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U.S. Department of Education

Lack of Standard Definition for Job Placement Rates Fuels Abuses

October 15, 2013

Last Thursday California Attorney General Kamala D. Harris filed a lawsuit against Corinthian Colleges accusing the company of deliberately deceiving prospective students and investors about the company’s record in placing graduates into jobs. The California AG’s action comes just two months after New York Attorney General Eric T. Schneiderman reached a $10.25 million settlement with Career Education Corporation over similar charges.

The two cases together underscore the need for policymakers to develop a single, national standard that for-profit colleges would be required to use when calculating their job placement rates and to establish a strict regulatory regime to make sure that the rates are not rigged. U.S. Department of Education officials have the opportunity to establish such standards when they rewrite the Gainful Employment regulations.

Currently, the federal government leaves it up to accreditation agencies and states to set the standards that for-profit schools must use to calculate the rates and to monitor them. The only exception is for extremely short-term job training programs, which must have employment rates of at least 70 percent to remain eligible to participate in the federal student loan program.

As a result, the methodologies that for-profit colleges use to calculate these rates vary state by state and accreditor by accreditor, making them impossible to compare. And without a single standard in place, the schools can easily game the system.

Take Career Education Corporation, for example. According to the NY AG’s findings, officials at the company’s health education schools counted graduates as being employed if they worked for a single day at community health fairs. In some cases, school officials allegedly arranged for these fairs to be held so that they could pump up their institutions’ job placement rates.

These practices were not devised and carried out by “rogue” employees. The investigation found that “high-level Career Services managers” at the company’s headquarters “not only knew about the practice of counting employment at single one-day health fairs as ‘placements,’ but explicitly condoned and even encouraged the practice of recording such employment as ‘placements.’”

Meanwhile, the California AG found that in large part the placement rates that Corinthian Colleges (CCI) has disclosed cannot be substantiated. “The data in the disclosures published on or about July 1, 2012 for all campuses in California and online campuses does not match or agree with the data in CCI’s own database system and/or in student files,” the lawsuit states. “In numerous cases, the placement rate data in CCI’s files shows that the placement rate is lower than the advertised rate.”

For example, Corinthian “advertised job placement rates as high as 100% for specific programs when, in some cases, there is no evidence that a single student obtained a job during the specified time frame,” the AG’s office wrote in a press release announcing the lawsuit.

Some of Corinthian’s Everest College campuses went as far as paying temp agencies to place graduates in short-term jobs to help the schools meet the minimum job placement rates required by their accreditors, the lawsuit states. Others appear to have fabricated the data. In many cases, the documentation needed to verify placements was just plain missing.

The AG’s complaint includes excerpts from internal company e-mails showing that top Corinthian executives were fully aware of the problems with the data but did little about them. “Corinthian Colleges, Inc.’s CEO and/or senior management were, at all relevant times, aware of the falsity, inaccuracy, and unreliability of job placement data and the statements they made concerning the data yet they did not disclose that fact to consumers or investors, or take any action to make consumer disclosures and statements to investors accurate,” the lawsuit says.

These cases show that the Education Department needs to create a single national job placement rate standard that makes clear exactly what types of practices are allowed and which are not. And it needs to develop a strict regulatory regime that will hold for-profit colleges accountable for these types of abuses.

Students rely heavily on job placement rates when deciding which career college program to attend. The least we can do is make sure that schools are not cooking the books on the rates they disclose.

Should Secretary Duncan Apologize to For-Profits for Parent PLUS Loan Debacle?

October 9, 2013
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This blog post is the fourth part in a series that takes a look at recent changes to the credit criteria for Parent PLUS loans and the subsequent effect on colleges and universities. You can find the rest of the series here.

Since making relatively minor changes to the credit check requirements for Parent PLUS loans last year, the Department of Education has been under a firestorm of criticism from historically black colleges and universities (HBCUs) and their lobbying organization, the National Association for Equal Opportunity (NAFEO). According to HBCUs, the impact of the policy change caused a significant decline in enrollments and a huge loss in revenue for their institutions. In an effort to ease tensions, Education Secretary Arne Duncan recently apologized to HBCU leaders at their annual meeting saying, “I am not satisfied with the way we handled the updating and changes to the PLUS loan program. Communication internally and externally was poor. I apologize for that, and the real impact it had.”

But if Secretary Duncan really wanted to apologize to the colleges most affected by the change to Parent PLUS loans, he should have been talking to for-profit colleges, not HBCUs. After all, since the policy change was implemented two years ago, for-profits have lost approximately $790 million dollars more than HBCUs in PLUS disbursements. Why is that? The for-profit sector has a much higher percentage of Parent PLUS borrowers than at HBCUs.

Using recently released data from the U.S. Department of Education’s Office of Federal Student Aid (FSA), I analyzed Parent PLUS loan data from pre-recession 2006 to 2013. From 2009 to 2011, both for-profits and HBCUs saw huge increases in recipients (approximately 50,000 and 15,000 more recipients respectively) and disbursements (approximately $450 million and $156 million respectively). This was the peak of the recession, at a time when family net worth diminished while college prices soared. Parents turned to PLUS loans to help send their children to higher-priced colleges that could not or would not help them fill the gap with institutional aid.

 
 

However, since the change to the credit check, both sectors saw huge declines in recipients and disbursements (Tables 1 and 2). From 2011 to 2013, HBCUs experienced a 45 percent decline in PLUS borrowers and a 27 percent decline in PLUS disbursements. The for-profits experienced a much starker decline over the same period. At for-profits, PLUS loan borrowers and disbursements declined 54 percent. In addition, while HBCUs experienced a decline in PLUS recipients over the past five years, their disbursements increased 14 percent. Meanwhile, the for-profit sector experienced a five-year 30 percent decline in recipients and a 33 percent decline in disbursements.

What’s most startling is the overrepresentation of Parent PLUS borrowers at for-profits compared with HBCUs (see Chart 3 and Table 3).2 While HBCUs have been the most vocal opponents of the changes to PLUS loans, they actually make up a very small share of volume in the program. Approximately 2 percent of undergraduates are in HBCUs and these institutions represent between 3 and 4 percent of PLUS borrowers. The data from for-profit institutions, however, show a larger overrepresentation. From 2006 to 2011, the share of for-profit enrollments fluctuated from 7 to 11 percent, but accounted for 16 to 18 percent of total Parent PLUS loan recipients. In other words, Parent PLUS borrowers at for-profit colleges were almost 1.7 times overrepresented compared to their share of enrollment. That’s incredible considering that normally for-profit institutions have been seen as catering to the needs of adult, “nontraditional,” independent students who don’t qualify for Parent PLUS loans. It seems that there are quite a few traditionally-aged, dependent students attending for-profit institutions, and it’s costing their families a lot of borrowed money.

 

So why aren’t the for-profits crying foul? One reason may be that they are letting HBCUs do it for them. For-profits know that they have been criticized for saddling students with unmanageable debt, and know that complaints about lost revenue from high-cost loans are unlikely to receive a sympathetic ear from the Obama Administration, Congress, or the media. By contrast, HBCUs have strong political connections through the Congressional Black Caucus, a White House initiative located within the Department of Education, and a generally sympathetic ear from the Obama Administration, which secured a total of $850 million from 2010 through 2019 in additional formula money for HBCUs.

So by letting HBCUs make the PLUS loan changes a racially-charged issue, for-profits are able to let a politically popular group seek out changes to the credit check that will help all borrowers, regardless of the institution type. But this approach loses sight of the bigger issue—PLUS loans provide large amounts of intergenerational, inflexible debt to families who may be unable to pay that money back.  And continuing to present the issue in terms of revenue lost to schools allows high-cost institutions (especially for-profit institutions) avoid the real issue, which is that their high tuition—enabled by parent PLUS loans—is pricing students out of an affordable education.

Arne Duncan shouldn’t have to apologize to anyone for making a policy change meant to protect students and families. But if he has to apologize to HBCUs, it’s only fair that he apologize to the for-profits as well.

 

1Also worth noting during this time period was the transition to full Direct lending. Before July 2010, federal loans could be made under two programs—Direct and the Federal Family Education Loan (FFEL) program. The change to Direct Lending saved the government money by cutting out subsidies to loan middlemen. However when the change was made, the number of Parent PLUS loan approvals increased due in part to a discrepancy between how the Education Department defined adverse credit compared with FFEL lenders. In October 2011, the Education Department changed its definition of adverse credit slightly to match what it was under the FFEL program. 

2Note that the data on enrollment from 2012 and 2013, during which time for-profit enrollment dropped significantly, are not yet available so we will have to wait to see how both sectors’ share of enrollments and recipients changed during those two years.

Edited 10/9/2013 at 1:17pm to change title.
Edited 1/10/2014 at 1:18pm to change the over/under representation data.

House Republicans Fight to Keep Loophole in For-Profit Colleges’ 90/10 Rule

October 7, 2013

Update 10/15/2013 2 PM: This post was edited to reflect that the proposed reform would include Tuition Assistance in the 90 percent calculation, not the 10 percent.

Congress failed to reach an agreement on funding the government for fiscal year 2014, which began on October 1, 2013, shutting down the federal government. That high-stakes budget battle has overshadowed a different disagreement between the House and Senate that could have a big effect on education benefits for members of the military – and for-profit colleges.  

The disagreement is on the Department of Defense Appropriations Act, one of the annual bills that funds the DOD. The House passed the bill back in July and sent it to the Senate. The Senate Appropriations Committee passed the bill on August 2 – but included a change to an existing test for colleges called the 90/10 rule.

The 90/10 rule states that private for-profit colleges must get at least 10 percent of their total revenue from non-federal sources, namely tuition collected from the student or his family. Failure to do so can result in losing access to Title IV funds. The 90 percent includes federal Title IV aid – Pell Grants, federal student loans, and more. It does not include nearly $12 billion spent annually on servicemembers’ and veterans’ education benefits through the Department of Defense or the Department of Veterans Affairs (VA), nor does it include more than $25 billion annually lost to tax expenditures.

The new proposed language in the DOD fiscal year 2014 bill would change some of those exclusions. Military education assistance for spouses of servicemembers or off-duty training and education for servicemembers themselves would be included in the 90 percent calculation. Additionally, for-profit colleges couldn’t use any of that Tuition Assistance (DOD) funding to advertise, recruit, or market to students.

All in all, the provision is pretty limited. The Department of Defense spends only about $517 million per year on these benefits, a small share of the DoD budget or even of federal higher education funding. VA benefits, the much larger pot of money that includes the Post-9/11 GI Bill, among other education provisions, would not be affected by the new NDAA provision.

And because there are no publicly available data that provide the institution-level breakdown of the dollar amount of DOD and VA benefits spent, it’s impossible to know exactly how many schools might be affected. A paper published by financial aid expert Mark Kantrowitz this summer used national averages to estimate that adding in DOD and VA benefits would add about 2 percentage points to a school’s 90/10 amount (for example, a school that received 88 percent of benefits from federal Title IV sources under the current system would receive 90 percent when military benefits were added in. Click here to search for a school and see its 90/10 percentage, alongside other data).Those effects could be more or less severe, depending on the school’s reliance on military student benefits.

Kantrowitz also suggested the effects of banning the use of federal money for marketing would be far more drastic. Since the largest for-profit schools spend about 20 percent of their total revenue on advertising and recruitment, he argues it would effectively increase the threshold for schools to 80/20. Again, though, the largest for-profit schools may not be a good sample to judge the effects on all schools subject to 90/10 – for some schools, it could be far less than 20 percent, or for some schools, even more.

Last week, four Republican members of the House – John Kline, Chair of the Education and Workforce Committee; Jeff Miller, Chair of the Veterans’ Affairs Committee; Buck McKeon, chair of the Armed Services Committee; and Bill Flores, chair of the Economic Opportunity Subcommittee on the Veterans’ Affairs Committee – sent a letter to key members of the House Appropriations Committee disparaging the Senate provisions. They asked that the new restrictions be removed before the defense appropriations bill passes the House again.

Their reasoning?

The marketing provision implies schools are “preying” on unsuspecting members of the military and their families, and the 90/10 rule is both unproductive and unable to account for the fundamental differences between Title IV and military education benefits.

They aren’t the first to suggest concerns with the 90/10 rule, writ large. The rule is intended as a kind of rough, imperfect metric of quality – schools that aren’t able to garner at least 10 percent of revenue from non-federal sources have presumably been labeled by the market as not worth paying for. But it can have other, unintended effects, mainly discouraging schools from serving low-income students or compelling them to raise tuition. Since the 90/10 rule includes no measure of outcomes or of how well the school serves those students, it may just be leading to the exclusion of students who can’t contribute the school’s 10 percent of non-federal revenue. (Incidentally, better data in the form of a student unit record data system could allow for better quality measures and make the 90/10 rule irrelevant.)

But including military benefits within the 90/10 rule is a no-brainer, whether or not the rule is revised to avoid these unintended consequences or to incorporate additional quality measures. The question at hand is whether students and families are willing to shell out for a particular school at which many students receive federal aid – at least 10 percent of the school’s total fiscal intake. DOD and VA benefits, as federal benefits for students, fall squarely on the 90 percent side of the equation. Failing to include them creates a perfect loophole for exploitation of servicemembers and veterans by schools that can’t otherwise meet a basic financial test.

The Federal Education Budget Project, Ed Money Watch’s parent initiative, maintains a comprehensive database that includes data on the 90/10 rule for all institutions of higher education subject to the rule, as well as other cost, finance, demographics, and outcomes data. Click here to search for your school or here to download the institution-level research file.

Government Shutdown Strands Departments of Education, HHS with Few Staff, No Money

October 1, 2013

This post first appeared on our sister blog, Ed Money Watch.

Congress spent the final moments of fiscal year 2013 last night in the throes of a debate over funding the government. Unable to reach agreement despite days of back-and-forth between the House and Senate, however, the government officially shut down at midnight on September 30.

Federal agencies were ordered just before midnight to begin implementing plans for a federal shutdown absent funding for fiscal year 2014, which began on October 1. Skeleton crews will remain in place at the Departments of Education and Health and Human Services (HHS) for the length of the shutdown, but most employees will be furloughed.

The first few days of the shutdown likely won’t be very severe. Education programs funded with mandatory spending—including Pell Grants and federal student loans—will continue to operate as normal. And most of the big K-12 programs, namely Title I grants to low-income students and IDEA special education grants to states, have already seen a substantial portion of their funding disbursed. Those and other programs that have already been awarded will be okay in the short term.

Some other programs won’t be so lucky. About 20 Head Start programs, enrolling nearly 19,000 children, have grants that expire on October 1 and won’t receive new funding to continue operating until the shutdown is resolved. Other federal programs, including work-study aid for college students, will also be delayed.

If the shutdown wears on, though, it could start to impact school districts, institutions of higher education, and postsecondary students more severely. Some staffers for the Departments of Education and Health and Human Services will return to the agencies to ensure operations function as normally as possible. But with no funding appropriated yet for fiscal year 2014, school districts and students are sure to pay the cost.

The dispute that led to the first federal shutdown in 17 years centered around the implementation of the Affordable Care Act, the healthcare law passed in 2010 for which some provisions also went into effect on October 1. Some Republican members of the U.S. House of Representatives insisted on defunding and/or delaying for one year the law’s implementation, while Democrats in Congress, as well as President Obama, demanded a clean funding bill with no alterations to the healthcare law.

The debate over the Affordable Care Act is masking another divide in Congress that needs to be resolved before an annual appropriations bill is finalized, though: how and whether to fund domestic programs within a shrunken budget.

The 2011 Budget Control Act sets an overall limit on funding for domestic programs, and to avoid finding the required spending cuts in fiscal year 2013, Congress and the president enacted a law in late 2012 to reduce the 2014 levels further. That means this year, lawmakers will have to find another $18 billion in cuts to fiscal year 2014 appropriations to avert mandatory and automatic across-the-board sequesters applied to most federal programs.

But Senate Democrats have said they won’t support a bill within those limits, and House Republicans now have cold feet having realized they’d have to cut a big chunk of domestic funding back to fiscal year 2002 levels. So neither the House nor Senate has voted to approve its own spending bill for the Departments of Labor, HHS, and Education. Assuming lawmakers don’t manage to find the cuts themselves, many federal programs, including most education ones, will be sequestered again. The continuing resolutions debated over the past week have appropriated well above the 2014 rate, at prior-year levels. That means lawmakers have likely set up federal programs for another round of blunt cuts down the line.

All in all, the shutdown leaves policymakers in D.C. and recipients of federal dollars around the country with a great deal of uncertainty. Congress could choose to end this shutdown quickly, before many serious side-effects occur. Or the shutdown could drag on, with neither side willing to cave. There could even be a short-term temporary funding bill—as short as one week, some lawmakers have argued—that would precipitate another round of the same debates almost immediately.

Finally, in just a few weeks, on October 17, the U.S. is projected to reach the nation’s debt ceiling. A bill to raise the debt ceiling could be seen as a prime legislative vehicle to pass a 2014 spending bill – but some members of Congress are considering yet another showdown when the debt ceiling debate rolls around.

Check back with Ed Money Watch and Higher Ed Watch over the coming weeks for more details, and for information on the 2013 and 2014 appropriations process, we’ve got the details in our April 2013 issue brief, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis.

Government Shutdown Strands Departments of Education, HHS with Few Staff, No Money

October 1, 2013

This post first appeared on our sister blog, Ed Money Watch.

Congress spent the final moments of fiscal year 2013 last night in the throes of a debate over funding the government. Unable to reach agreement despite days of back-and-forth between the House and Senate, however, the government officially shut down at midnight on September 30.

Federal agencies were ordered just before midnight to begin implementing plans for a federal shutdown absent funding for fiscal year 2014, which began on October 1. Skeleton crews will remain in place at the Departments of Education and Health and Human Services (HHS) for the length of the shutdown, but most employees will be furloughed.

Government Shutdown Strands Departments of Education, HHS with Few Staff, No Money

October 1, 2013

This post also appeared on our sister blogs, Early Ed Watch and Higher Ed Watch.

Congress spent the final moments of fiscal year 2013 last night in the throes of a debate over funding the government. Unable to reach agreement despite days of back-and-forth between the House and Senate, however, the government officially shut down at midnight on September 30.

Federal agencies were ordered just before midnight to begin implementing plans for a federal shutdown absent funding for fiscal year 2014, which began on October 1. Skeleton crews will remain in place at the Departments of Education and Health and Human Services (HHS) for the length of the shutdown, but most employees will be furloughed.

The first few days of the shutdown likely won’t be very severe. Education programs funded with mandatory spending—including Pell Grants and federal student loans—will continue to operate as normal. And most of the big K-12 programs, namely Title I grants to low-income students and IDEA special education grants to states, have already seen a substantial portion of their funding disbursed. Those and other programs that have already been awarded will be okay in the short term.

Some other programs won’t be so lucky. About 20 Head Start programs, enrolling nearly 19,000 children, have grants that expire on October 1 and won’t receive new funding to continue operating until the shutdown is resolved. Other federal programs, including work-study aid for college students, will also be delayed.

If the shutdown wears on, though, it could start to impact school districts, institutions of higher education, and postsecondary students more severely. Some staffers for the Departments of Education and Health and Human Services will return to the agencies to ensure operations function as normally as possible. But with no funding appropriated yet for fiscal year 2014, school districts and students are sure to pay the cost.

The dispute that led to the first federal shutdown in 17 years centered around the implementation of the Affordable Care Act, the healthcare law passed in 2010 for which some provisions also went into effect on October 1. Some Republican members of the U.S. House of Representatives insisted on defunding and/or delaying for one year the law’s implementation, while Democrats in Congress, as well as President Obama, demanded a clean funding bill with no alterations to the healthcare law.

The debate over the Affordable Care Act is masking another divide in Congress that needs to be resolved before an annual appropriations bill is finalized, though: how and whether to fund domestic programs within a shrunken budget.

The 2011 Budget Control Act sets an overall limit on funding for domestic programs, and to avoid finding the required spending cuts in fiscal year 2013, Congress and the president enacted a law in late 2012 to reduce the 2014 levels further. That means this year, lawmakers will have to find another $18 billion in cuts to fiscal year 2014 appropriations to avert mandatory and automatic across-the-board sequesters applied to most federal programs.

But Senate Democrats have said they won’t support a bill within those limits, and House Republicans now have cold feet having realized they’d have to cut a big chunk of domestic funding back to fiscal year 2002 levels. So neither the House nor Senate has voted to approve its own spending bill for the Departments of Labor, HHS, and Education. Assuming lawmakers don’t manage to find the cuts themselves, many federal programs, including most education ones, will be sequestered again. The continuing resolutions debated over the past week have appropriated well above the 2014 rate, at prior-year levels. That means lawmakers have likely set up federal programs for another round of blunt cuts down the line.

All in all, the shutdown leaves policymakers in D.C. and recipients of federal dollars around the country with a great deal of uncertainty. Congress could choose to end this shutdown quickly, before many serious side-effects occur. Or the shutdown could drag on, with neither side willing to cave. There could even be a short-term temporary funding bill—as short as one week, some lawmakers have argued—that would precipitate another round of the same debates almost immediately.

Finally, in just a few weeks, on October 17, the U.S. is projected to reach the nation’s debt ceiling. A bill to raise the debt ceiling could be seen as a prime legislative vehicle to pass a 2014 spending bill – but some members of Congress are considering yet another showdown when the debt ceiling debate rolls around.

Check back with Ed Money Watch over the coming weeks for more details, and for information on the 2013 and 2014 appropriations process, we’ve got the details in our April 2013 issue brief, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis.

How to Waste Millions of Dollars on Something Students Hate More than Sallie Mae

September 26, 2013

Sallie Mae might be the most unpopular entity in education (just look at social media if you think otherwise). As a recent post by Rohit Chopra at the Consumer Financial Protection Bureau notes, the Delaware-based loan giant had the worst overall performance record among the four companies that won competitive contracts to service new federal student loans. In response, Sallie Mae’s contract to service federal loans says the company will get fewer loans to work with next year (meaning they get paid less) and other servicers get more.

Meanwhile, the U.S. Department of Education is required to give a completely different group of servicers a free pass, even if their results may be substantially worse than the four competitively chosen companies. And it pays them more per borrower than Sallie Mae, too. But this is no accident. It’s an intentionally wasteful policy vigorously sought after by several members of Congress.

 

Not-for-profit but politically connected

These companies are known as nonprofit loan servicers. Many of them used to be loan companies back when students could borrow through either the bank-based federal loan program or the government run Direct Loan Program. But after Congress ended the bank-based option in 2010, saving taxpayers $68 billion in the process, all new loans were supposed to be made by the government and serviced by companies that won a competitive contracting process.

Enter Congress. Several members demanded that a role be maintained for their local loan companies, which were nonprofit and often quasi-state agencies. As a concession, legislators agreed to guarantee these nonprofit loan companies would each receive a minimum of 100,000 borrower accounts to service instead of the four competitive winners. It was a straight politics play to keep directing federal subsidies to home companies based upon political connections and cloaked in claims of local expertise. There were no demands for results or accountability. It was a kickback calculated in students to provide the same services already contracted for elsewhere.

 

Paying more, often for the same product

In addition to getting a guaranteed allocation regardless of results, these agencies also received a special allocation in the bill that gave them this earmark—about $1.2 billion more over 10 years to service a fraction of the loan volume that the bigger companies are overseeing. As the table below shows, this includes paying the nonprofit servicers about 22 percent more than the large ones for borrowers that are in their grace period of current repayment status. For the 100,000 accounts, that’s as much as an extra half a million dollars a year for servicing borrowers who are just doing what they should be.

Not only are taxpayers paying more for these nonprofit servicers, but in many cases those dollars are buying the same platform as the cheaper companies that won competitive contracts. Looking at the publicly posted contracts of 11 nonprofit servicers shows that in nearly half the cases the government is simply paying more money for a product they are already getting from the competitively determined contractors. Five of the 11 servicers indicated an initial plan to subcontract with Nelnet or the Pennsylvania Higher Education Assistance Authority (PHEAA) to use their platforms, but getting paid at a price that is between 10 and 32 percent higher than what those two companies are receiving per borrower.

Since those initial plans, consolidation among nonprofit servicers means that over 70 percent (five of the remaining seven) are getting more money to use other companies’ platforms. The Department announced in July that the platform run by Campus Partners and EdManage, which are owned by the South Carolina Student Loan company would be shutting down. In addition to EdManage, three other providers—COSTEP in Texas, EDGEucation in North Carolina, and KSA in Kentucky—had planned to use this platform. As a result, the loans of the Texas, North Carolina, and South Carolina servicers are being transferred to MOHELA and the loans serviced by KSA are being moved to Aspire. But these companies are already using PHEAA’s servicing platform, just increasing the extent to which nonprofit servicers are relying on a product the government is already getting for less. That does not sound like the local expertise many of these companies cited in trying to justified their continued existence to Congress during negotiations on the 2010 bill.

 

What about results?

Judging how well these servicers are actually doing is not an easy task. The 100,000 accounts each got were randomly assigned, but they all came from the company that used to service all of the government-held student loans back when there were two competing federal loan programs. Because of this competition, the loans held by this company had some characteristics that could make it different from the broader loan population. First, it was from schools that had been in the government-based system for longer, which means the quality of loans would be affected by the types of schools the bank-based program was able to recruit to participate versus those with riskier loans it may not have wanted to serve as much. Second, these were likely not new borrowers, so they may have already been in repayment or even defaulted. Third, the sample could include some of the bank-based loans that were sold to the government during the credit crunch, which are generally among the worst debts in the program. Comparing the nonprofit servicers to the competitively determined ones is also not easy because only two of the five different metrics each is measured upon are in common—measures of borrower and federal personnel customer satisfaction. None of the information on actual outcomes is consistent across the two groups.

 

Students don’t seem happy...

Comparing nonprofit and competitive servicers on the metrics they do have in common suggests that the extra money spent on the former is buying little more than unhappier students. This is measured by a survey of borrowers done under the framework of the American Customer Satisfaction Index, which can be uniformly applied across a range of sectors and types of industries. The table below shows the average scores on the borrower satisfaction measure over the last two quarters of the 2012-2013 year for all servicers that had received marks for at least three quarters. Presenting the data in this way ensures servicers are not judged based upon only their first score, which tends to be a bit lower, and have the results partially smoothed out. For reference, the national average is about 76 and a “good” score would be in the 80s.

As the table shows, the competitively determined contractors scored as high as or higher than every single one of the seven nonprofit servicers with data. The five additional servicers that lacked enough data would also have come up well short, with most having scores in the mid to high 60s. And the two most liked serivcers—Great Lakes and Nelnet—scored approximately 10 points higher than the worst nonprofit, an offshoot of the South Carolina Student Loan Corporation. Even Sallie Mae, the bane of students everywhere (or at least on Twitter) bested every nonprofit with data for this period.

 

...Federal personnel think things are only OK

Below is the same table, but for the federal personnel scores. The results are a bit more tightly clustered, with Utah-based CornerStone even exceeding three of the competitive winners. But the bottom group, especially the Oklahoma result, is not pretty.

Now it is possible that maybe some of the scores are affected by the quality of a given servicer’s sample—defaulted borrowers may look more negatively upon their servicer than someone in active repayment. But regardless of the scores, the saddest thing across the two tables is that no one appears to be providing above average customer service.

 

Outcomes vary, but unclear why

Since there’s no way of knowing whether the borrower populations across each servicer are equivalent, it’s hard to tell whether variations are the result of differences in quality or the underlying borrowers. It could be that only 72 percent of loans in repayment or delinquent status overseen by the Kentucky Higher Education Student Loan Corporation’s servicing arm were current or in grace status at the end of the fourth quarter of 2012-13 because it received a disproportionate number of defaulted loans, while Aspire’s 93 percent mark on the same metric could be a result of having more borrowers at flagship public four-year schools. There simply aren’t enough data to know for sure. Because of those caveats, the table below simply shows the results on the three outcome metrics for all servicers in the fourth quarter of 2012-13 for all entities that had servicing results for at least two quarters.

Sequestration Silver Lining

The number of nonprofit servicers in the program—and thus the size of the giveaway—would likely be even larger were it not for sequestration. Funding limitations stemming from that process have prevented the Department from giving any additional volume to nonprofit servicers (see slide 10 for more). But it’s unclear if more companies will come on board if funding conditions improve.

 

What are we paying for?

The continuation of nonprofit servicers in the student loan program was a much debated concession made in the heat of negotiations over not just ending the bank-based system but reforming health care as well. It was politically expedient and of dubious policy merits. But with three years of hindsight we now have a clearer picture of just what this set of exemptions bought taxpayers and students. For a 10-year investment of more than $1 billion we are getting servicing that is less liked by students than even Sallie Mae, on platforms that in most cases were already available for less money. The data are less clear on how these entities actually perform in terms of loan results, but given the first two conditions, they would certainly have to be substantially better than what the bigger servicers are doing to even remotely justify this continued giveaway.

Trading Transparency and Accountability Today for Better Testing Tomorrow

September 23, 2013
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2013-14: the school year all American students, in all public schools, were expected to be proficient in reading and math. It’s finally here. But don’t kid yourself – nobody expects American schools to meet that goal this spring. And thanks to the U.S. Department of Education’s ESEA waivers (and waivers of waivers), most won’t have to.

Instead, 41 states, Washington, D.C. and eight California school districts have different goals for student performance. Goals that cut achievement gaps, or delay the universal proficiency deadline, or lead to college and career readiness, or something else. In some states, failing to meet these goals – like failing to make AYP – triggers interventions as a priority or focus school. But in others, there isn’t any meaningful accountability attached to the new targets. Moreover, many states won’t name any new priority or focus schools this year.

While states don’t have a clean record when it comes to gaming accountability systems, that isn’t necessarily what’s happening here. Holding priority and focus lists constant from 2013 to 2014 is a pragmatic decision on states’ parts, because school performance goals aren’t the only thing changing. Across the country, in waiver and non-waiver states alike, students will also be field testing the new Common Core-aligned tests developed by SmarterBalanced and PARCC. And the Department is letting all states apply for additional flexibility so that some students, in some schools, would take the field test and wouldn’t take state standardized tests in at least one subject. In other words, states won’t have to “double test.”

This creates a problem for the continuity of school accountability systems. How can you judge school performance fairly and accurately when the data aren’t comparable between schools? That’s like determining the faster runner when one competitor has hurdles in their lane and the other doesn’t. Further, the field tests aren’t designed to be used for making school accountability determinations, or frankly, measuring student performance. As Tom Kane notes in his incredibly smart take on the issue, the field test is meant to test the validity of individual test items, not produce a valid score for an individual student. Making a trade-off between high-stakes consequences for school accountability and a valid field test seems like a relatively easy choice. Hold accountability determinations steady and continue all current school improvement efforts, but make sure the field test is conducted to the highest possible standard so that the tests are ready for primetime in 2015.

But it isn’t quite that simple. After all, accountability is about more than being labeled a “failing” school or a priority one. Accountability relies first and foremost on transparent, accurate reporting of student achievement data. And this is where the field test creates a much more harmful trade-off. The U.S. Department of Education will still require all students to be assessed in both reading and math, but states will not be required to publicly announce the results for students taking a field test. For the first time in the NCLB era, there will not be achievement data available for a significant number of students and public schools.

This is a big deal. These data (should) inform nearly every decision made in education – for families, for educators, and for policymakers. Should we send our child to the neighborhood school, or try to enroll her in a charter school nearby? How effective was our new 7th grade math curriculum? Did our new professional development program improve teaching quality? Are the interventions in our focus schools working? All of these questions will be much more difficult to answer without student assessment data. Further, as Bellwether’s Chad Aldeman and Andy Smarick write, this compromises efforts to measure student achievement and growth as required in Race to the Top, ESEA waivers, and a host of other Obama education reforms. Yes, states could continue to administer their current tests during the field test, as they have during previous assessment revisions. But many will not. While the Department was clearly trying to appease (or even subtly encourage) states to participate in the field test, would states have really balked at field testing if every student was also given the state assessment?

Giving up a year of meaningful school accountability is a high price for getting better, more rigorous assessments that reflect what truly matters: whether students are ready for college and career. But the Department didn’t just give up meaningful accountability. They’re also giving up public reporting of test results at the same time. Does that make the price too high?

While it’s too late to reverse the Department’s decision, states participating in the field test should take a prudent and limited approach to it. Let field tests be field tests. They weren’t designed to be used as measures of individual student achievement or school performance. And the more students and schools participating in field testing, the larger the effect on transparency and accountability will be. Unfortunately, a few states – most notably California – are already gearing up to scrap their state assessments entirely this year and only administer the field test.

2014 was never going to be the year we saw universal proficiency. Unfortunately, it could shape up to be the year we see universal missing data. Let’s hope other states don’t follow California’s lead.

What Might Ratings-Based Financial Aid Look Like?

September 18, 2013

Last month, President Obama stood before a crowd at the University at Buffalo to propose a new higher education affordability initiative. The plan calls for the U.S. Department of Education to rate colleges prior to the 2014-15 academic year. Then the Department would tie financial aid to those ratings by 2018 – a carrot-and-stick approach to college quality. But we wonder if the Department’s version will really have the teeth to penalize bad actors, and how feasible it really is.

So far, there’s not much information on the White House’s plan. For the most part, all we have to go off of is a White House fact sheet that summarizes the plan. According to the fact sheet,

“Over the next four years, the Department of Education will refine [the ratings], while colleges have an opportunity to improve their performance and ratings. The Administration will seek legislation using this new rating system to transform the way federal aid is awarded to colleges once the ratings are well developed. Students attending high-performing colleges could receive larger Pell Grants and more affordable student loans." [emphasis added]

There are a few items of note here. First, the White House acknowledges that any such effort will require congressional approval. That means that, at least without a sea change in the political environment, this may never come to fruition. But second, and more interestingly, the White House’s examples look at only the “carrot” side of the carrot-and-stick – more available aid for high-performing schools, without any clear punitive measures for poor-performing ones.

Of course, it’s far too early to say what implementation would look like. But it closely resembles an idea that the New America Foundation first published in Rebalancing Resources and Incentives in Federal Student Aid, and which Senior Policy Analyst Stephen Burd dug into deeper in Undermining Pell. Our proposal included both the “carrot” and the “stick” – a Pell bonus for high-performing schools that enroll a larger share of low-income students, and a Pell matching requirement for wealthy schools that divert aid away from low-income students.

The New America Pell Grant bonus differs somewhat from the administration’s. The administration plans to use a ratings system that will likely include a broad range of quality metrics; we would give the bonuses to public and private four-year schools that enrolled large shares of low-income students or to community colleges with strong student outcomes. Our Pell Grant bonus would be double the size of the maximum grant (currently $5,550).

We used data from the Federal Education Budget Project to calculate the costs and estimated the Pell bonuses alone (without the baseline costs of the Pell Grant program at these eligible schools) at $23.6 billion over 10 years for public and private four-year schools and $34.9 billion for community colleges. Those figures include schools that qualified for the proposed bonus based on 2010 data, as well as schools on the cusp of qualifying, which we assume would be willing to work a little harder for a substantial payoff.

At four-year schools, we found that the federal government already disburses $1.2 billion in Pell grant funding to already-qualifying schools,  and another $344 million to the 86 near-qualifiers. That made the math pretty easy – for the additional costs of the program over the baseline, we simply rounded up to provide a conservative estimate, and then counted up 10 years with built-in inflationary increases.

At community colleges, the math was a little trickier. We wanted to use quality metrics, a more simplistic version of those the Department of Education might use under a new rating system. It’s tough to see how community colleges are performing, though, because of limitations in the data. For example, the Department collects graduation rates only for first-time, full-time students, but public two-year colleges serve largely nontraditional students who don’t meet those qualifications. And students who transfer from a two-year to a four-year college without an associate’s degree are only marked as transfers, with no way to track them through the rest of their educational experiences.

Recognizing the data were so prohibitively absent as to keep us from finding a great measure, we calculated a combined graduation-and-transfer rate as a proxy. If the schools had a combined rate of at least 50 percent, they were eligible for a bonus. Many of the schools didn’t have good enough data for us to even arrive at a figure, but of the remaining schools, 262 were eligible, with Pell disbursements totaling $1.5 billion. We found another 120 who were close enough to qualify if they stretched a little further, and added their $1.2 billion in existing Pell money. We rounded up to $3.0 billion to account for missing and not-yet-successful institutions, baked in an inflationary increase, and added up the five- and 10-year costs. Again, those costs are in addition to, not including, the amount of Pell money that already goes to those schools.

Obviously, the New America proposal is not identical – or even similarly oriented – to the White House’s proposal. Ours focused on the needs of low-income students, not the quality of institutions (though with better data on colleges, a stronger focus on quality could be a rising tide that lifts all students).

But our proposal is instructive in a few ways. For one thing, the plan is going to be expensive. New America’s proposal, taken in total, is deficit-neutral, and we made up for the costs of the plan with savings from other proposals. Congress won’t be so lucky, and given the ongoing fiscal debates lawmakers are having, a plan that has one-year costs of upwards of $5 billion won’t be the most popular one. For another, the careful wording in the White House fact sheet means there’s no clear protection against bad behavior, at least in this part of the plan – just an incentive for good behavior. That may arguably be less effective than having both.

Any plan to tie financial aid to ratings is a long way off, and even the ratings system is a few years down the line. By 2018, we’ll have a different president, many different members of Congress, and undoubtedly new approaches to reforming higher education. It remains to be seen whether the plan will be strong enough to survive all that, or whether the 2018 political climate will actually be more amenable to these types of proposals. In the meantime, the New America Foundation will be watching for signs of life with this proposal, as well as the president’s other ideas.

Early Educational Data Comments to U.S. Department of Ed

September 17, 2013

The Common Education Data Standards (CEDS) project is an initiative headed by the U.S. Department of Education’s National Center for Education Statistics to create comparable, consistent data definitions. It’s an entirely voluntary initiative, and its glossary includes preschool through workforce data elements. CEDS is in the process of refining its version 4 dictionary – open for comments through Friday, September 20.

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