Research helps identify students who are vulnerable to default and allows institutions to target limited resources to the students who need it most. That is a primary reason why financial aid administrators should be more involved in institutional research, according to Justin Draeger - Assistant Director for Communications with NASFAA and former Lead Analyst with the Michigan Guaranty Agency (MGA). Draeger spoke at MGA’s Default Aversion Symposium, focusing on the myriad research being conducted on borrower behavior and default aversion.
Draeger began by highlighting the incredible progress that has been made in default aversion over the last 15 years - illustrated by a Cohort Default Rate (CDR) that has decreased by more than 77 percent from 1992 to 2002. However, Draeger noted that "life of the loan" default rates tell a different story, given that "life of the loan" default rates over the same period of time only decreased by 24 percent.
"I think that’s indicative of two things," said Draeger. "I think it shows that we are very good at complying with the law - ensuring that our CDRs remain low - but there is something happening along the way that students are still defaulting later on, and that is something that needs to be addressed."
Questioning the Usefulness of the Cohort Default Rate
Draeger argued that the current cohort default rate, a snapshot of students that entered repayment two years ago, is an over-generalized and outdated measurement that doesn't give a complete picture of what is happening. Draeger cited a recent study by Frank Kesterman that shows more than 80 percent of Financial Aid Administrators (FAAs) support a change in the way defaults are measured.
Draeger voiced concern that schools serving different student populations are being held to the same CDR standard.
"Schools serve different students," said Draeger. "To group all schools together into one big snapshot does one thing. It lifts schools who serve high numbers of low income students and have open enrollments." Meanwhile, the larger 4-year schools - which may contribute just as much or more to total dollars in default - are allowed to slide with CDRs around three or four percent.
Citing a study by the National Center for Education Statistics, Placing College Graduation Rates in Context: How 4-Year College Graduation Rates Vary With Selectivity and the Size of Low-Income Enrollment, Draeger illustrated that research has shown that highly selective schools have better graduation rates. Since there seems to be a relationship between students that drop out and students that default, Draeger pointed out that schools with open enrollment would surely carry a higher proportion of defaulted borrowers, but that higher rate does not diminish the importance of these schools in higher education.
Draeger argued that simply capturing a larger cohort (e.g., four years as opposed just one year) to measure a default rate was also problematic since most community colleges and proprietary schools would be excluded from Title IV participation since their four-year default rates would be above the 25 percent ceiling for allowable defaults.
"We have to find a way to better make schools accountable based on the students they serve," said Draeger.
Why Research
Using two schools, Draeger illustrated that institutions that attempt to blanket all borrowers with a default aversion plan usually experience two outcomes: (1) the program never starts or (2) never really becomes effective. Instead, he asked the audience to consider the school that researches their student population to determine which students may be more likely to default, and then implements programs based on those findings.
In response to concerns that research work is too daunting, Draeger underscored that research can easily be "the simple act of careful observation." Draeger went on to dispel several myths that sometimes keep FAAs from conducting research.
Myth: I need to be an expert to do any type of research effectively.
Truth: "We do research everyday in the observations we make," said Draeger. He illustrated this point by passing out a few bags of chips, pretzels, popcorn, and hard candy to a few participants who enjoyed these snacks. Draeger pointed out that MGA came to know their individual likes based on observation.
"What is it about your students that make them unique, what are your hunches, what are your questions about them?" asked Draeger.
While FAAs do not need to be experts, Draeger stressed the importance of having a basic understanding of how to:
- Start a research project
- Find and collect data
- Analyze data
- Publicize results
Myth: I don't have the time to conduct any research.
Truth: Some of the simplest research can be conducted in a very short amount of time. Participants were then asked to complete a survey that was immediately turned in and analyzed by MGA staff. Draeger told participants that by the end of his remarks he would complete a simple research project on them.
Draeger also pointed out that FAAs have many resources to help them, including professors, graduate students, guarantors, lenders, the Department of Education, NASFAA, and other nonprofit organizations.
Myth: We don't have the resources.
Truth: Much of the information you may be looking for has already been compiled by others. Using NASFAA’s recent monograph Research Tools, Tips, and Resources for Financial Aid Administrators, Draeger highlighted the many research compilations FAAs can use to help them in their research.
Draeger outlined basic statistical strategies FAAs can use with the resources listed above to determine if a student is "statistically different" from the general student population. Draeger touched on statistical bias, control vs. experiment groups, appropriate survey questions, descriptive analysis (e.g., percentages, frequencies, and standard deviations), confidence intervals, and the difference between causation and correlation, telling participants that they should have a broad understanding of statistics, or seek others to handle technicalities if needed.
Myth: Research and statistics can be so boring!
Truth: Research is exciting!
"I am not going to go through all of the exciting research projects out there," said Draeger.
However, Draeger cautioned participants against over-hyping their research or jumping to conclusions using only weak correlations.
"If there is a correlation between students who withdraw and students who default, can we say that withdrawing causes default?" asked Draeger. "Can we say that withdrawn students don't care enough about their educations to pay back their loans? No, that is hype, not a research-born conclusion."
The End Result
The end result of all research is more research, according to Draeger. Quoting Poul Alderson, Draeger said, "I have yet to see any problem, however complicated, which, when you looked at it the right way, did not become still more complicated."
"Hopefully that is not frustrating. It just says that you have answered a question and now there are more questions. And so it is perpetual, it doesn't end," continued Draeger.
Using survey results completed by the attendees that morning, Draeger gave a descriptive analysis about the FAAs in the group. He found that more than 95 percent of the FAAs in attendance had no intent to work in financial aid but had been in the financial aid community for an average of 14 years. Additionally, the majority of the attendees held postsecondary degrees, but not in higher education administration.
"So why do we have so many people who never intended to be in financial aid, never received formal educational training in educational administration, but stay in the profession for so long?" asked Draeger. "I have an unfounded hypothesis," he continued. "Because it’s the right thing to do and because we make a difference." Draeger finished by inviting participants to begin to develop research ideas at their own campuses, to identify the students who need the most help, and to allocate resources accordingly.
More than 40 postsecondary institutions participated in the symposium, Methodologies, Research, and Exploration: Getting Help to Those Who Need It Most, with several lenders, guarantors, and community partners. This was the second of a four-part default aversion symposium series that is being held over two years. Sandy Baum, senior policy analyst for the College Board, was also in attendance and gave the keynote address later in the morning.
PowerPoint presentations and notes from the symposium are available on the MGA Web site www.mgaloan.com. Downloadable video and written transcripts will also be available online or by contacting MGA directly at help@mgaloan.com.
By NASFAA Staff
Posted 12/21/06 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
