Shoutout to Professor Robert Kelchen for posting some really cool raw excel data about the biggest Dept of Education scandal you probably haven’t heard about. I took the liberty of downloading it to draw additional insight into something that will undoubtedly shape the debate on future federal student loan policy: a massive Dept of Education coding mistake revealing millions more borrowers than previously thought are failing to repay their student loans.
How Does a Dept of Education Coding Mistake Warrant the Word Scandal?
Here’s what happened. The Dept of Education created a tool to evaluate the affordability of every institution of higher learning in the US. Unfortunately, the tool miserably failed. A major part of the ‘College Scorecard‘ function is to show current and prospective consumers of higher education the three, five, and seven year rates of students who repay at least $1 of principal on their student loans.
That’s a great idea, and I commend the Dept of Education for the concept. The problem lay in a coding error that made the repayment rates drastically inflated for virtually every school on the list. How bad was it? Check out the results I calculated below.
That’s unbelievable! Of all students taking out debt, only about half of them have been able to pay down at least $1 of principal within three years of graduation.
The College Scorecard Painted a Completely False Narrative on Higher Ed for Families and Lawmakers
If you look at the numbers in the table on the right, you might think, “ok there are some problems in higher ed financing but we can work them out.” If you look at the numbers in the table on the left, you realize that it’s far more than liberal arts majors who can’t get jobs. It’s a systemic problem of epic proportions.
Dept of Ed CYA Behavior
Families used this tool to make decisions on educational investment. Every single one of them received a distorted view of the soundness of school’s degree. That’s unacceptable. Then in the press release, the Dept of Education tried to minimize the significance of the mistake, no doubt because people over there are fearing for their jobs right now. Check out the cover your a$$ behavior from the Dept of Ed:
The relative difference—that is, whether an institution fell above, about, or below average—was modest. Over 90 percent of institutions on the College Scorecard tool did not change categories (i.e., above, about, or below average) from the previously published rates. However, in some cases, the nominal differences were significant.
Most For Profit Schools Really Need to Be Cut Off from Federal Aid
Here’s a thought. Why is the taxpayer providing subsidized loans to for profit entities when only 31% of their students are able to repay any of their debt? I found a lot of institutions whose repayment rates are below 10%. That’s beyond understanding why lawmakers haven’t been more forceful.
In my view after seeing this corrected data, there’s no case to be made for for-profit schools to receive a dollar of federal aid. The private sector can and should be the sole source of loans for these for-profit schools. When that happens, so many of them would close their doors and stop burdening students, as in the case of ITT Tech.
Examples of Schools Affected by the Dept of Education Coding Mistake
These are a sampling of schools with the highest changes in repayment rates after the mistake was fixed. If you look through the list, you’ll see a lot of beautician schools, trade institutes, chiropractic schools, etc. Many of these are for profit schools that went from looking like good citizens to needing to be shut down because of widespread failure in the economic value of their degree.
I was pretty shocked to see schools like these on the list, including my alma mater the University of Florida (UF). I’ll say that this probably doesn’t tell the full story just looking at these statistics. How so?
At UF, the vast majority of students receive bright futures. Of my friends, only 1 graduated with any debt that I know of. Even though tuition has increased quite a bit since I left, only 32% of students at UF use student loans to cover part or all of the cost of their education. I’d also bet that of the 34% that aren’t repaying at least $1 of principal in the first three years after graduation, a lot of them are going on to graduate programs and deferring their loans.
For the ones who are struggling to repay their debt, most are probably from poor backgrounds. Still, I shouldn’t make excuses. The fact that less fortunate students at my alma mater are having a hard time repaying their debt means that the value of the degree might be less than what we thought.
I don’t know if that’s a similar case at the other schools I listed, but clearly to go from a 75%+ repayment rate to mid 50s to 60s shows problems with the value of higher education.
May the Buyer Beware
If you look at the Dept of Education coding mistake, you realize there has to be changes to our perception of college in this country. These technical trade institutes shouldn’t be happening after high school, they should happen while students are still there. If you attend any for profit school, do not expect to receive a positive return on your investment. Just look at how awful the data is on for profits in the corrected Dept of Education database.
Make sure you really need to go to college before you actually attend. College is too expensive to go just for the heck of it, and the new data shows this.
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