New York Times on Loan Repayment

The recently released data from the Department of Education demonstrate what many people have repeatedly said; for-profit schools are disproportionately educating Americans from the working class with lower incomes, and lower income students have higher default rates on their loans than students from higher income families.  The data include loan repayment rates and loan default rates.  Repayment rate is calculated as the 2009 institutional repayment rate of students from the prior 3.5 fiscal years.  Yesterday’s New York Times education supplement summarized the Department’s data for the 2007-2008 loan repayment rates for large colleges and universities.  The focus was on large schools from three sectors: (a) for-profit, publicly traded; (b) private, nonprofit; and (c) public.

What the data appear to disclose is a relatively lower institutional repayment rate by students from for-profit schools that are publicly traded.  Upon closer analysis, however, the data really disclose what many have said; the for-profit schools are disproportionately educating Americans from the working classes who qualify for Pell grants at much higher rates.  The average percentage of students from large public schools who qualify for Pell grants is 21%.  By contrast, the percentage is double for large for-profit schools; 42% of their students qualify for Pell grants.  The for-profit sector is serving substantially higher proportions of students from lower income families.

The data do demonstrate higher default rates and lower loan repayment rates from the for-profit sector.  But what lies beneath this superficial observation is instructive as policy decisions are made by the Department of Education.  In order to understand the data better, a more narrow comparison of more similar large institutions across the three sectors was used.   This comparison looked only at institutions with somewhat comparable Pell grant qualification rates between 20% and 39%.  The analysis does not include for-profit schools with much higher Pell eligibility and apparently concomitant poorer loan repayment behavior nor does it include private and public schools with much lower Pell eligibility.  That approach does show a higher loan default rate and a lower loan repayment rate in the for-profit sector.  The default rate was 7% for students from for-profit schools; whereas it was 4% for students from the other two sectors.  The loan repayment rate of 41% for this slice of for-profit schools was lower than the 56% and 57% rates respectively for private, nonprofit and public schools.  Of course, even in this slice of large schools, we do not have comparable institutions in terms of student income; the for-profit sector had a much higher Pell-eligibility average of 37% compared to an average of 28% among private, nonprofit schools and 25% among public schools.  .

While the analysis of this narrower slice of schools still shows more problematic repayment behavior among students in for-profit schools, it also suggests that students may be behaving in ways that are driven more by their income than by the type of school they attend.  In order to pursue the question of why loan repayment rates differ using the same public data, another analysis was completed.  The private, non-profit schools and the public schools were split into two groups – those schools within the same 20-39% slice of Pell-eligibility and those schools with Pell-eligibility rates below 20%.  For the large public schools, the loan repayment rate was substantially higher (68% versus 57%) for those schools with lower percentages of Pell-eligible students, and the loan default rate of 2% was half of the 4% rate for those public schools with higher Pell-eligible rates.  The same relative comparisons were evident for the private, non-profit sector.

For at least this group of large schools, the New York Times data demonstrate what we would expect; students from lower incomes – whether in for-profit schools or more traditional schools – have a harder time repaying their student loans, and disproportionately, for-profit schools are educating a higher percentage of students with lower incomes.

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