Student Lending Analytics Blog

British Solution To Rising Cost of Higher Education: Shorten Time To Degree From Three Years To Two

From the Daily Mail: 

"In a letter to university chiefs yesterday, Lord Mandelson revealed how he wished to see 'more programmes, such as foundation and fast-track degrees, that can be completed full-time in two years'.  He added: 'Over the next spending review period, we will want some shift away from full-time three year places and towards a wider variety of provision.'

If It's Monday...It Must Be Three-Year Cohort Default Rates...And Yes, They Did Go Up To 11.8%

Big caveat:  These three-year cohort default rates for federal student loans are being provided for informational purposes only. This press release from Lincoln Educational Services explains when the new three-year CDR calculation will be used by the Department of Education: 

"The DOE will not impose sanctions based on the new three-year CDRs until 2014, when default rates for three consecutive fiscal years will have been calculated under the new methodology. Until that time, the DOE will continue to calculate and publish two-year CDRs and to base sanctions on those two-year CDRs."

As most readers know, the three-year cohort default figures are being released today.  Here is a summary of data provided by the Department of Education.  First, in comparing the overall 2-year cohort default rates with the newly calculated 3-year cohort default rate for all borrowers entering repayment in 2007, one sees an increase in the overall rate from 6.7% to 11.8%.  The proprietary sector has the biggest change on a percentage basis with a 92.7% increase, with their three-year cohort default rate at 21.2%.  

I Was Just Wondering...A Dozen Questions About Student Loan Defaults

As we approach what I am calling D Day (D as in Default) on Monday, when 3-year cohort default data are scheduled to be released to the public, I still don't feel like I have a handle on the most basic of questions:  Why do students default on their loans?  (anyone with good data to answer this question, I am all ears!) 

At this point, it is easy to throw up one's hands and just say it's borrower dependent meaning there are different reasons for different borrowers.  If defaults are like most things, there are probably 20% of the reasons that account for 80% of the defaults which would allow policymakers to focus on what actions can be taken to get ahead of this issue because the tsunami is rolling in (also described as the "perfect storm" at a Debt Management session at FSA).  

So, if I had access to the federal defaulted loan database (which is closing in on $50 billion), what would I want to know...

Pithy Tips For Paying For College

They say the younger generation has a short attention span.  I devised this "top ten" list of tips for paying for college with that thought in mind...each is four words or less.  Please feel free to suggest others in the comments field:

SLA Presents At Indiana State Conference For Financial Aid Administrators

Here is a copy of the information that was presented remotely via GoToWebinar on "Trends In Financial Aid and Private Student Loans:"  Download ISFAA_Presentation_120709

New Student Loan Forgiveness Idea: Have Kids

Found this in the National Journal: 

At a forum sponsored by the Family Research Council on Friday, Allan Carlson, president of the Howard Center for Family, Religion and Society, identified debt from higher education as a key reason young adults are putting off marriage and children. Instead of acting as vehicles of investment in human capital, loans have left too many students in a system of bondage, Carlson said. To address the issue, he proposed the federal government pay off one-fourth of married parents' student debt (up to $5,000 each) for every new child born to or adopted by the couple.

Will 3-Year Cohort Default Rates Make Open-Enrollment Schools Less Open?

See this post for details on 3-year cohort default rates, released on December 14, 2009.

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Based on a report from Height Analytics released on Friday, the answer to the question above will be "Yes."  Here are a few excerpts from their report which applied an ED estimate of a 94% increase to published two year cohort default rates to derive three year rates (note that ED will be publishing on a demonstration basis the three year cohort default rates for Title IV schools on Monday, December 14th):

First, a quick recap of the transition to a three year cohort default rate (CDR) from the two year rate used today (from the Height Analytics report):

Stuck in the Middle: The Plight of the Middle Class In Higher Education

When I ran across these news articles on the middle class, I immediately thought of a commenter at FSA's Town Hall Meeting. 

First, from the Collegiate Times:

According to the report, of public four-year institutions in Virginia, Radford University clocked in with the highest proportion of graduates in debt — nearly 90 percent of its 2008 graduates owed debts of almost $20,000 each.  Radford spokesman Jeff Douglas said that many students at Radford face debts because they are “stuck in the middle.”  “They are too affluent to qualify for Pell Grants, but they can’t cover all of their costs,” Douglas said.

Looking For Advice About Student Loan Repayment?

This article from the Los Angeles Times can help. 

First, it recommends categorizing your student loans:

"If you have been borrowing all the way through school, you probably have a variety of loans with different interest rates and terms. Before considering repayment options, you need to examine the type of loans you have and separate your loans into piles. Gather your documents and sort them by loan type:

* Perkins loans
* Subsidized Stafford loans (the federal loans that you were granted because you had financial need)
* Unsubsidized Stafford loans (federal student loans that anyone can apply for)
* Stafford loans that you got before 2006.'

Then, it describes repayment options:

"* Standard repayment, which repays your loan over a 10-year period.
* Extended repayment, which allows you to repay a significant balance over as much as 30 years.
* Income-based repayment, which allows you to pay what you can afford, based on your discretionary income."

Finally, here is some expert advice they gathered:

"If you have sufficient income to repay your loans, standard repayment is the best bet, said Mark Kantrowitz, president of FinAid.org, a website that explains financial aid options. It gets the job done fastest with the lowest overall cost...If you need a lower monthly payment, you could choose the extended repayment option and spread your repayment over 25 years...If your earnings are low, income-based repayment could allow you to pay nothing at all, Kantrowitz said. The catch? There's far more continuing paperwork with this loan because you have to verify your income each year. When your income rises, your payments will too."

With the grace period for recent graduate's student loans ending, this is useful advice to be presenting. 

What Explains Increasing Defaults in More Mature Private Student Loan Portfolios?

An annual comparison of First Marblehead's private loan student trusts at September quarter end shows sharp increases in not only the newer vintage trusts but also in the more mature vintages, when default rates might have been expected to have plateaued already.  It is not uncommon to see student loan defaults rise rapidly in less mature portfolios given the statistic presented at the recent FSA Conference that 70% of defaulters had withdrawn without completing their academic program.  But the increases in default rates below suggest that borrowers deep into repayment seem to be struggling also. 

Here are the cumulative default rates for the First Marblehead trusts and their year-over-year percentage increases: