Student loan repayment rates can be an effective measure for student success, particularly for underserved populations of students, if they are developed as a measure of student and taxpayer protection, rather than one of academic quality, according to a new report from the Institute for Higher Education Policy (IHEP).
For the report, IHEP gathered policy experts and practitioners from higher education institutions to examine student loan repayment rates as a way to measure institutional improvement and accountability, as well as a way to provide information to students and families.
Repayment rates “can answer key questions about the manageability of student debt for borrowers attending specific institutions or programs,” according to IHEP. While cohort default rates (CDRs) are most often used when discussing student loan repayment policy, repayment rates are “[m]ore nuanced” in that they show how effectively borrowers are eliminating their student loan debt, not just how well they are avoiding default, according to IHEP.
The experts convened for the report looked at whether and how repayment rates should be used to help promote student success, especially among low-income and underserved student populations. Overall, the experts came up with 11 recommendations divided into four categories:
Among the recommendations in the first category, the experts suggest that policymakers frame repayment rates as a measure of student and taxpayer protection, rather than as a measure of academic quality. They also suggest that repayment rates be disaggregated by indicators like completion, race and ethnicity, and Pell Grant receipt, which will better help policymakers evaluate the repayment behavior of subpopulations of students and better target accountability of intervention strategies. The financial aid office and institutional research offices also must work together to use repayment rate data to better serve their students.
The second category of recommendations addressed how repayment rates should be calculated. Policymakers and institutions should use a borrower-based rate – measuring the percentage of borrowers in repayment -- as the unit of analysis when calculating repayment rates, the experts recommend. This unit of measure would be “easier to understand and communicate than a dollar-based rate, which measures the percentage of loan dollars in repayment,” according to the report. Borrowers enrolled in income-driven repayment (IDR) plans should also be counted as in repayment, but only if they are reducing their loan principal. Repayment rates for student loans and parent loans should be calculated separately and should include all undergraduate debt, including Perkins loans and private loans if possible.
Institutions should also not be held accountable for “substantial” consolidated debt that a borrower accrued at other institutions, the experts recommend, noting that “[e]ach consolidated loan should be included in the repayment rate of only the institution with the largest share of that consolidated loan’s debt.”
Regarding the third category of recommendations (setting performance standard for repayment rates), the experts suggest that successful repayment be defined as more than a $1 reduction in principal, to avoid having a reduction that is “too small to provide meaningful information.” Repayment rates should also supplement CDRs as an accountability measure, rather than replace them. And finally, loan servicers and institutions should be held accountable for repayment rate performance, “as they both hold fiduciary responsibility for federal loan dollars,” according to the report.
The final recommendation addresses the Department of Education (ED) and the need to make repayment data more useable. The experts suggest that ED’s Office of Federal Student Aid (FSA) publish repayment rates at the institution level regularly and “enhance” the data currently available “so the institutions can use the data to facilitate student success.”
Publication Date: 1/22/2016