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Gainful Employment for All

by Tod Massa 2. February 2018 17:21

The chair of the Health, Education, Labor, and Pensions, U.S. Senator Lamar Alexander (R-TN) has released a white paper on accountability in preparation of reauthorizing the Higher Education Act of 1965. InsideHigherEd has covered it here.  There are positions of interest here that bear watching. There are sections of the document that are familiar.

Goal: Update the federal accountability measures for institutions of higher education to ensure that students are receiving an education worth their time and money.

Strategy: Modernize and simplify the federal requirements for institutions of higher education to participate in the federal student loan program by creating more effective accountability measures focused on the repayment of federal student loans.

The proposed goal and strategy seem reasonable enough. We all want meaningful accountability measures that demonstrate students receive appropriate value for their “time and money,” right? My preference would be to replace “time” with “effort” and recognize that students have agency, that they are not simply empty vessels into which education is poured.  

Essentially, the bulk of the paper takes issue with the Cohort Default Rate, the “90/10 Rule,” and Gainful Employment. I think the big story here is Gainful Employment:

“One of gainful employment’s primary shortcomings is that it does not apply to all programs at all colleges and universities.”

So there we have it, Gainful Employment for All could well be the centerpiece of the HEA, but with different measures than currently exist since the paper also takes issue with the 8% Debt-to-Income ratio. A possible alternative to an “acceptable” level of debt is to use actual loan repayment measures.

To any budget cruncher or fiscal hawk, total aggregate federal student loan debt is an eyepopping number. The federal government’s outstanding loan portfolio for higher education stood at nearly $1.4 trillion in fiscal year 2017, increasing $75 billion from the previous year. In 2017, student loan debt was the second highest amount of debt Americans owed to creditors, surpassing credit card and auto loan debt and second only to mortgage debt.

While this debt figure looks alarming, not all debt is created equal, and on balance, education debt is generally considered a good debt. A 2014 report from the Georgetown University Center on Education and the Workforce found that college educated individuals can make approximately $1 million more over a lifetime than individuals who didn’t go to college. With that context, the average student loan debt per borrower of $29,000—roughly the same amount as an average new car loan—seems like a smart investment.

I suspect we have all heard this comparison before. It is not unreasonable. If, as an aside, we take Virginia’s median debt of around $27,000 for a bachelor’s degree, and assume that it is all federal debt, with an average interest rate of five percent (to account for the various changes in rates, subsidized and unsubsidized loans) then a monthly payment looks like $286 on a 10-year repayment plan.  With a median wage in 2016 of $33,400, that works out to about 10.4% of $2,783 per month. Of course, between the MIT Living Wage Project estimates and then estimating tax withholdings for a single adult, that loan payment is on top of a monthly budget of $2,597. There is not much room to spare. However, using Income-based Repayment estimates, the monthly payment drops to about $191, or about 7% of monthly income. (You will see more of these numbers soon.) Of course, all of these estimates are for a single adult living alone, based on the median first year wage. Also of course, half of wage earners don’t earn the medina, and half of those don’t appear to be doing well at all, within the limits of the data.

The whitepaper closes with two principles:

1)      Return on Investment for Students and Taxpayers Matters.

2)      Programs of Study Matter.

There you have it. The seeds for Gainful Employment for All. Restriction of access to loans for institutions and programs that lead students to “excessive or unmanageable data.” There is a specific suggestion to move from the Cohort Default Rate to a “Loan Repayment Rate” that could trigger institutions to repay some or all of the loans if repayment rates fall below a certain threshold. These standards could also be applied at the program level. Both options are discussed.

 

If you have not watched any of the streamed testimony, I recommend it. As this process unfolds, it will be interesting, to say the least, to observe the variance between testimony and legislation, and legislation and implementation.

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