Beware of Those Pointing Fingers

by Dr. Watson Scott Swail, President & CEO, Educational Policy Institute/EPI International

The higher education rags and blogosphere is filled with talk of the career college sector right now, instigated in part by a set of new rules emanating from the US Department of Education recently. This is reminiscent of the 1992 reauthorization, where Congress and ED went after the for-profit “fly-by-night” colleges. In 1992 and the years preceding the reauthorization, Congress called them “fly-by-night.” This year the term is “bad apples.” Semantics.

In 1992, the HEA did, in fact, rid the postsecondary world of hundreds, if not thousands, of colleges that were not performing in the best interest of students or society. It also imposed rules to curb high default rates among postsecondary institutions, with the real target the proprietary institutions. But these rules also properly impacted the remainder of higher education, especially two-year public institutions and many “special” four-year public institutions, such as HBCUs and HSIs.

Interestingly enough, the Chronicle of Higher Education posted an article this morning about the default rates of postsecondary institutions, noting something that I and many other wonks have known for years: the two-year Cohort Default Rate (CDR) used by The Department is a piece of junk. As noted in Kelly Field’s article today, the CDR counts the defaults of students within the first two years of repayment, following the six-month grace period following graduation. This is a period when colleges and loan providers/collectors practice “due diligence” to ensure that students have the information they need and make repayments as required by law.

It’s after that period that things get interesting. Back in about 2004, I was privy to an analysis conducted by a large state-based student loan guarantee agency which reported that the six-year default rate hovered over 20 percent for almost all college sectors—not the nice less-than five percent that colleges and universities strive for in the two-year CDR. That is, defaults explode after the due diligence period. In 2014, the Department will use a three-year rate, which, according to NACUBO, will result in CDRs about 75 percent higher than in the two-year rate.

Thus, the CDR has conveniently masked the real story in loan defaults. And as the Chronicle story confirmed this morning, defaults are massive: about 1-in-5 over a 15-year period. Too damn high.

While Congress continues to point fingers at the for-profit sector, the public and private not-for-profit sectors are quietly shaking in their boots because they know that if Congress gets their way and vilifies the career colleges, the Wizard’s curtain will be quickly pulled back for the public to see. Field’s article points out that the 15-year rate for public two-year institutions was 31 percent. Put another way for the algebra-challenged, 1 out-of-every 3 community college students who take out a student loan (approximately 43 percent of all two-year public students) will default on that loan. One third.

Over the past half century, we have placated ourselves into championing the poor and the challenged by providing higher education opportunity for those who, at least historically, could not go to college because of cost or preparation. And while there is support to suggest that finances still serve as a formidable barrier to low-income students and families, the federal and state financial aid systems provide a credible financial support system that those who are prepared and want to go to college.

However, we have completely failed on the other part of the formula: academic preparation. Data from the National Postsecondary Student Aid Study (NPSAS) shows that the only real people who default on student loans are those who dropout. According to the NPSAS data I use widely in presentations and workshops, 22 percent of students (any type of institution) who dropout and have a student loan end up defaulting on that loan. Comparatively, only two percent of completers default. Two percent. That almost doesn’t even register, when economists consider four-percent unemployment “full employment.” Finishing counts, and those who are prepared finish. They get their degree or diploma and get a job. Then they repay their student loan(s). Diligently.

The real story could be about Cohort Default Rates and how we measure them (which should be six-year). And perhaps a further commentary will discuss that somehow a 30-percent rate will be adequate to the Department in 2014. But the real story is about opportunity and access. We don’t want to close the doors of postsecondary education to anyone who has the wherewithal to participate and complete. But we need to have a real discussion about who these students are and what we can do to level the playing field—a field damaged by our social inequities.

The truth is hard but it is real—we don’t do students any favors by letting them into higher education if they can’t compete, let alone complete. Twenty-two percent. One-in-five. DEFAULT. Too many. For those students, many of whom will enter bankruptcy protection (hardly “protection”), their lives are not made better by going to college or university. They are made worse.

I don’t have a great solution to this issue, because the obvious solution would be to shutter certain institutions and raise the academic standards for access to the postsecondary world. On a completely numerical and cold-hearted basis, that makes sense. But we also know that students who “look” like they can’t or won’t achieve will. They will beat the odds and they will improve their lives. They will break the cycle of poverty and all that comes with it, simply because they were given a chance—and they made the most of it.

This “opportunity” comes at a stiff cost to the taxpayer that results in higher tuition fees and even higher subsidies to public institutions from various government sectors. We need to bring that conversation back to the table. We need to come to better terms with the cost side of higher education as it relates to the price for taxpayers and students.

I’ve argued many times—this is all about academic preparation. If we can’t do a better job of preparing all students for postsecondary education—we shouldn’t be sending them through. It is, for all intent, a variation of social promotion that we see in elementary and secondary schools. But this time we ask the students to pay for their misfortunes—some that they created on their own—but knowing full well that we helped promulgate this issue and their realities by not ensuring that students (a) graduate from high school and (b) learn to learn. If we want the postsecondary system to work, if we want to complete globally—then we need to improve academic preparation. Period. We do that, there will be no CDR discussion. There will be less discussion about the halves and the half-nots.

It won’t solve all our woes, but it will solve many.

So, while Congress continues to pile on the for-profit sector, and while the other sectors are interestingly “mum” on the issue, let’s encourage a more fruitful conversation about higher education in general, knowing that we must be exceedingly mindful of the preparation of students before they get to college.

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