Quick Take on ECMC/Corinthian Deal

Today, the Education Credit Management Corporation (ECMC), a nonprofit which has several nonprofit and for-profit subsidiaries, announced that it’s buying 56 campuses from for-profit Corinthian Colleges Inc. Here’s our quick take:

ECMC has no experience running a college, let alone one of this scale, and is instead known for ruthless and abusive student loan operations. The agreement provides virtually no relief to the Corinthian students who enrolled and took on debt based on false claims. And with so many other colleges offering lower priced, higher quality career education programs, it’s unclear why this agreement is in the interests of either students or taxpayers.

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CNBC: “Trillion dollar college debt crisis”

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Gainful Employment: For-Profit Colleges Win Big with Elimination of Program-Level CDRs

The final gainful employment rule released last week eliminated a key accountability measure for career education programs. As a result, many programs that would have failed the draft rule will now pass the final rule.  While some have argued that this change was made to benefit public institutions, it’s clear that for-profit colleges – and the University of Phoenix in particular – were the biggest winners.

The draft rule released in March measured career education program outcomes in two ways. First, the debt burdens of program graduates who received federal aid would be compared to their later earnings. Second, students’ ability to repay their loans – including both graduates and noncompleters – would be measured through a program-level cohort default rate, or pCDR. But the final rule uses only one measure: the debt to earnings ratio of program graduates, or DTE.

There are 682 programs that failed the draft rule’s pCDR test but pass the final rule (including those exempted because they have very few graduates). The vast majority of these programs – 89% – are at for-profit colleges, and for-profit college programs account for 97% of the now-passing programs’ defaulters. University of Phoenix programs alone account for 43% of the defaulters at programs that pass the final rule because the pCDR was eliminated.

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What the Final Gainful Employment Rule Means for Parasitic Programs

The release of the final gainful employment rule today is a step in the right direction, but the following examples of programs that meet the final standards make clear just how modest a step it is.

The draft rule released in March would have measured career education program outcomes in two ways. First, the debt burdens of program graduates who received federal aid would be compared to their later earnings. Second, students’ ability to repay their loans – including both graduates and noncompleters – would be measured through a program-level cohort default rate.

Based on the data released in conjunction with the draft rule, we identified 114 career education programs where more students default than graduate. In other words, these are programs where students receiving federal aid to attend these programs are more likely to find themselves unable to repay their debt than they are to complete the program. The particularly shocking part was that, under the draft rule, 20% of these programs passed the Department’s proposed tests, underscoring the need for the rule to be strengthened.

So, what does final rule, which eliminated the use of program-level cohort default rates, mean for those 114 programs that we called parasitic because of their consumption of resources to the detriment of students and taxpayers? It means that 15 more of them will pass the gainful employment tests (in addition to the 23 that passed the draft rule’s tests). Fully one-third (33%) of the 114 parasitic programs would now pass, giving schools no incentive to improve them.

Of the 15 newly passing programs, seven are at the University of Phoenix and include the following:

  • The associate’s degree in web page, digital/multimedia and information resources design, from which the almost 1,600 borrowers who entered repayment defaulted at a rate of 47%.
  • The associate’s degree in corrections and criminal justice, with a cohort default rate of 44% and where the number of defaulters exceeded the number of graduates by more than 3,000.
  • The associate’s degree in professional, technical, business, and scientific writing, where more than four times as many students default as graduate (316 students default vs. 70 students who complete).

For more information about the final gainful employment rule and what more should be done, see our statement here.

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The Middle Class Scholarship’s Embarrassment of Riches

Earlier this week, the Los Angeles Times reported that 73,000 state university students will receive Middle Class Scholarship awards in 2014-15, fewer than half of the 156,000 originally anticipated. The Middle Class Scholarship program was created last year to provide tuition discounts to students with family incomes between $80,000 and $150,000. When we asked California Student Aid Commission staff how much the 2014-15 awards add up to, they told us about $60 million.  That means that about $47 million of the budgeted $107 million for 2014-15 will go unused.

How about putting that money back into Cal Grants, which help students with family incomes up to $80,400 for a family of three (well above California’s median income)? Our analyses have documented that it’s the lowest income students who face the most severe college affordability challenges, and University of California data show that the lowest income students are most likely to graduate from UC with student loan debt.

Part of the problem is that there aren’t enough Cal Grants to go around. For hundreds of thousands of needy students – a group with an average income below $21,000 and a typical family size of three – winning a Cal Grant is even tougher than beating the odds in Vegas. That’s because students who apply for aid more than one year after high school graduation compete for just 22,500 awards authorized annually. In 2013-14, there were 16 eligible applicants for every available award. With $47 million more, the state could fund nearly 20,000 additional competitive grants to support the very students for whom college is least affordable.

When so many low-income students are being turned away, we should at least be redirecting unspent Middle Class Scholarship money to the Cal Grant program to support students who need help the most.

– Debbie Cochrane and Matthew La Rocque

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Why the link between CDRs and Pell Grants is good for students

When too many borrowers default on their student loans, colleges can lose eligibility for federal aid. Colleges with a cohort default rate (CDR) above 40% lose eligibility to offer federal loans, and colleges with three consecutive CDRs at or above 30% lose eligibility to offer both loans and federal Pell Grants.

While some question the wisdom of tying colleges’ eligibility for federal grants to the outcomes of students who borrow federal loans, the link between Pell Grants and CDRs is incredibly important. That’s because federal taxpayers invest tens of billions of dollars in Pell Grants, and CDRs are the primary means of assessing whether colleges are a good investment for federal aid. Colleges can already avoid sanctions through challenges and appeals when relatively few of their students borrow.

To avoid losing access to Pell Grants, the most common form of financial aid for community college students, many schools are examining what they can do to help students avoid default. However, other colleges are citing fears of such sanctions for their decision to stop offering federal loans altogether – even schools that are at very low risk of sanctions. Cutting off access to federal student loans in this way is a problem because it forces students who can’t otherwise afford to stay in school to turn to much riskier types of borrowing, or to reduce their odds of completion by cutting back on classes, working long hours, or dropping out altogether.

Concerns about CDR sanctions have led some to argue that colleges’ eligibility for federal grants should not be tied to an outcome measure for federal loans, and that delinking grants from CDR sanctions might stop colleges from pulling out of the federal loan program. But if the goal is to ensure students are well served and have access to federal loans when they need them, then the logic behind arguments to delink Pell and CDR sanctions falls short on multiple fronts.

  • It wrongly presumes that default rates are entirely out of colleges’ control. In reality, colleges have a number of tools to prevent defaults and keep CDRs within acceptable levels. Given the severe consequences for each individual student who defaults, it’s imperative that colleges use every tool in their toolbox to keep borrowers on track. But as the New York Times recently editorialized, “[W]hat is likely to persuade colleges to deploy these tools in the first place is the threat of losing federal aid if they do not.” Indeed, the threat of losing eligibility for Pell Grants is focusing colleges on what more than can do to keep their students out of default.
  • With no incentive for colleges to keep students out of default, they will invest less in default prevention. This is not a statement about the character of student services professionals at community colleges, but rather about the obstacles they will face when trying to convince college leaders how scarce (and decreasing) resources should be spent. And when loan defaults increase as a result, the college will lose eligibility to offer loans.  So while colleges may be less likely to pull out of the loan program proactively if Pell and CDR sanctions are delinked, they will be more likely to be forced out of the loan program based on their default rate. The threat of losing federal loan eligibility is not going to be enough of an incentive for colleges to focus on keeping defaults down if they’re already considering opting out of the loan program. The end results? First, more community college students in default, and then far more without any access to federal student loans.

The upshot: delinking Pell and CDR sanctions will not help students.  Most community college students do not borrow federal loans. But students who do need to borrow should have access to federal loans, and it’s entirely appropriate to hold colleges deemed worthy of taxpayer investment by the federal government accountable.

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Capitol Hill Briefing – Strategies to Prevent Student Default at Community Colleges: An Overview for Policymakers

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How a Strong Gainful Employment Rule Would Have Helped Corinthian Students

In May, we wrote about the 114 career education programs from which more students default than graduate (it’s actually even worse than that since they have more defaulters in one year than graduates over two years). With Corinthian Colleges now preparing to sell or close all of its campuses, it is worth noting that Corinthian runs 25 of the 114 programs with more defaulters than graduates.

These programs are shockingly bad. Everest College Phoenix Associates’ programs in Securities Services Administration and Management, and in Business, Management and Marketing both had more than three times as many defaulters as graduates. Everest University in Tampa has an Associate’s degree program in Computer and Information Sciences that also has three times as many defaulters as graduates.

An effective gainful employment regulation would help protect students and taxpayers from schools like Corinthian. By enforcing the law requiring career education programs to prepare students for gainful employment in a recognized occupation, a strong rule would hold programs to clear outcome standards and measure their performance against those standards regularly. It would force the worst performing programs to improve or lose eligibility for funding before burying countless students with debts that may haunt them for the rest of their lives.

We and more than 50 other organizations submitted written comments urging the Education Department to improve its draft gainful employment rule to better protect students and taxpayers, including by requiring schools to provide financial relief for students in programs that lose eligibility, limiting enrollment in poorly performing programs until they improve, and closing loopholes and raising standards. If a rule with the changes we called for had already been in effect, Corinthian would long ago have had to rapidly improve or close programs in a way that better protected students and taxpayers.

The final gainful employment rule will be too late to protect Corinthian students, but it is not too late to protect the millions of students enrolling in other schools’ career education programs and the taxpayers who subsidize them.

Click here for a sortable list of the 114 programs with more defaulters in one year than graduate over two years. To read the New York Times editorial on our May blog post, click here.

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California Budget Includes Long Overdue Financial Aid Increase

The California state budget signed last week will make an important down payment towards college affordability for the state’s most financially strapped students.  The agreement includes a long-overdue increase to the Cal Grant B access award, which helps California’s lowest income students pay for books, supplies, transportation, and other non-tuition costs of attending college. Under the new budget agreement, the award would increase from $1,473 to $1,648 – a much-needed step in the right direction after decades of stagnation and a recent cut.

The students who receive Cal Grant B access awards typically have family incomes well below the federal poverty line and attend all types of colleges.  Yet the purchasing power of this award has declined dramatically even as college has become less affordable for all students and families. Had the award kept pace with inflation since it was created in 1969, the original $900 award would be worth about $6,000 today. In 2012-13, low-income California college students had to put three times as much of their discretionary income towards net college costs (total costs after subtracting grants and scholarships) than did higher income students.

The increase to the Cal Grant B access award is welcome news to a statewide coalition – including civil rights, college access, and business groups, and every statewide student association – that has recommended increasing the Cal Grant B access award so that our state financial aid policies do not leave low-income students even further behind. Importantly, the budget also enables Cal Grant recipients who lose eligibility for renewal grants because their financial situation temporarily improves to later regain eligibility if their finances worsen, fixing an unintended consequence of the 2012 Budget Act.

To be clear, these financial aid changes are not a silver bullet for solving the college completion crisis and equity gaps that plague our state, or even the affordability challenges facing low-income students.  Even at the new level of $1,648, the Cal Grant B access award will still be worth far less than it was a generation ago: it will not even cover the estimated cost of books and supplies ($1,746) let alone other educational expenses. Furthermore, far too many Cal Grant eligible students will continue to be turned away because there simply aren’t enough grants for those who don’t enroll in college right after high school or miss the application deadline.  Still, the Cal Grant B increase is a crucial step in the right direction, and we applaud the California Legislature, Assembly and Senate leadership, and the Governor for making a smart investment in California’s future.

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Playing the Cal Grant Odds

California college students who meet Cal Grant eligibility requirements are guaranteed a Cal Grant if they’re recent high school graduates who meet the application deadline. But students who apply for a grant more than one year after finishing high school or who miss the application deadline face a starkly different reality. Just 22,500 Cal Grants for these students – called “competitive” Cal Grants – are authorized each year. And for 2013-14, there were 16 eligible applicants for every authorized award.

In other words, an eligible applicant’s chance of receiving a competitive Cal Grant is about 6 percent. Wondering how that stacks up against other notoriously long odds? We did some digging and found that it’s tougher for an eligible student to earn a competitive Cal Grant than:

• for a gambler to win in a Las Vegas casino (13 percent);1 or

• for a high school senior who applies to Ivy League colleges to actually get into one (9 percent);2 or

• for a college baseball player to get drafted by a Major League team (9 percent).3

Getting financial aid shouldn’t be harder than beating the odds in Vegas, getting into the Ivy League, or making the majors. The hundreds of thousands of eligible students denied Cal Grants have an average family income below $21,000 for a family size of three, and an average GPA of 3.0. The odds confronting these students are far too long, and the losers far too deserving, for policymakers to continue accepting the status quo. Parallel efforts are underway in the California State Assembly, via this year’s budget negotiations and Assembly Bill 1976 (Quirk-Silva), to increase the number of competitive grants available and ensure that all authorized grants are actually getting to students. Putting our money on high-achieving, low-income students isn’t just a safe bet – it’s an investment with great returns for California.

– Matthew La Rocque

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Across all games and tables in the Clark County Downtown Las Vegas area, the average win percentage is about 12.8 percent. For slot machines, the average win percentage is about 6.7 percent. State of Nevada. State Gaming Control Board. Gaming Revenue Report. December 31, 2012. http://gaming.nv.gov/modules/showdocument.aspx?documentid=7618.

Among applicants for the Class of 2018, the aggregate admissions rate across the eight Ivy League colleges was about 8.9 percent. Washington Post. March 28, 2014. http://www.washingtonpost.com/local/education/the-ivy-league-admission-rate-8-point-something-something-percent/2014/03/28/558400de-b67e-11e3-8cc3-d4bf596577eb_story.html.

About 9.4 percent of NCAA senior male baseball players will get drafted by a Major League Baseball (MLB) team. NCAA Research. Estimated Probability of Competing in Athletics Beyond the High School Interscholastic Level. 2013. http://www.ncaa.org/sites/default/files/Probability-of-going-pro-methodology_Update2013.pdf.

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