A last minute memo released by the Federal Student Aid Office reported that a coding error was corrected which miscalculated the percentage of student loan borrowers who have been able to repay the amount of principal owed on their student loans by at least $1 through certain periods (1, 3, 5, or 7 years) after graduation.
This metric is an important part of the College Scorecard program, which was created to give students and their families a series of measurements to evaluate whether or not a university would be a good investment. The program gives families more specific information than ever before about whether or not graduates are likely to pay back their federal student loans - private loans from lenders and banks weren't included..
The memo reiterated the importance of the Scorecard program while calling the corrected difference “modest.” But experts are crying foul play, both on the size of the impact of the data, the way this information changes the narrative about for-profit colleges, and by pointing out the suspicious timing of the announcement.
The Federal Student Aid Office called the miscalculation a “modest” error, but reporting from financial and education experts say that the error was quite substantial. In a Wall Street Journal opinion piece, it was reported that the three-year repayment rate had declined by 20 percentage points. That is a significant drop in the number of students across all institutions that have been able to decrease their student loan by at least $1 three years after graduation.
Critics have also pointed out that the regulations and new penalties imposed against for-profit colleges were largely based on the data collected through the College Scorecard program. The program concluded that nonprofit colleges were not failing the benchmark for the three year repayment plan while many for-profit colleges were. Recent regulations mean that for-profit colleges that fail the benchmark will have to offer a “buyer’s warning” in their marketing material.
Since nonprofit colleges were not failing this mark, the regulation concludes, it isn’t appropriate to force them to offer the same warnings.
However, with the error being corrected, many nonprofits, including many historically black colleges and universities, fail the metric as well. If that data was inaccurate, there’s little to no justification to penalize a for-profit college with a low score without putting all other colleges through the same regulation.
The last minute nature of the press release has critics speculating that this “error” may not have been discovered if Hillary Clinton had won the election. If Clinton, who pledged to continue fighting against for-profit colleges, had been leading the new administration’s Department of Education, it would stand to gain the same public favor from the miscalculated data that the Obama administration did. By imposing sanctions on for-profit colleges based on faulty data, the Obama administration gave the appearance of helping students while in reality harming for-profit colleges and providing students with inaccurate data.
Whether the error was a secret or not, it is very certain that the Trump administration would be likely to uncover the error. Perhaps, many commentators are saying, it was simply better policy for the department to correct their mistake and take credit for their internal auditing skills rather than allow Trump a “gotcha” moment.
How can it be possible that a student can avoid defaulting on their loans yet fail to reduce the amount they owe by at least $1? It seems obvious that a person making regular payments on a loan ought to make some progress eventually, particularly after 3 years. This problem is the result of high loan amounts, high interest rates, and low payment options.
The average student loan debt is around $37,172. Although student loan rates for new loans are lower than years prior, a rate of 3.76% means a monthly debt accrual of about $89 a month. A wide range of repayment plans based on income and financial standing can give borrowers payments lower than that amount, even down to a monthly payment of $0.
The lower payment might feel like immediate relief for borrowers struggling under huge monthly payments, but that interest doesn’t go away. It just gets compounded onto the loan and the amount of money owed climbs higher and higher unchecked.
A default rate tells us how many people have not been able to make payments on their student loan for a longer period of time, but the three year repayment rate tells a different story. Instead of borrowers who have given up trying to make payments, we have a higher rate of individuals making payments that will never actually decrease the amount of money they owe.