College Affordability and Student Debt Higher Education Policy Conference August 9, 2012 Chicago, IL 1
Student Loans Overview and Issues SHEEO Higher Education Policy Conference August 9, 2012 Chicago, IL Kelly D. Edmiston Federal Reserve Bank of Kansas City
Outstanding Student Loan Debt Source: Federal Reserve Bank of New York July 27, 2012 K. Edmiston, FRBKC 3
Growth in Student Loan Lending Unsubsidized Stafford Subsidized Stafford Source: The College Board, Trends in Student Aid July 27, 2012 K. Edmiston, FRBKC 4
Outstanding Student Loan Debt Most of increase coming from increased number of borrowers increases in average debt is moderate Largely driven by enrollments Modest moderate increase in share who borrow Fairly substantial increase in average debt in past year (Equifax data) What is the issue? Borrower capacity to repay / burden Fiscal burden July 27, 2012 K. Edmiston, FRBKC 5
Capacity to Repay / Burden Individual Student Loan Debt Statistics (First Qtr, 2012) Median $13,662; Average $24,218 25% under $5,977 25% over $29,155 > 3% with debt over $100,000 0.5% over $200,000 Average mortgage debt (all) $52,000 40% of borrowers under 30 (1/3 over 40) Sources: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel; Federal Reserve Bank of New York July 27, 2012 K. Edmiston, FRBKC 6
Capacity to Repay / Burden Individual Student Loan Debt Statistics $15,155 $19,544 D.C. $27,351 Source: Authors calculations using data from the Federal Reserve Bank of NY Consumer Credit Panel July 27, 2012 K. Edmiston, FRBKC 7
Capacity to Repay / Burden Credit Profile of Student Loan Borrowers Profile of Student Loan Borrower Credit Conditions, First Quarter, 2012 Student Loan Borrowers First Third Credit Item Average Median Quartile Quartile Non-Student Loan Borrowers First Third Average Median Quartile Quartile Student Loan Debt $24,218 $13,662 $5,977 $29,155 n/a n/a n/a n/a Total Debt 82,994 24,576 6,608 106,027 $66,227 $3,522 $0 $68,440 Consumer Debt /*/ 31,883 17,999 5,500 41,097 13,084 1,379 0 13,850 Revolving Debt 6,888 644 0 4,470 7,703 283 0 3,349 Credit Score 626 696 /*/ Total debt less first mortgage. Source: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel / Equifax July 27, 2012 K. Edmiston, FRBKC 8
Student Loan Delinquency (share of outstanding loans) NY Fed: 27% delinquency in repayment Sources: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel July 27, 2012 K. Edmiston, FRBKC 9
State Delinquency Rates (past due) Sources: Authors calculations using data from the Federal Reserve Bank of New York Consumer Credit Panel July 27, 2012 K. Edmiston, FRBKC 10
Cohort Default Rates Source: U.S. Department of Education July 27, 2012 K. Edmiston, FRBKC 11
Capacity to Repay / Burden Issues Driving Delinquency Recession and Recovery Younger hit hard Peak unemployment 17.1 percent (Apr 2010) Underemployment Slower wage and salary growth AP: 50% unemployed/underemployed Noncompletion Better prospects for completers Especially high for for-profit No credit consideration Poor borrower information July 27, 2012 K. Edmiston, FRBKC 12
Fiscal Impact Accrual-based budgeting NPV (incl disbursements, subsidies, payments) Federal Credit Reform Act (FCRA, 1990) method Federal Government Costs using FCRA FY2011: -$47.3b FY2012: -$34.3b (est.) FY 2013: -$32.2b (proposed) Updates vs. fair-value July 27, 2012 K. Edmiston, FRBKC 13
Fiscal Impact Accrual-based budgeting (cont) Fair-value estimates CBO: 11 percent of disbursements Implies $13.3b (+$3b consolidation) Indirect Greater income tax revenues; lower costs Interest deductions Outlook Not expected to see much higher default rates Could see continued rapid increases in borrowing Reform options July 27, 2012 K. Edmiston, FRBKC 14
Contact Information: Kelly D. Edmiston Senior Economist Community Development 1 Memorial Drive Kansas City, MO 64198 (816) 881-2004 Kelly.edmiston@kc.frb.org
College Affordability and Student Debt Michele A. Casey, Assistant Attorney General, Consumer Fraud Bureau, Office of the Illinois Attorney General
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Growing Concerns with Program Integrity Concern Rising default rates Stagnant or falling graduation rates Growing exposure Increased investments in Federal student financial aid Student loan program changes Concerns Tightened regulations Incentive Compensation Misrepresentation State Authorization Credit Hour Definition Ability to Benefit High School Diplomas Gainful Employment 18
STATUS OF GAINFUL EMPLOYMENT REGULATIONS 19
District Court Decision On June 30, 2012, a District Court vacated most of the gainful employment regulations. Court s decision based on ED s rationale for setting the Repayment Rate failure threshold. Because of the interrelationship of the gainful employment requirements, the Court vacated most of the gainful employment regulations GE Metrics, GE Reporting, Adding new GE Programs. Court left in place GE disclosure requirements.
ED Response to Decision District Court Decision "The court upheld our authority to regulate career college programs while urging a clearer rationale for standards around repayment rates. We are reviewing our legal and policy options to move forward in a way that best protects students and taxpayers while advancing our national goal of helping more Americans get the skills they need to compete in the global economy." 21
Informational Rates Results 22
Process Overview Institutions report students by program ED sends student identifiers to SSA SSA returns median & mean earnings by program ED computes debt measures ED provides institutions with debt measures Information on each student enrolled in the Gainful Employment Programs reported to ED Earnings information aggregated by program by institution (no student specific data returned by SSA) Repayment rates and debt-toearnings ratios returned along with backup data 23
Informational Rates Results 27,583 Programs 3,612 Schools Unique educational programs that had students in the relevant 2-year measurement period (FY2007 and FY 2008) 6,423 Programs 2,197 Schools Unique educational programs where there were at least 31 students for either of the debt measures 3,695 Programs 1,336 Schools Unique educational programs where metrics were calculated because there were at least 31 students for both debt measures. 4,614 Programs Individual educational programs that had a Repayment Rate calculated 5,504 Programs Individual educational programs that had the Debt-to-Earnings Ratios calculated 24
Number of Programs Informational Rates Results Repayment Rate 25
Number of Programs Informational Rates Results Annual Debt-to-Earnings 26
Discretionary Debt-to-Earnings Number of GE programs Informational Rates Results 27
Gainful Employment Assessment Undergraduate Certificate Programs 1000 900 800 Discretionary Debt-to-Earnings 700 600 500 400 300 200 100 0 0 10 20 30 40 50 60 70 80 90 100 Repayment Rate 28
Gainful Employment Assessment Associate s Degree Programs 1000 900 800 Discretionary Debt-to-Earnings 700 600 500 400 300 200 100 0 0 10 20 30 40 50 60 70 80 90 100 Repayment Rate 29
Gainful Employment Assessment Bachelor s Degree Programs 60 50 Discretionary Debt-to-Earnings 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Repayment Rate Excludes a program with excessive deb-to-earnings ratio. 30
Gainful Employment Assessment Graduate & First-Professional Programs 100 90 80 Discretionary Debt to Earnings 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Repayment Rate Excludes 2 programs with excessive deb-to-earnings ratio & 2 programs incorrectly coded as firstprofessional. 31
Gainful Employment Assessment Criminal Justice Programs 800 700 600 Discretionary Debt-to-Income 500 400 300 200 100 0 0 10 20 30 40 50 60 70 80 90 100 Repayment Rate 32
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Pay As You Earn Income-Based Repayment Statutory - FFEL and Direct Loan Current Law Maximum annual payment amount is 15% of discretionary income. Remaining balance forgiven after 25 years. New Law (SAFRA) Effective 2014 Maximum annual payment amount is 10% of discretionary income. Remaining balance forgiven after 20 years. 34
Pay As You Earn Regulatory - Direct Loan Only Current Regulation - Regulatory defined formula Complex Loan amount and income Remaining balance forgiven after 25 years. Limited take-up rate 35
Pay As You Earn Amend ICR regulations to Reduce from 15% of discretionary income to 10% Reduce forgiveness time from 25 years to 20 years Negotiated rulemaking required Concluded in March NPRM Published July 17 Comments by August 16 Expected effective date: July 1, 2013 Possible Early Implementation Fall 2012 36
37 College Choice Tools
CATC* with ScoreCards Consumer Information Tools Quick view -- 5 key data elements -- of institutions on critical measures to help students decide where to consider applying 5 key data elements include: (1) net price, (2) graduation rates, (3) default (or repayment) rates; (4) mean and median debt; and (5) employment outcomes. College Navigator* More detailed information about institutions to help students decide where to apply ED produced Shopping Sheet Know Before You Owe Model Aid Offer Form with graduation & default (or repayment) rates to help students decide where to enroll Institution produced Private Sector or Gov t * Existing Aid Offer Comparison Tool Private sector (or gov t) tool to facilitate comparisons of aid offers
College Choice: ScoreCard 39
Financial Aid Shopping Sheet Student Specific Information: Elements of cost of attendance appropriate for the specific student - -- >> Grant aid (does not have to be repaid or earned) -- >> Institutional Performance Metrics: 40 <<-- Student Right-to- Know graduation rate at 150% of normal time Net price after grants -- >> Aid awarded but earned thru work - -- >> School recommended loan amounts under Federal loan programs - - >> General listing of other types of funding that can be used to meet net costs (including family contribution) - >> Space for institution to send custom message -- >> <<-- Most recent cohort default rate <<-- Median debt for completers Contact information: << --Where to go for more information
College Affordability and Student Debt Respondent: Sandy Baum, Higher Education Policy Analyst, The George Washington University
Is there a student debt crisis? Aggregate debt vs. individual students - Enrollment increases - Outliers (mean vs. median) Temporary vs. permanent circumstances - Economy - Institutional characteristics, completion Information / choice vs. structural barriers July 27, 2012 K. Edmiston, FRBKC 42
Default 1990 22%. GAO: Over 80% of defaults from for-profit sector in 1989. New limits on eligibility for institutions with high default rates in 1990 budget act Gainful employment? July 27, 2012 K. Edmiston, FRBKC 43
Solutions for permanent problems Gainful employment -- Small number of programs covered -- Complexity -- Political issues Private student loans Completion -- Incentive structures Information -- Don t make choice just about $$ -- MA study / under-match July 27, 2012 K. Edmiston, FRBKC 44
Solutions for temporary problems Income-based repayment -- 20% vs. 15%? -- Accrual of interest -- Bureaucratic barriers July 27, 2012 K. Edmiston, FRBKC 45