Receiving some type of education beyond high school is more important now than ever before. But as students are presented with an endless menu of choices to best fit their career aspirations and educational needs—some of which come at a significant cost—policymakers are concentrating their efforts on making sure students are set up for success as a result of their investment.
One of the primary ways institutions are held accountable is through the cohort default rate (CDR), a key metric that measures students’ ability to repay their federal loans. Institutions spend many hours analyzing and reacting to CDRs, especially when the rates are released to the public.
From the Department of Education, colleges and universities with default rates above 30 percent for three consecutive years or 40 percent for a single year may lose eligibility to award federal student aid. But few institutions actually lose eligibility. In Robert Kelchen’s book “Higher Education Accountability,” he notes that only 11 colleges have lost access to all federal financial aid due to high CDRs between 1999 and 2015. Institutions are able to keep their rates low by getting students to defer payments during the default rate calculation period. Due to the apparent loopholes in using the CDR as an accountability metric, many consider it to be ineffective.
The Forward50 accountability subgroup has been meeting to discuss the current CDR calculation and look at new models. The subgroup believes that moving from a cohort default rate to another measure of accountability, such as repayment rates, must fairly recognize the institution’s contribution to reducing student borrowing and to prioritizing improved success and completion. For instance, if an institution is to share in the repayment risk when a student enrolls and obtains federal student loans, the proposed measurement should provide credit to institutions with programs focused on completion initiatives for at-risk students. Credit should be given for programs such as financial literacy, focused advising, faulty mentoring, freshman bridge classes, and implementation of financial aid best practices.
Additionally, credit should also be given to institutions focused on providing student loan initiatives designed to help students understand loan obligations. This would differentiate between institutions focused on student success and those concerned primarily with the use of federal aid program dollars to meet budget needs.
There have been research proposals suggesting moving to a review of repayment rates for individual programs—rather than the institution as a whole—for risk-sharing. This will require additional data modeling to avoid unintended consequences, such as limiting access for low-income students to certain academic programs. Because academic programs vary between institutions and educational sectors, it is unclear how this change could be implemented without adding more complexity, uncertainty, and regulatory burden to the overall review process.
There is also an understanding that a one-size-fits-all approach fails to take into consideration different institutional missions. Per the NASFAA Issue Brief on institutional risk-sharing, a poorly designed risk-sharing model could have an impact on at-risk students and limit access.
The Forward50 accountability subgroup has been reviewing numerous research papers and legislative proposals focused on replacing the CDR with a different measurement. The subgroup has put together two proposals: a new measurement focused on loans in a positive repayment status and a second model reviewing possible changes to the current CDR calculation. Data models have been put together and are being reviewed. These will be made available for public comment later this fall.
Catch up on any past Forward50 blog entries you may have missed.