit colleges voluntarily report their graduates’ average debt, so this year’s debt figures are for public and nonprofit colleges only.
The Department of Education recently released their annual report detailing the 3-year cohort default rate (CDR)—a metric that measures what percentage of postsecondary students default on their loan payments within the first three years of entering repayment—and the data are encouraging: the 3-year CDR for FY 2012 is 11.8 percent, almost two percent lower than the previous year and three percent lower than FY 2010.
While reasons for the drop are uncertain, administration officials have credited the increased enrollment in income-based repayment plans as partially responsible. Secretary of Education Arne Duncan has cheered the lower default rate but cautions that there is more work to do. “There’s no real reason why we can’t significantly reduce default rates even further,” he told reporters in a statement reported by Inside Higher Ed. “We’re going to keep working to hold schools accountable.”
The report also breaks down the CDR by school, state, and institution type. Below is a breakdown of the most salient statistics.
- Public four year institutions saw their 3-year CDR drop to 7.6 percent, down from 8.9 percent last year.
- Private non-profit four year institutions’ default rate also dropped, to 6.3 percent from 7 percent.
- Private for-profit four year institutions’ CDR dropped to 14.7 percent, down from 18.6 percent last year.
- Schools in Washington state have an average 3-year default rate of 10.1 percent, slightly below the national average.
- The University of Washington performed exceptionally well by this measure: the 3-year CDR for UW dropped to 2.7 percent, almost 5 percent lower than the national average for public four year universities and down from 4.3 percent last year.
As previously stated, the declining CDR average nationwide is a hopeful sign for the future of student loan repayment. Nevertheless, loans remain a massive strain on millions of college students and graduates and more must be done to alleviate the student debt burden. The CDR itself has come under fire as a flawed metric; it only measures those students who default on payments and does not take into account the almost one in three borrowers who make payments but cannot make any progress on paying down their debt or the share of students at a given institution who borrow. Some in the education policy world have called for using loan repayment rates, rather than default rates, as the primary metric for gauging an institution’s ability to prepare its students for repayment.
A new report from the Brookings Institution concludes that student loan borrowers may not be in such a dire situation as media reports commonly suggest. The report, Is a Student Loan Crisis on the Horizon?, finds that while student debt levels have risen along with college tuition over the past two decades, college graduates’ incomes have kept pace. The authors analyze data on student borrowers over the period 1989-2010. They conclude that education debt has not become a greater burden on borrowing households.
- Education debt increased most among households with higher levels of educational attainment. Roughly one-quarter of the increase in student debt can be explained by an increase in the number of households with college degrees, especially graduate degrees. Since 1989, student borrowers with graduate degrees saw their average debt level increase from about $10,000 to about $40,000. Over the same time, the debt level for borrowers with bachelor’s degrees increased by a smaller margin, from $6,000 to $16,000.
- On average, student borrowers’ incomes more than kept pace with increases in student debt. While average household debt increased by about $18,000 between 1992 and 2010, average annual household income for borrowers increased by about $7,400 over that same period. The average increase in earnings would pay for the increase in debt incurred in just 2.4 years.
- The ratio of monthly debt payments to monthly income has held steady. Between 1992 and 2010, the median borrowing household consistently paid between three and four percent of monthly income toward student debt. The mean monthly payment decreased from 15 percent to 7 percent of income over that period.
Student debt levels have increased over the past two decades. The authors conclude that this is largely driven by tuition increases over that time. However, higher levels of student borrowing also partly reflect an investment in higher levels of education. For the average borrower, that investment pays off in higher incomes.
Overall student debt levels of recent bachelor’s degree recipients continue to rise according to Student Debt and the Class of 2013, a new report from the Project on Student Debt at The Institute for College Access & Success (TICAS). The report includes 2013 state- and college-level debt data for graduates from colleges that opt to disclose their graduates’ debt. However, since very few for-profit colleges choose to disclose debt data, the report’s figures represent only public and nonprofit colleges.
- At the national level, 69 percent of graduating seniors had student loans and those that borrowed had an average debt of $28,400 – a 2 percent increase over 2012. For comparison, in 2013, 50 percent of UW undergraduates graduated with debt, and those that borrowed graduated with an average debt load of $21,471.
- At the state level, borrowers’ average debt at graduation ranged from $18,656 to $32,795, and the likelihood of graduating with debt ranged from 43 to 76 percent. In six states, average debt was greater than $30,000; in one state, it was under $20,000. Nearly all the highest debt states were in the Northeast and Midwest, with the lowest debt states in the West and South. In Washington, 58 percent of graduates had debt, and those that borrowed had an average of $24,418 in loans. Debbie Cochrane, research director at TICAS and coauthor of the report, says, “The importance of state policy and investment cannot be overstated when it comes to student debt levels.”
- At the college level, borrowers’ average debt at graduation varied widely – ranging from less than $2,500 to more than $71,000 – and the likelihood of graduating with debt also varied – running from 10 percent to 100 percent. At nearly one in five (18%) colleges, average debt rose at least 10 percent, while at 7 percent of colleges, average debt decreased by at least 10 percent. In general, colleges with higher costs had higher average debt at graduation, although that wasn’t always the case.
The authors note that the report’s data have significant limitations, primarily because colleges are not required to report debt levels for their graduates. Only 57 percent of public and nonprofit bachelor’s degree-granting colleges provided data, representing 83 percent of graduates in those sectors. And for-profits, as mentioned, were excluded because hardly any chose to disclose their graduates’ debt. Even colleges that do provide data may understate graduates’ debt loads because they do not include transfer students and are often not aware of all private loans.
Thus, the report’s main recommendation is to get better debt data via federal collection of cumulative student debt data for all schools. The report also makes recommendations about reducing students’ need to borrow, helping students make better-informed college decisions, and simplifying income-driven repayment plans.
See the report or TICAS’ interactive map for more information.
 Federal data for 2012 graduates of for-profit. four-year colleges show that the vast majority (88%) took out student loans and that borrowers graduated with an average of $39,950 in debt—43 percent more than bachelor’s recipients in the other sectors. In addition, students at for-profits tend to default on their loans much more frequently than students in other sectors.
It will soon be easier for students and parents with adverse credit histories to qualify for federal PLUS loans. Under new the Education Department’s (ED’s) new rules – which were released on Wednesday and are expected to take effect in March – ED will review only two years (rather than five) of a prospective borrower’s credit history to determine loan eligibility, and will excuse up to $2,085 in certain types of delinquent debt when running initial credit checks.
ED agreed to revisit the rules following pressure from many colleges and families who were angered after ED tightened the PLUS loan standards in 2011. The 2011 changes resulted in thousands of sudden loan denials and, consequently, enrollment declines and revenue losses at some institutions. According to Inside Higher Ed, department officials expect that the new standards will allow an additional 370,000 applicants to pass the initial credit check for PLUS loans.
Representative Chaka Fattah – Pennsylvania Democrat and co-chair of the Congressional Black Caucus Education Task Force – lauded the new standards; however others connected with historically black colleges have criticized ED for not moving quickly enough. Meanwhile, some policy analysts and consumer advocates argue that ability-to-pay criteria are necessary to prevent borrowers from being saddled with unmanageable debt, and that the new rules don’t do enough to safeguard against default.
If defaulting becomes an issue as a result of the new standards, the silver lining is policymakers will at least know about it and, hopefully, be able to do something. As part of ED’s changes to the PLUS program, the department will begin calculating and publishing annual cohort default rates for institutions receiving PLUS loans. That information should help illuminate whether borrowers are getting in over their heads.
Ultimately though, as EdCentral points out:
“The Department must do a better job reaching out to parents and helping them understand the terms and conditions of their loans, including the ability to repay their loan as a percent of their income if they consolidate into a Federal Direct Consolidation Loan. Better counseling won’t solve all the issues with the PLUS loan program. But it’s a start until we can ensure PLUS loans are a safe product for families and we can improve access to better aid options like grants for low-income families.”
 ED currently only calculates cohort default rates for colleges that receive Stafford loans.
The U.S. Department of Education (ED) recently released its annual update on federal student loan cohort default rates (CDRs), which measure the frequency with which student borrowers at all levels (undergraduate, graduate, etc.) default on their federal loans. Although the UW’s CDR rose while the national CDR declined, the UW’s rate still remains well below that of the nation.
ED is in its first year of using only the more accurate three-year CDR measure – as opposed to the two-year CDR. Thus, this year’s report only includes the FY2011 three-year CDR, which represent the percentage of student borrowers who entered into repayment in FY2011, but failed to make loan payments for a 270-day period within three years of leaving school.
The Department provides breakdowns of its data by institution type, state and school. Here are some key findings:
- The national three-year CDR declined from 14.7 to 13.7 percent overall.
- The three-year rate decreased over last year’s rates for all sectors:
- Public institutions decreased very slightly from 13.0 to 12.9 percent,
- Private nonprofits decreased from 8.2 to 7.2 percent, and
- For-profits’ whopping 21.8 percent rate decreased to 19.1 percent.
- The UW’s three-year CDR increased slightly from 3.9 to 4.3 percent, but this is still nearly 10 percentage points below the national average.
While this is good news, many students still struggle to afford ever-increasing tuition fees and/or to repay their student loans. The UW reaches out to our former students at risk of default on their Stafford Loans and helps identify federal repayment options that could benefit them. Former UW students who are in default or experiencing difficulties repaying their loans can contact the Office of Student Financial Aid for assistance (firstname.lastname@example.org, 206-543-6101). Students can also visit studentloans.gov to explore their repayment options.
On Thursday, the American Association of State Colleges and Universities (AASCU) released a policy brief examining the potential consequences of Pay It Forward (PIF) (please see our previous blogs for background information). The AASCU brief summarizes other, similar approaches to paying for college and analyses PIF as a potential state approach to financing public higher education.
The report describes the following “13 Realities of PIF College Financing Proposals”:
- Most students could pay more, not less, for college.
- Considerable uncertainty would be introduced into campus budgeting and planning efforts.
- The majority of college costs are not covered.
- Students from sectors with the heaviest student debt burdens would be ineligible to participate.
- The class divides in public higher education, and more broadly, in American society, could intensify.
- Costs borne by students pursuing privately financed degrees and higher-paying careers would increase dramatically.
- PIF is duplicative—there are existing public and private programs that calibrate student debt to earnings.
- PIF’s start-up costs would be enormous.
- Payment collection would be costly and challenging.
- Campus and state leaders would have strong incentives to promote programs leading to high-paying occupations, to the possible detriment of the liberal and applied arts, humanities, and public service careers.
- Underlying college cost drivers would not be addressed.
- Support for state and institutional student financial aid could dissipate.
- Support for maintaining existing state investment in public higher education would erode, creating a pathway to privatization.
In addition, the authors discuss “The Unknowns of ‘Pay It Forward’”:
- How will institutional financing gaps be addressed?
- How would payments be collected?
- Who would control PIF funds?
- How would PIF’s structure and revenue generation differ from campus to campus?
- How would PIF complement or conflict with federal higher education programs?
- How would transfer students be integrated into PIF?
- What would be the consequences for noncompleters?
- How would college savings change under PIF?
- How would PIF affect campus philanthropic campaigns?
The report’s conclusion reads, “Creating a lifelong tax and privatizing public higher education through pay it forward is not the solution to addressing college affordability.”
I recommend that readers review AASCU’s full report.
On Thursday, the American Association of State Colleges and Universities (AASCU) released its most State Outlook. According to the report, state operating support for public four-year colleges and universities is 3.6 percent higher for FY 2015 than it was for FY 2014. Of the 49 states that have passed a budget thus far, support for higher education increased in 43 states and decreased in only 6 states. Of those 6 states that reduced funding, all were under 3 percent: Alaska, Delaware, Kentucky, Missouri, Washington (0.8 percent decrease) and West Virginia.
There was a relatively small amount of variation between states in terms of their year-to-year funding changes. For FY 2015, the spread between the state with the largest gain and that with the largest cut was only a 24 percent—this is compared to 57 percent, 25 percent and 46 percent, respectively, in FYs 2012, 2013 and 2014. The report notes that this decreased volatility likely indicates “a continued post-recession stabilization of states’ budgets.”
Charitable contributions to U.S. colleges and universities increased 9 percent in 2013, to $33.8 billion—the highest recorded in the history of the Council for Aid to Education (CAE) Voluntary Support of Education (VSE) survey. In addition, college and university endowments grew by an average of 11.7 percent in FY 2013, according to a January 2014 study released by the National Association of College and University Business Officers and the Commonfund Institute. This represents a significant improvement over the -0.3 percent return in FY 2012.
The report also describes ten highlights/trends from states’ 2014 legislative sessions, those being:
- State initiatives linking student access to economic and workforce development goals.
- Tuition freezes or increase caps in exchange for state reinvestment—this occurred in Washington and another example is discussed in our previous post.
- Performance-based funding systems that attempt to align institutional outcomes with state needs and priorities.
- Governor emphasis on efforts to advance state educational attainment goals.
- Interest in policies related to vocational and technical education, including allowing community colleges to grant certain four-year degrees (as described in our previous post).
- Efforts to develop a common set of expectations for what K-12 students should know in mathematics and language arts.
- STEM-related initiatives, including additional funding for STEM scholarships in Washington.
- Financial support for the renovating and/or constructing of new campus facilities—unfortunately, Washington’s legislature did not pass a capital budget.
- Bills allowing individuals to carry guns on public college and university campuses—as of March 2014, seven states had passed such legislation.
- Legislation that extends in-state tuition or, as occurred in Washington, state financial aid to undocumented students.
Other noteworthy policy topics described in the report include:
- Student financial aid programs—some states broadened their programs while others limited them;
- Online and competency-based education reciprocity agreements;
- “Pay It Forward” Funding Schemes; and
- Consumer protection as it pertains to student recruitment, advertising and financial aid at for-profit colleges.
Temple University recently created a new partnership between students and the university to help students graduate on time and limit the amount of debt they accrue. Under the program, called “Fly in 4,” if an undergraduate student fulfills a set of requirements aimed at promoting on-time completion, but is still unable to graduate within four years, the university will pay for any remaining coursework (tuition and fees). Additionally, in each incoming class, 500 students with financial need will receive “Fly in 4 grants” of $4,000 per year to help reduce the hours they must put toward employment and increase those they can devote to studying. 
“What we’ve found is that students from low- and middle-income backgrounds tend to take longer to complete their degrees, in part because they spend a lot of time working,” Temple President Neil D. Theobald is quoted as saying.
Starting in Fall 2014, all incoming freshmen and all incoming transfer students who enter on track to graduate on time are eligible for the program; however, only those with demonstrated financial need are eligible for the $4,000 grants. To remain eligible for the grants and/or for Temple to pay for any remaining coursework, students must:
- Meet with an academic advisor each semester;
- Register for classes during priority registration;
- Advance annually in class standing; and
- Complete a graduation review at or prior to completing 90 credits.
President Theobald made six commitments to the Temple community in his October inaugural address, the first of which was to reduce student expenses. Fly in 4 is a part of that commitment.
“For nearly 50 years, researchers have shown that college students employed more than 15 hours per week during the school year earn much lower grades than do those working fewer hours for pay,” Theobald said. “In addition, time-to-graduation has become the primary determinant of student debt.”
To help fulfill its commitment and ensure students graduate on time, Temple has also invested heavily in advising (hiring 60 new full-time advisors since 2006, including 10 this year), created four-year graduation maps for every major, and trained faculty members to assist students with academic and career planning.
 For context, Temple’s 2013-14 undergraduate tuition rates were approximately $14,100 for residents and $23,400 for non-residents (depending on program and year of study).
 Contrary to a number of media reports, it does not appear that students are required to commit to working 10 hours per week or less in order to be eligible for the Fly in 4 grants. Temple University’s website makes no such statement.
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