STUDENT LOANS, DEFAULTS, AND THE IMPACT ON COMMUNITY COLLEGES

Debbie Cochrane The Institute for College Access & Success

Ben Miller New America

February 9, 2015

2015 Community College National Legislative Summit Higher Education Policy Academy

Public College Costs and Aid for Low-Income Students

____________________________________________________ Tuition $2,630 $7,910 33%

+ Non-tuition costs $12,590 $13,980 90% ____________________________________________________ Total costs $15,220 $21,890 70%

- Grant aid $5,180 $8,450 61% ____________________________________________________ Net price $10,040 $13,440 75%

2-year 4-year Comparison

Notes: Includes students with an EFC of zero who enrolled full-time for the full 2011-12 year at a single institution. Calculations from U.S. Dept. of Education, NPSAS.

Community Colleges and Loans

17 percent of community college students borrow. Community colleges are the only colleges where

graduates typically have no debt. About one million community college students are

enrolled at schools that do not offer federal loans. Many community colleges are concerned about

cohort default rates (CDRs), a primary measure of federal accountability.

Protecting Colleges and Students

Edmonds Community College, WA

Grossmont College, CA

Guilford Technical Community College, NC

Iowa Western Community College, IA

Lane Community College, OR

Minneapolis Community and Technical College, MN

Moraine Park Technical College, WI

St. Philip’s College, TX

Valencia College, FL

Summary of Findings

Clear and strong link between NON-completion and default

Across all colleges in survey: 9% of program completers defaulted, compared to 27% of

those who did not complete 16% of borrowers who completed at least 15 credits

defaulted, compared to 38% of those who did not complete 15 credits

Efforts to promote student success & completion

are default prevention efforts

Summary of Findings, Cont’d

Apart from completion, more differences than similarities: in default rates, gaps, and the make-up of borrowers

Distribution matters: for example, program completers

comprised 13% to 41% of borrowers entering repayment At some colleges, “higher risk” borrowers at some colleges

defaulted at rates similar to lower risk borrowers

Default prevention strategies are not one-size-fits all

Protecting Colleges and Students, In Colleges’ Words

“When a default rate spikes unexpectedly, it is critical to work quickly to identify what's going on and to take action. Our participation in the ACCT and TICAS study helped us to do just that, by shedding light on risk factors so we could reach out to our students more effectively and reduce default rates going forward.” —Dr. Mary F.T. Spilde, President, Lane Community College

“ACCT and TICAS have provided valuable insight into how we can combat the default rate at Iowa Western, with our unique students. This cannot be a one-size-fits-all approach. We now know, if we are to move the needle, we must expand the definition of student success to include financial success as well as academic success, and we must make default prevention an institutional priority.” —Dr. Dan Kinney, President, Iowa Western Community College

Institutional Policy Recommendations

8

Direct Loan participation is important

Routine analysis of CDRs, tailored to college

Default reduction as a campus-wide endeavor

Consider and evaluate third-party partnerships

Reexamine loan practices and packaging

College-driven borrower outreach strategies

CDR appeals when necessary

Trustees Can:

Ask for updates on annual CDR releases

Request that analyses of federal loan borrowers and repayment be conducted and presented to the board

Probe links between student loan repayment and student success

Review third-party contract recommendations to with an eye toward effectiveness

Federal Policy Recommendations

Use Student Default Risk Index (SDRI) for accountability

Type of College Share borrowing

Stafford loans, 2011-12

FY 2011 Three-year

CDR

Student Default Risk

Index (SDRI)

All colleges 41.7% 13.7% 5.7

Public 4-year 47.4% 8.9% 4.2

Nonprofit 4-year 57.8% 7.0% 4.0

Public 2-year 16.9% 20.6% 3.5

For-profit 69.6% 19.1% 13.3

Notes: Calculations based on U.S. Dept. of Education data (NPSAS and official CDRs).

More Federal Recommendations

11

Improve CDR appeals

Enhance & exit counseling resources

Make data sources (NSLDS) more user-friendly

Study pro-rating federal loans based on enrollment

intensity

Auto-enroll severely delinquent borrowers in IBR

Streamline and simplify student loan servicing

ED employs 11 companies to service Direct Loans

12

The “Big Four” • Navient (Sallie Mae) • Nelnet • Great Lakes • Fed Loan (PHEAA)

The Nonprofits • Aspire (IA) • CornerStone (UT) • Edfinancial (10 states) • Granite State (NH) • OSLA (OK) • VSAC (VT) • MOHELA (MO)

Nonprofits will start receiving 25% of all new loans (previously got

only 100k one time)

ED changed contract terms last fall to increase $ for current loans

13

2009

2014

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

Current 6 to 30 31 to 90 91 to 150 151 to 270 271+

Mon

thly

Per

-Bor

row

Pay

men

t

Days Delinquent

Per-Borrower Loan Payments, By Loan Status

Servicers receive set dollars per borrower based upon loan statuses

14

Borrower Status Per-Month

Payment ($)

In-School 1.05

Grace 1.68

In Repayment 2.85

Service Members (any status) 2.85

Deferment 1.68

Forbearance 1.05

6-30 Days Delinquent 2.11

31-90 Days Delinquent 1.46

91-150 Days Delinquent 1.35

151-270 Days Delinquent 1.23

271+ Days Delinquent 0.45

Servicers get future loans based upon relative performance on 5 metrics

15

Metric Weight

Borrower survey 35%

Federal student aid personnel survey 5%

Default rate 15%

% Borrowers that are current 30%

% Borrowers >90 and <271 Days Delinquent

15%

Current issues with servicing 16

Branding Complaint tracking Income-Based Repayment Enrollment School to servicer handoff

Branding 17

Branding 18

Branding 19

Branding 20

Branding 21

Next steps on servicing

New competition not until 2019 Common branding Complaint system Multi-year IBR authorization

Pay as You Earn Expansion

Expands current income-based repayment system to older borrowers

Pay 10% discretionary income instead of 15% Forgiveness after 20 years, not 25 Helps borrowers w/loans before Oct. 1, 2007 Also some borrowers between Oct. 1, 2007 and

Oct. 1, 2011 Requires rulemaking sessions, start Feb. 24

Questions? Contact Us:

Debbie Cochrane dcochrane@ticas.org

510-318-7900

Ben Miller MillerB@newamerica.org

@EduBenM