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On September 13, 2010, Secretary of Education Arne Duncan announced that the national FY 2008 cohort default rate is 7.0 percent, up from the FY 2007 cohort default rate of 6.7 percent. The default rates increased from 5.9 to 6 percent for public institutions, from 3.7 to 4 percent for private institutions and from 11 to 11.6 percent for for-profit schools. The cohort default rate represents those borrowers who went into repayment between October 1, 2007 and September 30, 2008, and who defaulted before September 30, 2009. Some 3.4 million borrowers entered repayment during this time, and 238,000 borrowers went into default.
Secretary Duncan stated: “This data confirms what we already know: that many students are struggling to pay back their student loans during very difficult economic times. That’s why the Administration has expanded programs like income-based repayment and Pell grants to help students with financial need.”
The Secretary went on to say: “The data also tells us that students attending for-profit schools are the most likely to default. While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole.”
The September 13, 2010 press release stated that in the award year 2008-2009, students at for-profit institutions represented 26 percent of the borrowers and 43 percent of the defaulters. The press release also noted that the median student loan debt carried by students earning associate degrees at for-profit schools was $14,000 and the majority of students at community colleges do not borrow.
The press release stated that “this rapid growth of enrollment, debt load, and default rates at for-profit institutions in recent years prompted the Obama Administration to develop a set of proposals that strengthen the integrity of the federal student aid programs and ensure that taxpayer funds are used appropriately.”
The press release concluded that schools with excessive default rates (greater than 40 percent in the latest fiscal year or 25 percent or more for the last three consecutive fiscal years) may lose eligibility in the federal student loan programs. This year, five schools are subject to sanctions.
The Hill reported on September 11, 2010 that a group of top Senate Democrats urged the Obama Administration to quickly implement “a new rule designed to prevent students at career colleges from defaulting on their federal loans.” The letter to the Secretary of Education Arne Duncan said: “High student loan debt coupled with low repayment rates signal a questionable investment for students and taxpayers.” The letter went on to say: “We encourage swift implementation of the gainful employment regulation and would be concerned with any efforts to weaken the proposal.” The Senators who sent the letter include Senators Tom Harkin (IA), Richard Durbin (IL), Frank Lautenberg (NJ), Bernie Sanders (VT), Russell Feingold (WI), and Al Franken (MN).
The Department is planning on finalizing its program integrity regulations, including the provisions on gainful employment, by November 1, 2010. The Department has received more than 83,000 comments in response to the program integrity Notice of Proposed Rulemaking. '
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On September 10, 2010, American Student Assistance (ASA), a private non-profit that helps students and parents manage the repayment of college loan debt, released a white paper titled “Approaching the Tipping Point: The Implications of Student Loan Debt and the Need for Education Debt Management.” The white paper argues that with more students accessing student loans to obtain a college degree, increased efforts must be made to assist borrowers successfully complete their repayment obligations. The paper highlights the sharp growth in student loan borrowing over the last 30 years, with a marked shift from grants to loans. Federal student loan borrowing increased by 25 percent in the 2008-2009 academic year from the previous year. In addition, outstanding student loan debt currently exceeds credit card debt for the first time in our history.
ASA points out that for many borrowers, repayment of their education debt becomes unmanageable and the results of not repaying student loans can be devastating for borrowers in terms of trying to obtain consumer loans, buy a home, or save for retirement. ASA notes that while Congress has instituted numerous repayment options, such as deferment, forbearance, loan forgiveness and income-contingent plans, many students do not know how to take advantage of these repayment options.
ASA concludes that proactive communication to student loan borrowers has been proven to protect the financial health of borrowers, lower the cost of the loan program, and ensure return on taxpayer investments. ASA recommends that “Policymakers should reinstate and expand the federal investment in innovative and proactive education debt management programs that have proven to help student borrowers take advantage of all available remedies put in place by Congress to avoid delinquency and default.”
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According to a letter to Senator Tom Harkin (D-IA), Chairman of the Senate Committee on Health, Education, Labor and Pensions, of August 13, 2010, Secretary of Education Arne Duncan plans to strengthen the Department’s oversight of federal student financial aid programs by:
- Conducting 50 percent more program reviews of institutions each year;
- Hiring more than 60 additional staff to strengthen oversight and conduct program reviews;
- Hiring a new Chief Customer Experience Officer to manage consumer protection activities;
- Seeking additional resources in the President’s FY 2011 budget request to increase the capacity for and effectiveness of Departmental oversight; and
- Sending a letter from Federal Student Aid (FSA) Operating Officer Bill Taggart to all college presidents reminding them of the potential consequences of fraudulent or deceptive recruitment, admissions, and financial aid activities.
The Secretary stated that “[T]he unethical and potentially illegal practices uncovered by the GAO are unacceptable.” The Secretary further stated: “We have a responsibility to ensure that students can make informed choices about investing in postsecondary education and that taxpayers’ investments in the federal student aid programs are helping students.”
The Secretary went on to say in the letter that the Office of Inspector General (OIG) will review the GAO’s findings and potentially refer individuals for criminal prosecution. The Department is also considering enforcement action against the schools that could result in the return of federal funds or the loss of a school’s eligibility for federal funds.
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On August 31, 2010, Senator Richard Durbin (D-IL) held a forum to consider “whether some for-profit colleges are exploiting rather than educating Illinois students” and to discuss the industry’s growth, reliance on the federal financial aid program, and the value of the sector’s degrees and certificates. Senator Durbin argued at the forum that “[w]hile responsible for-profit colleges offer a valuable alternative to students, there are too many schools taking advantage of students and making money hand over fist.”
The Senator was joined by Michelle Zuver, a former student at Westwood College; Denise Parnell, a former student at the Illinois School of Health Careers; Chef William Reynolds, Provost, Washburne Culinary Institute, Kennedy King College; Daniel Hamburger, President and CEO, DeVry, Inc.; Dr. Wade Dyke, President, Kaplan University; Gary McCullough, President and CEO, Career Education Corporation; Dr. Girard Weber, President, College of Lake County; and Dr. Al Bowman, President, Illinois State University.
Senator Durbin voiced concerns about the industry’s aggressive marketing tactics and heavy dependence on student financial aid. During the forum, the Senator proposed:
- Having for-profit colleges bear some of the risk on student loans so that if a student defaults, the taxpayers aren’t left footing the bill;
- Requiring schools to provide more complete information regarding real costs, accreditation, completion rates, and job placement rates so that students can make informed decisions and aren’t burdened with debt without the skills and credentials necessary to succeed;
- Putting an end to the practice of companies acquiring accreditation simply by purchasing non-profit, accredited colleges; and
- Examining the amount of federal funding being spent by for-profit colleges on marketing campaigns, including billboards, television commercials, and advertisements.
It was reported in the Chronicle of Higher Education of August 31, 2010, that for-profit colleges received support from a group of students from the Illinois Institute of Art, who stood outside the forum carrying signs that read: “Gainful Employment rule discriminates against my school.”
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Section 111(b) of Division J of P.L. 108-447, the “Consolidated Appropriations Act, 2005,” states that “[e]ach educational institution that receives Federal funding for a fiscal year shall hold an educational program on the United States Constitution on September 17 of each year for the students served by the educational institution.” The Department of Education issued a notice of implementation on May 24, 2005, in the Federal Register, which said that Section 111 applies to all educational institutions receiving Federal funding, not only those receiving Federal funding from the Department of Education. However, the Department of Education’s authority only extends to those educational institutions receiving Federal funding from the Department of Education.
Section 111 requires that Constitution Day be held on September 17 of each year, commemorating the September 17, 1787 signing of the Constitution. If it falls on a Sunday, it shall be held during the preceding or the following week. A number of web sites offer information on the Constitution and assistance in developing Constitution Day programs, including the Library of Congress and the National Archives.
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In August 2010, The Government Accountability Office (GAO) released a report titled, “Institutions’ Reported Data Collection Burden is Higher than Estimated but Can be Reduced through Increased Coordination,” which showed that over half of the schools interviewed (18 out of 22 schools) found that the IPEDS time burdens were greater than the time burdens estimated by the Department of Education. Staff experience and school characteristics, such as organizational structure, appear to affect the burden.
The GAO recommended that the Department reevaluate its official IPEDS burden estimates, communicate training opportunities to a wider range of schools, and coordinate with education software providers to help improve the quality and reliability of IPEDS reporting. The Department agreed with GAO’s recommendations.
For institutions responding to a study conducted by NCES, NCES found that it took between 60 and 160 hours to complete IPEDS surveys in 2008-2009. Institutions contacted by the GAO for its study estimated between 12 and 590 hours to complete IPEDS surveys in 2009-2010. Based on GAO recommendations to take into account institutional characteristics and IPEDS keyholder experience, NCES developed new time burden estimates. Comments are due by October 1, 2010, and can be submitted online.
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Tuition Discounting: Institutional Aid Patterns at Public and Private Colleges and Universities, 2000-2001 to 2008-2009, is a recently released report that provides the results of a survey conducted by The College Board. The College Board reviewed the patterns of undergraduate institutional aid patterns in public two-year and four-year, as well as private, not-for-profit colleges and universities, from 2000-2001 to 2007-2008 and some preliminary data from 2008-2009. The survey found that despite some concerns in the college community that higher education institutions were awarding financial dollars to students who were not in financial need, both private and public four-year institutions spent a great share of their college aid dollars meeting student need in 2007-2008 than they did in 2000-2001.
According to the survey, between 2000-2001 and 2007-2008, the portion of grant aid used to meet need increased from 69 percent to 73 percent at private four-year colleges; however, preliminary data from the 2008-2009 year suggest a decline that year to 71 percent. At public four-year colleges, the portion of grant aid meeting need grew from 44 percent to 54 percent during the same period, and is expected to rise slightly to 60 percent for 2008-2009. Tuition discounting is defined in the report as average institutional aid per student divided by the sticker price of tuition and fees.
The College Board concluded that “Aid that meets need and helps provide access to college for low- and moderate-income students is vital, but we believe that both institutions and public policymakers should give serious consideration to reducing the awarding of characteristic-based aid for students without financial need.”
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