Higher Ed Watch

One of the great mysteries of higher education is when, exactly, college prices will finally hit the Herbert Stein Unsustainable Trend Event Horizon. As a matter of simple logic, the price of higher education can’t grow faster than personal income forever--or at least, it can’t if we as a society aspire to keep college enrollment and completion at current levels, much less improve them. The combination of government subsidies and rising market prices for credentialed workers has forestalled the day of reckoning, and will probably continue do so for a while, absent some kind of disruptive competition (and wouldn’t you know it, the UT system just joined edX...). But there does appear to be a canary in the coal mine: Law school.

Since they tend to be financially independent and train people for potentially lucrative careers, even public university law schools charge students close to $50,000 a year. The whole market is bizarrely priced, with top-tier law schools that virtually guarantee entry into the upper echelons of the legal profession charging prices similar to bottom-tier schools that are basically running a legally-sanctioned racket. Over the last few years, the illogic of this has finally started to affect consumer behavior. The number of students taking the LSAT is dropping sharply as students appear to be reacting to the combination of high prices and a lawyer glut. This seems like nothing but a good thing, and probably a sign of larger trends to come.

But, as my colleagues Jason Delisle and Alex Holt have written, a valuable and well-intentioned federal government loan program could inadvertently re-inflate the law school bubble. The program is called Income-Based Repayment, or IBR. It’s based on the very sensible idea that student loan payments should be tied to student income. That way, borrowers struggling to make money in a tough labor market won’t be overwhelmed by their debt burdens and end up in ruinous default. In principle, IBR is a great idea and Congress did the right thing in 2010 by making it more generous, reducing the percent of income students have to pay and shortening the time period after which remaining debt is forgiven. The Obama administration sensibly acted to accelerate the implementation of that plan, which is getting underway this year.

Update: New America has released Saftey Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans. The paper can be accessed here.

Next week, the New America Foundation will release a paper examining pending changes to the Income-Based Repayment (IBR) program for federal student loans. Today, we are releasing the calculator we used to develop our findings.

The pending changes to IBR are the result of an Obama administration proposal to change the federal student loan program’s existing Income-Based Repayment (IBR) plan—which caps borrowers’ payments at 15 percent of their incomes and forgives any remaining debt after 25 years of payments—by reducing payments to 10 percent of a borrower’s income and providing loan forgiveness after 20 years of payments. Congress enacted this proposal two months after the President proposed it in his 2010 State of the Union address, but limited it to students who take out their first loans on July 1, 2014 or later. Anxious to deliver those benefits sooner, the Obama administration announced last year that it would instead make the plan available as early as this year—to borrowers who took out their first student loans in 2008 or later and borrowed at least one loan in 2012 or later. The final regulations are still pending.

To date, policymakers and advocates have provided little information about the benefits that the impending changes to IBR will provide to borrowers with different income and debt profiles over their entire repayment terms...

Read the full post on Ed Money Watch.

In examining the student loan default rate data that the U.S. Department of Education recently released, it’s hard not to marvel at the success that Corinthian Colleges has had in driving down its schools’ two-year cohort default rates.

The for-profit higher education corporation’s two-year rates have plunged across the board, with most of them dropping by double digits. For example, the company’s Everest College campus in Thornton, Colorado saw its rates plummet, from 27.3 percent in 2009 to 3.7 percent in 2010. Similarly, at Everest Institute in Pittsburgh, the rate dropped from 25.2 percent to a remarkably low 1.1 percent. [The company has been much less successful in lowering its schools’ 3-year default rates. Those were 34.9 percent at the Thornton campus and 28.6 percent in Pittsburgh. But the government won’t start holding schools accountable for these rates until 2014.]

How did Corinthian’s leaders achieve this remarkable feat? Did they do it by:

A. Radically improving the quality of the programs their schools offer to ensure that their graduates have the skills they need to obtain gainful employment in their fields of study?

B. Slashing prices so that students don’t have to take on so much debt?

C. Overhauling their schools’ recruiting practices to ensure that they enroll only students who they know can succeed in their programs?

The correct answer is “none of the above.” Instead, as the Senate Committee on Health, Education, Labor and Pensions has documented, Corinthian officials have engaged in a no-holds-barred campaign to drive down their schools’ rates by pushing former students to obtain temporary forbearances and deferments on their loans. The company’s sole purpose has been to prevent these borrowers from going into default during the current two-year window when the Education Department holds schools responsible for their rates.

On Friday, the U.S. Department of Education released the first official three-year cohort default rates for postsecondary institutions. As has been widely reported, more than 200 schools had rates at or above 30 percent and now must develop default prevention plans for submission to the Department. Which sectors are feeling the default prevention plan heat? At Higher Ed Watch, we thought we’d take a closer look.

But first, here’s some background on the development of cohort default rates. For nearly 20 years, the Education Department has kept track of the cohort default rates of every college that participates in the federal student-aid programs. The rates measure the percentage of students who have defaulted on their federal loans within two years of leaving college. The Department has used this measurement to sanction schools where large numbers of former students consistently fail to repay their debt.

In 2008, during the reauthorization of the Higher Education Act, Congress included a provision in the law to transition from requiring Title IV institutions to measure and report two-year federal student loan cohort default rate to a three-year rate.  Lawmakers recognized that the two-year window was too short to capture the extent of the problems students were having with paying back their federal loans.