The Big Payback

[rubato]

http://libertystreeteconomics.newyorkfe ... 9LBVbX8_MM

Liberty Street Economics

September 09, 2016
Who Falters at Student Loan Payback Time?
Rajashri Chakrabarti, Michael Lovenheim, and Kevin Morris

Editor’s note: The labels for “Elite private” and “Non-elite private, not-for-profit” institutions in the charts have been corrected; they were initially transposed. We regret the error. (September 12, 12:45 p.m.)

LSE_2016_Who Falters at Student Loan Payback Time?

This is the final post in a four-part series examining the evolution of enrollment, student loans, graduation and default in the higher education market over the course of the past fifteen years. In the first post, we found a marked increase in enrollment of 35 percent between 2000 and 2015, led mostly by the for-profit sector—which increased enrollment by 177 percent. The second post showed that these new enrollees were quite different from the traditional enrollees. Yesterday’s post demonstrated an unprecedented increase in loan origination amounts during this period—nearly tripling between 2000 and 2015. This surge was driven most prominently by a massive increase in the number of borrowers in the public community college sector and the private for-profit college sector. Given the large increase in the borrower pool and loan originations, it is paramount to understand the consequences of these changes for the student loan default rate. This post aims to do just that. We focus on three-year cohort default rates reported by the United States Department of Education. The three-year cohort default rate is defined as the percentage of a school's borrowers who enter repayment during a particular federal fiscal year—running from October 1 to September 30—and default prior to the end of the second following fiscal year. Most federal loans enter default when payments are more than 270 days past due.

Among less-than-two and two-year institutions, the number of borrowers in default (NBD) has grown most dramatically for students at public, two-year schools. The growth in the number of borrowers in default at two-year, for-profit institutions follows close behind. As we saw in our post on the student loan market, there was a huge increase in the number of borrowers as well as a modest increase in the amount borrowed by students at these schools following the recession. The chart above shows that these newer borrowers have had a difficult time repaying their loans since leaving school and therefore many of them are entering default. Between 2000 and 2008, total loan originations at less-than-two-year and two-year institutions grew by 152 percent; the majority of students enrolling in these years would have entered repayment between 2000 and 2012. Tellingly, there was a more than five-fold increase in NBD between 2000 and 2012. Thus, the growth in NBD far outpaced the growth in loan originations in this sector.

Among four-year institutions, the growth of NBD at for-profit institutions dwarfed the growth in other sectors. This relates to the marked increase in the number of borrowers and loan originations in the four-year, for-profit sector during this period that we saw in the third post in this series. Between 2000 and 2007, total loan originations at four-year, for-profit schools grew by 430 percent. Between 2000 and 2012, when many of these borrowers would have entered repayment, NBD at these schools rose by more than 1,900 percent. As might be expected, NBD declined in most sectors as the economic recovery gained momentum in later years.

It is worth noting that the share of borrowers in default who attended for-profit institutions greatly exceeded the share of students enrolled at these schools. Among borrowers in the 2012 repayment cohort who defaulted on their loans, an astounding 39 percent attended for-profit schools. In contrast, in 2011—the year in which for-profit schools had their highest share of enrollees—only 11.5 percent of higher-education students were enrolled at for-profit schools. This suggests that recent cohorts of students at for-profit institutions have emerged from school less likely to repay the loans they used to finance their educations.

Moreover, the share of borrowers from four-year institutions entering default who attended for-profit schools has increased dramatically over the past twelve years. Beginning in 2009, and for every year thereafter, for-profit institutions accounted for more borrowers in default at four-year institutions than any other sector despite never accounting for more than 11 percent of enrolled students. Among two-year institutions, however, there is a marked increase in the share of borrowers who default after attending public schools, beginning in 2010 and continuing through 2012. This mirrors the trend we saw in our previous post showing large increases in the number of borrowers and loan originations in this sector. ... " (see link)

Is there any reason we still allow tax dollars to finance for-profit 4 year schools at all? The interest of a for-profit school is to make a profit while doing as little as possible to educate students especially in the consequences of taking on debt.


yrs,
rubato

[MajGenl.Meade]

I could be wrong on this but I think it has something to do with opening elite institutions to less-than-financially-elite people who might, despite not having parents with oodles of cash, actually be, you know.... smart or something.

Of course, the fact that many aren't smart combined with the lowering of societal standards of honesty and the elimination of shame means that paying back isn't as important as it once was.

[rubato]

I could be wrong on this but I think it has something to do with opening elite institutions to less-than-financially-elite people who might, despite not having parents with oodles of cash, actually be, you know.... smart or something.

Of course, the fact that many aren't smart combined with the lowering of societal standards of honesty and the elimination of shame means that paying back isn't as important as it once was.

Read the article and the graphs.

The default rates for elite universities are the lowest. The difference is between for-profit (all of which are non-elite) 4-year colleges and all others.


yrs,
rubato

[MajGenl.Meade]

Serves me right for confusing the blues.

[Gob]

Can blue men sing the whites?

[ex-khobar Andy]

For profit colleges are, in general and maybe in every case, a total scam. I once interviewed someone for a IT job with quite an impressive resume. Professor of computer science at Central University. Of course I did not do my due diligence research and assumed he had a certain level of knowledge. Turned out I knew more than him: and for those of you who have read my posts over the years, that must be a scary thought.

A few years ago my wife was looking for a job. The local for-profits had continual ads on Monster etc - but when she applied all she got was a hard sell phone call so she could improve her qualifications. And the tone of the 'interview' was very much to figure out her ability to qualify for a loan or grant from the Feds. Scam Central.

[rubato]

Finally some action in closing down the corruption 'enabler'. Glad Obama is getting it done.

http://www.nytimes.com/2016/09/23/busin ... .html?_r=0

Government Moves to Close a Watchdog of For-Profit Colleges

By PATRICIA COHENSEPT. 22, 2016

The ITT Technical Institute campus in Columbus, Ohio. Credit Ty Wright for The New York Times

The Education Department on Thursday moved to shut down the nation’s largest accreditor of for-profit colleges, which had stood watch as failing institutions like Corinthian Colleges and ITT Technical Institute teetered on a pileup of fraud investigations.

The Accrediting Council for Independent Colleges and Schools — known as A.C.I.C.S. — is one of a few dozen different organizations charged with maintaining standards and quality at the country’s more than 5,400 higher education institutions.

An accreditor’s seal of approval is a prerequisite for colleges’ enrollment of students receiving federal student loans and aid, a funding stream that is essential for the institutions’ survival.

A letter from the Education Department said that A.C.I.C.S. was out of compliance with regulations in 21 areas. While it acknowledged some progress, the letter stated that the group’s “track record does not inspire confidence that it can address all of the problems effectively.”

The council has said it plans to appeal the decision. “We believe that A.C.I.C.S. has demonstrated that the organization can come into compliance with the Department of Education’s regulations within one year as required under the department’s recognition criteria,” Roger J. Williams, the council’s chief executive, said in an email before the decision was issued.

A.C.I.C.S. was responsible for approving roughly 240 institutions that received $4.7 billion in taxpayer money last year.

An estimated 600,000 students currently attending schools the council has accredited are in no immediate danger of losing their federal financial aid. Regardless of any appeal, those schools have 18 months to secure the approval of another accreditor — although they might have to meet more stringent standards.

The patchwork system of accreditation has been repeatedly criticized as being beholden to the institutions under its supervision. For-profit schools select which accreditor to use, and then pay for and govern it. Not only do accreditors set their own standards, but Congress specifically prohibited the government from establishing minimum benchmarks for accreditors to judge success in student achievement.

Although several agencies have been under pressure for slipshod oversight, A.C.I.C.S. has frequently been singled out for the scale of its deficiencies and its low standards. A Senate committee, several state attorneys general, federal agencies and others are scrutinizing its record.

In June the national advisory panel on accreditors voted to strip A.C.I.C.S. of its authority after a staff report from the Education Department recommended its demise — a foretaste of Thursday’s decision.

As a group, the mostly for-profit colleges that A.C.I.C.S. has overseen have the lowest graduation rates in the country and among the highest rates of student loan defaults. The Education Department staff report found that it failed to verify job placements, identify institutions that were at risk and monitor educational quality.

The accrediting agency was also plagued with conflicts of interest. At least two-thirds of its commissioners worked as executives at for-profit colleges, including Corinthian and ITT, a ProPublica investigation discovered last year.

Corinthian was accredited even as it declared bankruptcy in 2015. The accreditation of ITT — dogged for years by similar fraud and abuse complaints — was revoked only in August. The company filed for bankruptcy last week.

A.C.I.C.S. approved 15 other institutions or parent companies in the last three years that were under investigation by state or federal agencies, according to a report by the Center for American Progress, a liberal nonprofit in Washington.

Since the spring, the council has scrambled to regroup.

Mr. Williams, who took over the top job in August after two predecessors resigned, said in an emailed response to questions that A.C.I.C.S. had taken several steps to strengthen its standards and practices. He listed new procedures to verify placement data, train its evaluators, identify institutions at risk and monitor recruiting by employing a “secret shopper.”

For-profit career colleges and accreditors have repeatedly emphasized that their students are more disadvantaged, giving that as the reason for their low graduation and high default rates. They tend to be poorer and older; many attend school while working and caring for families.

In the past, accreditors have defended their continued approval of struggling colleges, saying their job is to improve quality at schools, not put them out of business.

“We have taken the criticisms seriously,” Mr. Williams said, “and regardless of whether some amongst us deemed particular points fair and others not, we have collectively supported and aggressively pursued a self-improvement plan.”

Ben Miller, who wrote the Center for American Progress report and was formerly a senior policy adviser at the Education Department, remained skeptical. “How legitimate are last-minute, half-baked improvements that only came about once they were afraid enough about their future?” he asked.

Colleges and universities created accrediting panels as voluntary membership associations in the late 19th century as a way to standardize admissions, curriculum and degree requirements. After World War II, when the federal government started financing education through the G.I. Bill, it began to link accreditation to a school’s eligibility for federal aid.

A series of scandals led to the passage of stronger federal oversight in 1992. Those reforms were soon unwound by aggressive lobbying on the part of colleges and a wave of deregulation Congress pursued in the mid-90s.

As student loan defaults soared, the Obama administration moved to curb abuses by for-profit institutions. Calling accreditors the “watchdogs that don’t bark,” the Education Department issued a series of new regulations. But accrediting agencies remain the first line of defense on quality and the primary gatekeepers to financial aid.

Three Democratic senators introduced legislation on Thursday aimed at strengthening the process. Their bill would require the Education Department to establish standards related to loans, graduation, retention, earnings and job placements, and require accreditors to respond more quickly to investigations and lawsuits.

“Accrediting agencies are supposed to make sure students get a good education and ensure colleges aren’t cheating students while sucking down taxpayer money,” said Senator Elizabeth Warren of Massachusetts, one of the sponsors. “But right now the accreditation system is broken.”

Running education 'like a business' is good business and crappy education.

yrs,
rubato