Student Debt

The U.S. Economy After The Great Recession

  • By
  • Sherle R. Schwenninger,
  • Samuel Sherraden,
  • New America Foundation
March 4, 2014
The bursting of the housing bubble in 2008 plunged the U.S. economy into a serious crisis, leaving American households with a huge debt overhang and the economy with a large gap in output and employment. This report reviews the economy’s deleveraging and recovery experience more than five years after the crash. It explores the following questions:  
  • How far has the economy come in the deleveraging process? Is private sector debt now at a sustainable level or do households and the financial sector continue to need to pay down debt?  
  • To what extent has the U.S.

What the College Board Trends Reports Won't Tell You

October 22, 2013

Today, the College Board released its annual sets of trends reports, one on college pricing and one on student aid. Dense, chart-filled works, the documents tell a story of what today’s postsecondary students are facing. But each report typically carries a message with it, one that often tries to dampen the sense of unabated cost escalation.

This year’s desired headline is 2.9 percent. That’s the change in published tuition and fees at four-year public institutions from last academic year to this one in current dollars. Though an increase, it’s described as the smallest percentage increase in the last 30 years.

But herein lies the difficulty with percentage increases and college costs. One of the benefits of decades worth of uninterrupted price increases is that eventually the same size price hike leads to a smaller percentage change. And sure enough, that 30-year-low in percentage terms is actually a $247 increase in published tuition—the 19th lowest in the past three decades (or 12th highest if you want to look at in a more pessimistic light). In fact, it's larger in real terms than any single year increase that families at public four-year colleges felt from 1971-72 to 2000-01.

In fairness, that $247 increase is the lowest that families have faced in current dollars since the 2000-2001 year. But following on the heels of over a decade of stark increases, it means the base price families are paying is $5,400 more in current dollars than it was at the turn of the century. In that regard, the $247 only feels like some relief from charitable schools only when compared to some theoretical higher price they could have been charged.

Private nonprofit 4-year colleges provide an even better illustration of the wonders of the percentage increase bait and switch. From 2011-12 to 2012-13, published prices in current dollars went up 4.0 percent. But this year, they went up only 3.8 percent. A victory for families, right? Hardly. Published prices went up exactly $1 less than they did the year before--$1,106 versus $1,105. But thanks to prior jumps, that 3.8 percent increase was the third lowest in 30 years, even if the dollar change was the sixth highest in 30 years.

Understanding the dollar versus percentage dynamic is especially important for interpreting charts like the one below. What it shows is the average annual change in tuition and fees over a ten year period, adjusted for inflation. So from 1983-84 to 1993-94, the average real increase in tuition and fees at public four-year colleges was 4.3 percent. By contrast, in the past decade, which we tend to think of as a time of excessively high cost increases, the average annual change at public four-year colleges was just 4.2 percent. If it’s about the same as historical trends, then we’re not seeing bad behavior. It’s just how things go—death, taxes, college costs, as the cliché would go.

But again, smaller absolute changes on a lower base lead to higher percentage increases than they would on a larger amount. And sure enough, this chart essentially lets colleges off the hook through their own increases. Here’s the same chart recreated below, only instead of percentage changes, it shows how much tuition and fees changed when measured relative to the base year of 1983-84. In other words, if the base year is 100 and the following year is 103, then the change is 3. And each type of college has its own base year. So a change of 6 points for a community college is still going to be less of a dollar change than 6 points for a nonprofit college.

Suddenly that last decade does not look quite so rosy. Rather, it rightly shows that the amount costs have been going up at public 4-year schools actually exceeds older decades by a good bit. The chart below makes the same point framed a different way by showing the change in the cost of tuition and fees from the start to end of each decade. These figures also are measured in comparison to the base year of 100 for 1983-84, which represents a different dollar amount for each type of school.

The last decade has not been a good time for families. Incomes are down and have not really recovered except for those at the top of the income spectrum. Meanwhile, state budget struggles, unabated spending at private nonprofit colleges, and a host of other reasons have collaborated to keep college tuition on a steady upward path. While this year's figures show that the dollar change is lower in the public sector than it has been in the past couple of years, it's still greater than it was 12 months ago and still above the rate of inflation. That's not good news. That's just less bad news than usual. And we should not be desensitized by price increases to the point where that's acceptable.

Zero Education Debt: The Promise of Income Share Agreements

October 8, 2013
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Last Friday, the New America Foundation’s Education Policy Program, in partnership with the Lumina Foundation, hosted a “Zero Education Debt” event. Panelists looked at the concept of Income Share Agreements (ISA), a new financial vehicle in which a student completes school with no loans and no debt, but instead agrees to pay an investor (or the government) back a set share of his income for a set number of years.

We started off the event with comments from Jamie Merisotis, president of the Lumina Foundation. Merisotis helped contextualize the topic with a much larger question: how to provide students with access to a high quality, low cost education. New America’s Alex Holt then presented a theoretical framework of Income Share Agreements and where they fit into the existing higher education financial system.

Panel One: Implementing Income Share Agreements

Our first panel focused on practitioners – people who are attempting to implement these plans. The panelists included people implementing plans both in the private market and also via the government. The discussion was lively, with John Burbank, Executive Director of the Economic Opportunity Institute, defending the proposed Oregon Pay It Forward program that he helped to develop. That plan would be a publicly funded one – the first in the U.S.

Others on the panel discussed alternate arrangements for private Income Share Agreements. We had representatives from the major existing private ISA providers: Dave Girouard of Upstart; Tonio DeSorrento, formerly of Pave; Miguel Palacios of Lumni; and Gordon Taylor of 13th Avenue Funding.

Panel Two: Are Income Share Agreements Viable?

The second panel, moderated by Zakiya Smith of the Lumina Foundation, had a more focused policy perspective. Michelle Asha Cooper of the Institute for Higher Education Policy started the session off with a healthy dose of skepticism towards these plans, pointing out that the higher education policy community tends to “become fixated on the next big thing” and offering some concerns of some unintended consequences.

Miguel Palacios, professor at Vanderbilt and cofounder of Lumni, and Alex Holt of the New America Foundation both had a more optimistic outlook towards ISAs, arguing their potential to inject consumer certainty and price signaling into the higher education market. Rohit Chopra of the Consumer Financial Protection Bureau added the unique perspective of a regulator in the space, asking some very useful questions for the audience and the panel to think over.

Given the lively debate from the panels and terrific questions from the audience, we hope this will be the first of many discussions on the topic of Income Share Agreements. Check back with the New America Foundation’s Ed Money Watch and Higher Ed Watch blogs as the debate continues.

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.

New Pell Grant, Federal Loan Data Reveal Changing Tides in Financial Aid

September 12, 2013
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New data published by the U.S. Department of Education and by the Congressional Budget Office reveal changing tides in the American higher education system. And they uncover some interesting – and previously unknown – facts about federal financial aid.

The Department of Education’s Federal Student Aid (FSA) Data Center recently released data on the number of federal loan recipients and the total amount of loans disbursed in the 2012-13 academic year. (You can see those preliminary data by school in our easy-to-use database, the Federal Education Budget Project.) For the first time, the FSA data contain a breakdown between how much undergraduates and graduate students are borrowing, rather than rolling graduate and undergraduate Unsubsidized Stafford loans into one figure.

It’s a very important distinction. The data show that a whopping 41 percent of loan issuance in AY 2012-13 was for graduate and professional students. Meanwhile, graduate students were only 17.5 percent of all student loan recipients.

gradloanrecips.png   gradloandisburse2.png

Sources: New America Foundation, Federal Student Aid Data Center

Most people typically have undergraduates in mind when they think about the federal loan program, but in reality, the program is nearly as much about financing graduate studies as it is about undergraduate programs. Sure, graduate school can cost more than an undergraduate education, but that’s not necessarily why graduate loans feature prominently in the breakdown. Actually, it’s because the federal government does not limit how much graduate students can borrow for PLUS loans (and limits Graduate Stafford loans to $20,500 annually), but it imposes annual caps as low as $5,500 on undergraduates.

There’s another reason worth separating out loans for undergraduates and graduate students in the data. Under a bipartisan bill passed earlier this summer, interest rates will no longer be the same for Unsubsidized Stafford loans for graduates and undergraduates (both loan types had been set at 6.8 percent prior to AY 2013-14). Instead, starting this year, undergraduates will pay much lower interest rates on their loans (3.86 percent) than will graduate students (5.41 percent).

And that’s not the only news in federal student aid. Remember the Pell Grant funding cliff? For years we've heard about an impending drop-off in funding for the program – and it’s still baked into the budget, albeit a few years further out than first estimated. The Congressional Budget Office (CBO) reminds us of that looming funding cliff in a new report called The Federal Pell Grant Program: Recent Growth and Policy Options.

The CBO uses data on Pell grant aid and recipients to give policymakers an idea of what has driven costs in the past, what types of changes would reduce costs, and by how much. (Heads up: the biggest single cost-saver would be to allow only the lowest-income of the current Pell grant-eligible population to receive grants by requiring that they have a zero “expected family contribution” [$10.0 billion in 10-year savings], while the greatest cost would be increasing the maximum grant to $6,400 in AY 2014-15 [$5.3 billion over 10 years]).

Another interesting point in the CBO paper looks at the skyrocketing costs of the Pell Grant program. The big cost increases in the program in recent years owe a lot to community colleges. Much of the increase in the number of Pell recipients is due to a growing share of Pell students, more so than other factors, like growing enrollment. We wrote about that in 2011 after arriving at the same conclusion. Even so, Pell students still make up a far smaller share of total enrollment in community colleges than in the for-profit sector.

Both sets of data offer interesting insights into the growing and changing beast of federal student aid programs. The FSA data show the dramatically oversized influence of graduate and professional students in the distribution of loans, while the Pell data show the evolving nature of undergraduate aid. Both are work a close look as Congress returns to Capitol Hill and gets back to legislative business, so check out the Federal Education Budget Project to find your state or college.

Gainful Employment Liveblog Day 3

September 11, 2013

We are back for the final day of the first session of negotiations on gainful employment. This session will only be a half day. Here are links to liveblogs from Day 1, Day 2 Morning, and Day 2 AfternooonA summary of the regulatory text under consideration is here.

Working Groups

After a half hour closed session, the committee has agreed to the following six working groups:

  1. Repayment rates--led by Jack Warner from the South Dakota Board of Regents
  2. Placement rates--led by Della Justice, from the Kentucky Attorney General's office
  3. Transition periods/opportunities to improve--led by Belle Wheelan from SACS and Marc Jerome from Monroe College
  4. Program level cohort default rates--led by Brian Jones from Strayer University
  5. Upfront requirements--led by Barmak Nassirian from AASCU
  6. Student consequences--led by Eileen Conner from the New York Legal Assistance Group

Groups will try to get materials in by September 30, but make no promises. The Department does ask that the extent to which thresholds are recommended that they be justified.

Gainful Employment Liveblog Day 2--Morning Session

September 10, 2013

After about a half day of negotiations yesterday (once process stuff got out of the way) we're now back for the second and last full day of negotiations for this first session. Below are occasional updates from the morning negotiation sessions. Yesterday's liveblog is here and the afternoon session can be found here.

Gainful Employment Negotiations Day 1 Liveblog

September 9, 2013

The U.S. Department of Education kicked off its first day of negotiation sessions on how to define what it means to provide a program of training designed to lead to "gainful employment in a recognized occupation." The morning was spent mostly with logistical issues, with the only highlights being the rejection of attempts to add three more members to the committee from a Florida law school, the Chamber of Commerce, and Bridgepoint University. A summary of the regulatory text under consideration is here.

Here are links to liveblogs from Day 2 Morning, Day 2 Afternooon, and Day 3.

Agenda

Here's the order of items for discussion that the panel hopes to cover by the end of midday Wednesday:

  1. Department overview
  2. Upfront Eligibility
  3. Department accountability metrics (should they be phased in?)
  4. Other accountability metrics
  5. Consequences (including for students)
  6. Data correction, challenges, appeals
  7. Reporting requirements
  8. Disclosure requirements
  9. Approval of new programs
  10. Other
  11. Recognition and rewards--exceptional performance
  12. Conforming regulatory changes--second session

What follows are occasional updates on what's going on at the negotiation sessions, which will not have a transcript or audio recording produced.

Event Series at the University of Kansas on Poverty, Assets, and the American Dream

September 6, 2013

The University of Kansas School of Social Welfare, the Assets and Education Initiative (AEDI), and the KU Social Work Administration and Advocacy Practice are convening a series of events over the next few months about the interplay of assets with upward economic and social mobility. Learn more about the series and RSVP for the first event here.

The first event kicks off next week on September 11 at the University of Kansas. Keynote speaker Dr. Mark Rank, a widely-recognized expert on poverty and inequality, will be discussing his research, including a finding that nearly 60 percent of Americans experience poverty at some point between the ages of 20 and 75. His talk, and the panel discussion to follow, will examine why poverty is portrayed as an individual failing despite its prevalence and structural origins, and how institutions can support (or stop hindering) upward economic mobility. 

Check out the details for Wednesday's event below and make a note of the dates of forthcoming events. In particular, note that our Senior Research Fellow, William Elliott, will be speaking at the November event about his work on improving children's educational outcomes through access to savings. The early 2014 events will feature Tom Shapiro, whose work with the Institute on Assets and Social Policy has greatly informed the national conversation on the causes of racial wealth disparities, and Michael Sherraden, whose work laid the earliest foundations of the asset building field.

The series will be available on livestream for those not able to travel to the Lawrence, Kansas area.

2011–12 National Postsecondary Student Aid Study (NPSAS:12): Student Financial Aid Estimates for 2011–12

September 3, 2013

The U.S. Department of Education recently released a report on how students are financing their college educations using data from its National Postsecondary Student Aid Study (NPSAS), a comprehensive survey of more than 100,000 undergraduate and graduate students. Data from the 2011-2012 academic year show that a majority of students at both the undergraduate and graduate level received financial aid to pay for their postsecondary education. The last NPSAS surveyed students in 2007-2008.  

Among the report’s findings, for the 2011-2012 academic year:

  • 71% of all undergraduate students received any type of financial aid (federal, state or institutional).
    • 59% received some type of grant.
    • 42% took out some type of loan.
    • 6% received aid through a work study job.
    • 4% received veterans’ benefits.
    • 5% had parents who took out a federal Parent PLUS loan.
  • Of those undergraduates who received any type of financial assistance in 2011-2012, the average amount of aid received was $10,800.
    • The average grant aid was $6,200.
    • The average amount borrowed in loans was $7,100.
    • The average work study award was $2,300.
    • The average veterans’ benefit was $7,500.
    • The average amount borrowed by parents through federal Parent PLUS loans was $12,100.
  • 57% of all undergraduates received federal financial aid in 2011-2012. 15% of all undergraduates received state-funded aid, and 21% of all undergraduates received institutional-funded aid.
    • The average total federal financial aid was $8,200.
    • The average total state-funded aid was $2,700.
    • The average total institutional aid was $6,500.
  • Looking at federal Title IV undergraduate student aid alone in 2011-2012:
    • 41% of students received a Pell grant with an average grant award of $3,400.
    • 11% received some form of campus-based aid program assistance with an average award of $1,700.
    • 40% borrowed through a federal Direct Loan with an average loan amount of $6,400.
  • 70% of all graduate students received any type of financial aid (federal, state or institutional).
    • 36% received some type of grant.
    • 15% received some type of employer-provided aid.
    • 12% received assistance through an assistantship.
    • 45% took out some type of loan.
    • 43% borrowed through a federal Direct loan.
    • 10% borrowed through a federal Grad PLUS loan.
  • Of those graduates who received any type of financial assistance in 2011-2012, the average amount of aid received was $22,000.
    • The average grant aid was $10,800.
    • The average employer-provided aid was $8,200.
    • The average assistantship was $14,600.
    • The average amount borrowed through any type of loan was $21,400.
    • The average amount borrowed through a federal Direct loan was $17,000.
    • The average borrowed through a federal Grad PLUS loan as $18,600.
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