January 29, 2008

For more information: Bob Cohen                           Luke Thomas
                                 202-336-6836                         202-336-6803
                                 bobc@career.org                     luket@career.org

 

Study Finds Default Rate is a Poor Predictor of Institutional Quality

Washington, DC – A new study released today finds no linkage between the type or quality of educational institutions and the rate at which borrowers default on their student loans.  The Career College Association (CCA) commissioned and the Indiana University School of Education conducted the research, which involved a literature review of 41 studies of student loan default between 1978 and 2007.

“As Congress takes up the Higher Education Act reauthorization and, with it, the Grijalva-Bishop Amendment, we offer a comprehensive and unprecedented research study finding no correlation between the caliber or type of higher education institution students attend and the rate at which borrowers default on their student loans,” said CCA President Harris N. Miller. 

Miller continued, “While some may wish to extend the cohort default rate calculation period as a way to punish career colleges, there is no evidence that links educational quality or type of institution with loan repayment rates.  At a minimum, the issue of extending the default rate calculation deserves careful deliberation and additional study.  A rush to judgment will only hurt tens of thousands of working class and low income students by foreclosing their higher education options.” 

Don Hossler, PhD, Professor of Educational Leadership and Policy Studies and Director of Project on Academic Success at Indiana University’s School of Education, led a team of researchers that prepared the new study.  Hossler said the research team emphasized empirical research based on multivariate analysis to control factors in what can otherwise be a complicated and confusing question to solve. 

“When it comes to understanding why borrowers default on their student loans, several issues matter and others, at least according to high caliber research, do not,” Hossler said.  “The empirical evidence suggests that default rates are not good vehicles for assessing the quality of institutions.”

Factors that do seem to influence whether or not a borrower repays a student loan include:

• Measures of academic success, including completing a program of study, credits attempted and earned, grades earned, transfers, multiple enrollments and time to completion;
• Age and competing obligations, with older students juggling more financial and family obligations more likely to default;
• Post-graduate earnings and the ratio of earnings to debt;
• Family income and parental education, with those coming from better educated, more affluent homes less likely to default.

The Grijalva-Bishop Amendment would extend the calculation of student loan cohort default rates from two years to three.  The Department of Education has estimated that the new rule will increase the cohort default rate (CDR) by 60 to 98%.  Institutions with a CDR of 25% for three consecutive years or 40% for any one year lose access to Title IV funds.  The CDR is used as a metric of institutional quality, and schools that exceed the trigger level percentages are punished.  This means their students will no longer qualify for Pell Grants, the campus-based aid programs, Stafford FFEL or Direct Loans.  Even schools exceeding a 10% CDR face restrictions on receiving and disbursing funds. 

“For Americans to compete in the global workforce, they need education beyond high school,” Miller said.  “Over the years, the federal government has decided that its role in helping the American people to obtain that education will be more through loans and less through grants.  So long as this is the case, loan repayment will be a significant challenge for those struggling the hardest to improve their economic circumstances. But punishing schools designed to help them succeed makes no sense.”

The Career College Association (CCA) is a voluntary membership organization of accredited, private postsecondary schools, institutes, colleges and universities that provide career-specific educational programs. CCA has more than 1,400 members that educate and support over one million students each year for employment in over 200 occupational fields. CCA member institutions provide the full range of higher education programs:  masters and doctoral degree programs, two- and four-year associate and baccalaureate degree programs, and short-term certificate and diploma programs.  Visit CCA at   www.career.org.

 

cohort default rate student lending