Think Tank Finds Large Gaps in Student Loan Repayment Between Completers and Non-Completers

By Joelle Fredman, NASFAA Staff Reporter

More than half of students who enroll in an institution leave without any credential. And that figure is even more troubling for borrowers who don't complete their degrees, as they are three times more likely to default on their loans than completers, according to data from the Department of Education (ED).

As Congress works toward reauthorizing the Higher Education Act (HEA) and finding ways to hold institutions accountable for their students’ outcomes, center-left think tank Third Way published a report highlighting large gaps in repayment rates between completers and non-completers and urged policymakers to target federal aid at schools that have proven to serve students well by helping them earn degrees.   

Using data from the College Scorecard, the report’s author, Third Way’s Michael Itzkowitz, found that at every year he analyzed, namely one, three, five, and seven years after students begin repayment, students who completed degrees were 20 percentage points more likely than non-completers to begin paying back their loans. Further, after just one year, completers were more likely (58 percent) to being paying down their loans than non-completers were after seven years (51 percent). While almost three-fourths (74 percent) of completers began paying down their loans after seven years, almost half of non-completers (49 percent) owed more than their original loan after seven years due to the accrued interest.

“College completion is a key driver in making sure students are able to begin paying down their educational debt,” Itzkowitz wrote. “Those who graduate can generally pay back their loans. Those who don’t can’t.”

Additionally, Itzkowitz found that four-year institutions, which generally have “higher debt burdens,” showed the strongest repayment rates for completers. In fact, after just one year in repayment, those who completed degrees at a four-year institution were 18 percentage points more likely to have begun paying back their loans than those at two-year institutions, and 28 percentage points more likely than those who received certificates.

Despite having higher repayment rates, four-year institutions also showed the largest gaps in repayment between completers and non-completers. While after just one year 66 percent of completers were able to make a dent on their loans, only 35 percent of non-completers began repayment. While this gap shrank over time, a 27 percent point gap existed even seven years out.

Similarly, Itzkowitz also found that those who earned credentials from two-year institutions were much better off when it came to repayment rates than non-completers. While 48 percent of completers at these institutions began repayment after one year and 67 percent after seven years, 55 percent of non-completers continued to accrue more interest on their loans.

“Though some have questioned whether completion should be a measure of success for two-year institutions, these data clearly show that students who graduate from these schools are better off than those who don’t,” Itzkowitz wrote.

Itzkowitz argued that as Congress works to reauthorize the HEA, it needs to develop policies to hold schools accountable for their repayment rates, and “better target financial aid toward institutions that have proven they can serve borrowers and taxpayers well.”

“If not, our system of higher education is likely to remain stagnant, leaving too many students without the credentials needed to set them on the path to successful repayment of their student loans and future economic security,” he wrote.

The House Republicans’ bill to reauthorize the HEA, the PROSPER Act, does seek to replace institutions’ cohort default rates (CDR) with programmatic loan repayment rates to determine their eligibility for Title IV aid. The bill proposed that an institution lose its eligibility for three years if its loan repayment rate is less than 45 percent for each of the three most recent fiscal years. Borrowers would be considered in "positive repayment status" if their loans are less than 90 days delinquent, repaid in full, or in deferment or forbearance two years after entering repayment.

The House Democrats’ bill, the Aim Higher Act, seeks to keep the CDR in place, however, it’s unlikely that it will be considered by the House education committee as Republicans are still pushing for the PROSPER Act to come before the full chamber for a vote.

The Senate has yet to release a reauthorization bill.   

“Most of today’s students require the use of loans to attend the higher education institution of their choice, and those borrowers hope that this financial investment will eventually show a strong return,” Itzkowitz wrote. “The federal government plays a major role as the primary lender for college students, as lawmakers distribute nearly $100 million in federal student loans every single year… However, for all parties to benefit, we need more students who enter an institution to complete their studies.”


Publication Date: 8/10/2018

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