Recently, more criticism is being leveled at colleges and universities for not being more successful at “producing” students. Higher education is being treated like any other business by focusing now on measuring output. Specifically, lawmakers and the public want to know how many students each institution of higher education they advance from one year to the next and ultimately how many they graduate. One measure of that success that has been in the public eye is the college student loan default rate.
The U.S. Department of Education announced this week that loan-default rates had dropped one percent from 14.7% to 13.7% of all colleges and universities in 2011 compared to 2010. The Department of Education looks at individual colleges and places them in categories such as public vs. private, two-year vs. four-year, and non-profit vs. for-profit. The largest drop occurred in the private for-profit sector by 2.7%, even though they continue to have the highest loan default rate of all colleges at 19.1%. The second highest default rate was among public colleges at 12.9%, and the private non-profit colleges had the lowest at 7.2%. In examining the data more closely, the two-year private non- and for-profit colleges had significantly higher default rates (25.0% and 20.6% respectively) than the two-year publics (13.6%). The private for-profit four-year colleges had the highest default rate (18.6%), the public colleges had the next highest (8.9%) and the private non-profits had the lowest rates (7.0%).
Despite the drop in default rates, the major concern among critics of colleges is that the Department of Education lowered its standards and is letting underperforming colleges “off the hook.” However, college administrators point to the weak economy as a major cause of higher loan default rates. The weak economy has caused more student to borrow money to attend college, which in turn has caused the loan default rate to increase.
Last year, the Department changed its standards, so rather than measuring default rates for two years, they are now using three years. And the default rate must not exceed 30% of the total number of student loans for three years in a row or 40% in a single year. Another interesting, but controversial, change the Department made was to exclude in its calculations multiple loans whether students were in “repayment, deferment, or forbearance status for at least 60 consecutive days,” based on a statement issued by Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid, U.S. Department of Education.
The penalty for not meeting the standards is the potential loss of federal student aid and possibly other federal funding. This is a major concern about administrators at colleges as federal student aid funds can be a significant part of the budget of many colleges especially at the private for-profits. Moreover, administrators in community colleges and minority serving institutions expressed the greatest concern since they typically enroll a significantly larger number of first-generation, low-income students. These are the students who rely heavily on loans and other types of financial aid since their parents can’t afford to pay for college.
In a speech this week, Secretary of Education Arne Duncan told leaders of historically black colleges and universities that none of their institutions would be penalized. This was welcome news for them and for college administrators at other minority-serving institutions and community colleges.
However, should minority-serving institutions and community colleges be penalized because they serve a disproportionately larger share of low-income students? I don’t think so, if anything these colleges should be rewarded for taking on a very difficult task. But, in an environment where legislators and the public are calling for more accountability and where colleges and universities are now being treated like a business that produces a product, I don’t think these institutions of higher education will be rewarded. My guess is that we will see more pressure on these types of colleges to do a better job or close their doors.
On the other hand, it is not clear to me that state legislators will have the intestinal fortitude in the future to close public community colleges and minority-serving institutions in their legislative districts. After all, institutions of higher education are economic engines for the communities they reside in. They tend to hire a large number of employees and a subset of their employees (professors and administrators) earn significantly higher wages than the average wage earner in those communities. Additionally, these colleges and universities are educating the future workforce of our country: the first-generation, low-income, minority and immigrant population that is increasing exponentially in this country. I suspect that if a legislator proposed or voted to close an institution of higher education in his or her community, they would not remain a legislator through the next election.
Secretary Duncan took a bold and brave step, in my opinion, in adjusting the default rates of community colleges and minority serving institutions. Our country needs these types of institutions of higher education to not only survive, but thrive. After all, they play an important role in shaping the future of our country by educating a significant subgroup of our workforce and our future leaders.
