On July 23, 2010, CREW filed a Freedom of Information Act (FOIA) request with the Department of Education seeking records of communications between Education officials and individuals and entities prominent in the for-profit education industry and individuals who may have publically criticized the industry for personal financial gain. Recent news reports document the efforts of several individuals to garner support for tighter regulation of the for-profit education industry by the Department of Education while at the same time concealing that they stand to reap personal financial gain from more restrictive regulations. Education just proposed new regulations for the industry and CREW seeks to learn, in part, to what extent Education may have been influenced by the efforts of individuals and entities with undisclosed financial conflicts of interest. On September 30, 2010, CREW sent a Freedom of Information Act Request to the Department of Education seeking documents pertaining to four for-profit education companies in light of Education's decision to postpone issuance of new regulations to seek more outside input. CREW seeks to learn the extent to which Education's proposed regulations and policies in this area have been influenced by either the for-profit or non-profit industries
On July 23, 2010, CREW filed a Freedom of Information Act (FOIA) request with the Department of Education seeking records of communications between Education officials and individuals and entities prominent in the for-profit education industry and individuals who may have publically criticized the industry for personal financial gain. Recent news reports document the efforts of several individuals to garner support for tighter regulation of the for-profit education industry by the Department of Education while at the same time concealing that they stand to reap personal financial gain from more restrictive regulations. Education just proposed new regulations for the industry and CREW seeks to learn, in part, to what extent Education may have been influenced by the efforts of individuals and entities with undisclosed financial conflicts of interest. On September 30, 2010, CREW sent a Freedom of Information Act Request to the Department of Education seeking documents pertaining to four for-profit education companies in light of Education's decision to postpone issuance of new regulations to seek more outside input. CREW seeks to learn the extent to which Education's proposed regulations and policies in this area have been influenced by either the for-profit or non-profit industries
On July 23, 2010, CREW filed a Freedom of Information Act (FOIA) request with the Department of Education seeking records of communications between Education officials and individuals and entities prominent in the for-profit education industry and individuals who may have publically criticized the industry for personal financial gain. Recent news reports document the efforts of several individuals to garner support for tighter regulation of the for-profit education industry by the Department of Education while at the same time concealing that they stand to reap personal financial gain from more restrictive regulations. Education just proposed new regulations for the industry and CREW seeks to learn, in part, to what extent Education may have been influenced by the efforts of individuals and entities with undisclosed financial conflicts of interest. On September 30, 2010, CREW sent a Freedom of Information Act Request to the Department of Education seeking documents pertaining to four for-profit education companies in light of Education's decision to postpone issuance of new regulations to seek more outside input. CREW seeks to learn the extent to which Education's proposed regulations and policies in this area have been influenced by either the for-profit or non-profit industries
To: Rogers, Margot Sent: Tue Apr 27 10:03:02 2010 Subject: Fw: More on the Department of Education's Gainful employment )_(_ 5 _ ) __ _, Fyi Sent using Black:Beny From: Gordon, Robert M. To: Miller, Tony; Shireman, Bob Cc: Sunstei n, Cass R. Sent: Tue Apr 27 09:59:26 2010 Subject: FW: More on the Department of Education's Gainful employment reg-,_l (b-)(-S) ____ _, Tony and Bob, I am sure you agree that this is astonishing and unacceptable. Has the Department' s leadership signaled to all that this is a grave matter, and are you taking steps to figure out who is responsible? Thanks, Robert APRa 26, 2010, 10:57 A.M. ET Debt, Job Rule Uncertainty Hits Shares OfF or-Profit Colleges NEW YORK (Dow Jones)-A government proposal to hold colleges accountable for graduating students with high debt loads and low income levels came front and center, again, after Credit Suisse analysts reversed their assumption that the Department ofEducation had softened its stance on the subject. Monday morning, Credit Suisse issued a note saying the Department ofEducation has returned to a stiffer set of rules on post-graduation debt and gainful employment levels that colleges must meet. The news hit share prices of for-profit universities that had rallied on expected softer rules. Credit Suisse downgraded IIT Educational Services Inc. (ESI) and DeVty Inc. (DV) to neutral from outperform and slashed their price targets, citing the potential fallout from their new take on gainful employment as well as concerns of countercyclicality. ITT recently was off2.9% to $108.53, while DeVry was down 6.5% to $64.96. Credit Suisse had upgraded the schools two weeks ago. Other for-profit schools, including Strayer Education Inc. (STRA), Career Education Corp. (CECO), Corinthian Colleges Inc. (COCO) and Apollo Group Inc. (APOL), were also trading down. The Department of Education originally said schools could face scrutiny that could put federal assistance--often the primary revenue stream for for-profit colleges--at risk if they did not have at least a 70% graduation rate and 70% job placement in field of study. Two weeks ago, Credit Suisse, and others, sent out notes saying they believe the Department ofEducation had softened the graduation level to 50%, sending shares higher, with some hitting 52-week highs. "Oddly, we suspect the big upward move the stocks had when the investment community found out about the 500/o exemption may have led to pressure on the DOE to remove the 50% exemption," the firm wrote Monday. Some education insiders have had mixed feelings on predicting the gainful-employment measure, arguing that it's improper to say what the Department of Education will put forth and it's best to wait until the official proposal is released for public comment. That will happen by mid-June. "I'm not sure who thinks they have what access to what's in this draft," said one for-profit school official, but "I would really not be jumping to any conclusions just yet." He said there's no way of knowing "whether it's been hardened, softened, pureed, whatever." Representatives from the Department of Education weren't immediately available for comment. http://online.wsj .com/article/BT-C0-201 00426-71 0339.html?mod=rss _Hot_ Stocks Sharon Mar Policy Analyst I Information Policy OMB I Office oflnfmmation and Regulatory Affairs Tel : 202.395.64661 Fax: 202.395.51671 smar@omb.eop.gov From: Finley Steve To: Yum Georgia CC: Date: 5/4/2010 12:01: 10 PM Subject: FW: New Bloomberg article today: Obama Plans New Rules as For-Profit Colleges Mobilize (b)(5) " The speech was "highly negative" and was "drawing inappropriate and unwarranted parallels between developments in higher education and the causes of the recent fmancial crisis," Harris Miller, president of the Career College Association wrote in an April 29 letter to Duncan." -----Original Message----- From: Woodward, Jennifer Sent: Tuesday, May 04, 2010 11:55 AM To: Yuan, Georgia; Marinucci, Fred; Siegel, Brian; Wolff, Russell; Finley, Steve; Sann, Ronald; Wanner, Sarah Subject: New Bloomberg article today: Obama Plans New Rules as For-Profit Colleges Mobilize (b)(5) "[T]he new regulations would shut 300,000 students out of classes and eliminate 2,000 educational programs, according to a study commissioned by the Washington-based Career College Association, which represents more than 1,400 for- profit cotleges. The proposal would reduce opportunities for women and racial minorities who want to go to college, the group said. ********************************************************************* Obama Plans New Rules as For-Profit Colleges Mobilize for Fight 2010-05-04 04:02:00.0 GMT By John Hechinger, Daniel Golden and John Lauennan May 4 (Bloomberg)-- The Obama Administration is gearing up to produce tougher regulations that may reduce the amount of federal financial aid flowing to for-profit colleges, cutting the companies' annual revenue growth by as much as a third. In response, the $29 billion industry and its supporters including Republican Senators have enlisted top Washington lobbyists and are courting black and Hispanic legislators to fight the proposed rules scheduled to be released as early as this month. The companies draw students from low-income and minority communities. Federal aid to for-profit colleges has become an issue as it has jumped to $26.5 billion in 2009 from $4.6 billion in 2000, according to the Education Department, prompting concern that these students are taking on too much debt. Twelve higher- education stocks fell an average of7.4 percent for the week ended April 30, according to Bloomberg data, following an April 28 speech by an Education Department official critical of for- profit colleges. In the same period, the Standard & Poor's 500 Index dropped 1.7 percent. "There' s an attempt to manage" for-profit colleges by the Obama administration, Robert Wetenhall, an analyst with BMO Capital Markets in New York, said in a telephone interview. The education companies' influence in Washington has "radically changed," from the years of the Bush administration, he said. The tougher rules, which are expected to be released for public comment in the next several weeks, would require ITT Educational Services Inc. , Career Education Corp. and Apollo Group Inc.' s University of Phoenix to show that their graduates earn enough money to pay off their student loans. If for-profit colleges can' t meet the standard, they could lose federal financial aid, which typically makes up three-quarters of their revenue. Tuition Increases The proposed rules may disqualify for-profits from receiving federal financial aid if their graduates must spend more than 8 percent of their starting salaries on repaying student loans. The regulations may slow or even halt tuition increases at ITT, Education Management Corp., Lincoln Educational Services, Universal Technical Institute, and Career Education because many graduates take low-paying jobs in criminal justice, cooking and medical office work, Trace Urdan, an analyst at Signal Hill Capital Group in San Francisco, said in an intetview. Education companies have increased revenue by as much as 15 percent and enrollment by 8 to 10 percent on an annual basis, while raising tuition about 4 to 6 percent a year, Urdan said. The new rules may slow their revenue growth by one third by limiting their ability to raise tuition. Pricing Power "The days of 4 to 6 percent annual tuition price increases are over," Urdan said. "The new proposed rules will bring some school's power to increase prices down to zero." Apollo closed at $58.32, up 91 cents, or 1.6 percent, in New York Stock Exchange composite trading yesterday. ITT closed at $104.22, up $3.09, or 3.1 percent. Career Education rose $97 cents or 3.3 percent to $30.24. The Education Department plans to issue the regulations without Congressional approval, unlike student-loan legislation which passed in March. "Congress has not held a single hearing on these new enforcement mechanisms," Alexa Marrero, spokeswoman for John Kline, the ranking Republican on the House education committee, said in an e-mail. "No research has been offered by the department to justify the controversial proposal." U.S. Senator Lamar AJexander, who chairs the Senate Republican Conference, is trying to persuade U.S. Education Secretary Arne Duncan to reconsider the reguJations, said a Republican aide on the education committee. If that doesn' t work, AJexander, who is on the education and appropriation committees, would try to kill the regulations by cutting off funding, the aide said. Enrollment in for-profit colleges increased to 1.8 million in 2008 from 673,000 in 2000. Industry revenue will rise to $29.2 billion this year from $9 billion in 2000, said Jeffrey Silber, an analyst for BMO Capital Markets in New York. The industry has grown in part by marketing to low-income students, including the homeless, who qualifY for federal grants and loans. Regulations' ln1pact The new regulations would shut 300,000 students out of classes and eliminate 2,000 educational programs, according to a study commissioned by the Washington-based Career College Association, which represents more than 1,400 for-profit colleges. The proposal would reduce opportunities for women and racial minorities who want to go to college, the group said. For-profit colleges have proposed alternative regulations that would require companies to disclose more information about students' debt and job prospects. The Career College Association has retained the Podesta Group, a Washington lobbying finn headed by Anthony Podesta, whose brother, John, was President Bill Clinton's chief of staff, according to federal filings. Clinton will be a keynote speaker at the association' s annual meeting in June. Podesta' s Paul Brathwaite, fanner executive director of the Congressional Black Caucus, is also lobbying on the association' s behalf, records show. Phoenix Scholarships The University ofPhoenix, the largest for-profit college in the U.S. by enrollment, awarded 25 full-tuition scholarships worth $1.25 million in the fiscal year ended August 31 to the Congressional Black Caucus Foundation, which selects the recipients, Apollo spokeswoman Sara Jones said in an e-mail. More minority students earn degrees from Phoenix than from any other U.S. university, she said. In March, several members of the Congressional Black Caucus sent a letter to Duncan, saying the regulations would reduce educational opportunity. Regulators need more tools to oversee publicly-traded education companies receiving increasing amounts of federal money, Robert Shireman, deputy undersecretary of the education department, said in a speech on April28. "I don' t thi nk we have the fi repower that we need," he said, according to a transcript of hi s remarks. The speech was "highly negative" and was "drawing inappropriate and unwarranted parallels between developments in higher education and the causes of the recent financial crisis," Harris Miller, president of the Career College Association wrote in an Apri l 29 lettertoDuncan. For Related News and Information: Stories about education: NI EDU U.S. colleges and universities: USUY Education organizations: EDOR Stori es about the Department of Education: NIEDN --Editors: Robin D. Schatz,Jonathan Kaufman To contact the reporters on this story: John Hechinger in Boston at + 1-617-210-4614 or jhechinger@bloomberg.net; Daniel Golden in Boston at +1-617-210-4610 or dlgolden@bloomberg.net; John Lauerman in Boston at + 1-617-210-4630 or jlauerman@bloomberg.net. To contact the editor responsible for this story: Jonathan Kaufinan at +J-617-210-4638 or Jkaufman17@bloomberg.net. (b)(5) From: Finley, Steve From: Finley Steve To: Chesley, Susan CC: Date: 9/16/2010 10:53:32 AM Subject: FW: new report on GE Sent: Thursday, September 16, 2010 10:40 AM To: Yuan, Georgia; K vaal , James; Bergeron, David; Kol otos, John; Sellers, Fred Cc: Sann, Ronald Subject: new report on GE The report described below is attached. Here is the link: http://www. educationsector.org/sites/ default/files/publications/Gainful-Report_ RELEASE. pdf Are You Gainfully Employed? Setting Standards for For-Profit Degrees Education policy events in Washington, D.C., attract a familiar cast of characters: think tank representatives, members of organizations with eight-letter acronyms, and the occasional retired college professor. But an event at the New America Foundation this summer attracted a different crowd: organizations with names that ended in "markets," "capital," and "fund." The questions from the audience weren' t about quality teaching or common curriculum standards; they were about income vs. earnings, access to federal databases, and student debt thresholds. Someone hearing just the audio feed might have easily mistaken the conference for the quarterly earnings call of a Fortune 500 corporation. The subject of the event was for-profit higher education. Representatives from the financial sector had come to New America, a nonpartisan public policy institute, to hear a high-level Obama administration official talk about a regulatory controversy that could make them-or lose them-hundreds of millions of dollars. Just a few days before, the U.S. Department of Education had released a new proposal that would make it more difficult for for-profits to access billions of dollars in federal funds. At the center of the proposal is a rule called "gainful employment" that would penalize for- profit colleges and other vocational training programs for saddling students with more debt than they can pay back. For-profits have grown by leaps and bounds in recent years, largely free of federal regulation. That freedom would be significantly curtailed if the gainful employment standard takes effect. Vocational training programs would be judged by the ratio of the debt that graduates assume relative to their current earnings and the rate at which they are able to repay it. If programs offered by for-profit colleges exceed certain thresholds on those measures, they risk losing eligibility for federal student aid. Given that many for-profit colleges receive close to 90 percent of their revenue from federal grants and loans, losing access to these dollars would be a death sentence. With such high stakes, the proposed gainful employment standard has generated intense debate. While the owners of for-profits see a $29 billion industry that produces some of the best earnings ratios in the stock market, a group of well- funded short-sellers paints a picture of a fraudulent, over-leveraged industry that' s poised for a subprime mortgage-style collapse. The institutions argue that they serve a class of students excluded from traditional higher education and that they are crucial for meeting the Obama administration' s college completion goals. But many lawmakers worry that in fulfilling that mission, for-profits have relied too heavily on federal aid, forced students to borrow too much money, and produced degrees of questionable worth. Sen. Tom Harkin, the Iowa Democrat who chairs the Senate committee overseeing these schools, has warned that "even good actors in this industry are lwed into the vortex of bad practices in order to compete and meet investors' expectations." Critics of the gainful employment standard, meanwhile, have claimed the proposal "will eliminate quality programs while doing little or nothing to address the issue of excessive student debt." Some have even gone so far as to say it "will attack our freedom and individual liberty to make decisions that have consequences." Yet despite all the noise and controversy, important questions have been left unanswered: Which institutions are most vulnerable to the proposed rules? What types of programs are most likely to be affected? This report tries to answer these questions, using publicly available data to present, for the first time, a picture of what effect the gainful employment proposal could have at more than 12,600 vocational programs at colleges and universities across the country. This includes more than 2,350 bachelor' s degree programs .... EDUCATI ONSECTOR REPORTS September 201 0 ARE YOU GAINFULLY EMPLOYED? Setting Standards for For-Profit Degrees By Ben Miller ABOUT THE AUTHOR BEN MILLER is a policy analyst at Education Sector. He can be reached at bmiller@educationsector.org ABOUT EDUCATION SECTOR Education Sector is an independent think tank that challenges conventional thinking in education policy. We are a nonprofit, nonpartisan organization committed to achieving measurable impact in education, both by improving existing reform initiatives and by developing new, innovative solutions to our nation's most pressing education problems. Copyright 2010 Education Sector Education Sector encourages the free use, reproduction, and distribution of our ideas, perspectives, and analyses. Our Creative Commons licens- ing allows for the noncommercial use of all Education Sector authored or commissioned materials. We require attribution for all use. For more information and instructions on the commercial use of our materials, please visit our website, www.educationsector.org. 1201 Connecticut Ave., N.W, Suite 850, Washington, D.C. 20036 202.552.2840 www.educationsector.org Education policy events in Washington, D.C., attract a familiar cast of characters: think tank representatives, members of organizations with eight-letter acronyms, and the occasional retired college professor. But an event at the New America Foundation this summer attracted a different crowd: organizations with names that ended in "markets," "capital," and "fund. " The questions from the audience weren't about quality teaching or common curriculum standards; they were about income vs. earnings, access to federal databases, and student debt thresholds. Someone hearing just the audio feed might have easily mistaken the conference for the quarterly earnings call of a Fortune 500 corporation. The subject of the event was for-profit higher education. Representatives from the financial sector had come to New America, a nonpartisan public policy instit ute, to hear a high-level Obama administration official talk about a regulatory cont roversy that could make them- or lose t hem- hundreds of millions of dollars. Just a few days before, the U.S. Department of Education had released a new proposal t hat would make it more difficult for for-profits to access bil lions of dollars in federal funds. At t he center of the proposal is a rule called "gainful employment " that would penalize for- profit colleges and other vocational training programs for saddling students with more debt than they can pay back. For-profits have grown by leaps and bounds in recent years, largely free of federal regulation. That freedom would be significantly curtailed if the gainful employment st andard takes effect. Vocational t raining programs would be judged by t he ratio of the debt t hat graduates assume rel at ive t o their current earnings and t he rate at which t hey are able to repay it. If programs offered by for-profit colleges exceed certain thresholds on t hose measures, t hey risk losing eligibility for federal st udent aid. Given t hat many for-profit colleges receive close to 90 percent of their revenue from federal grants and loans, losing access to these dollars would be a death sentence. www.educationsector.org With such high stakes, the proposed gainful employment standard has generated intense debate. While the owners of for-profits see a $29 billion industry that produces some of t he best earnings rat ios in the st ock market , a group of well -f unded short-sellers paints a picture of a f raudulent , over- leveraged industry that's poised f or a subprime mortgage-style collapse. The institutions argue that they serve a class of students excluded from t raditional higher education and t hat they are crucial for meeting t he Obama administration's college complet ion goals. But many lawmakers worry t hat in fulfilling that mission, for-profits have relied too heavily on federal aid, forced st udents t o borrow t oo much money, and produced degrees of questionable worth. Sen. Tom Harkin, t he Iowa Democrat who chairs the Senate committee overseeing t hese schools, has warned t hat "even good actors in t his industry are lured int o t he vortex of bad practices in order t o compete and meet investors' expect ations." 1 Critics of t he gainful employment standard, meanwhile, have claimed t he proposal "will eliminate quality programs while doing little or not hing to address the issue of excessive st udent debt. " 2 Some have even gone so far as t o say it "will attack our freedom and individual liberty to make decisions t hat have consequences." 3 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 1 Yet despite all the noise and controversy, important questions have been left unanswered: Which institutions are most vulnerable to the proposed rules? What types of programs are most likely to be affected? This report tries to answer these questions, using publicly available data to present, for t he first time, a picture of what effect the gainful employment proposal could have at more than 12,600 vocational programs at colleges and universities across the country. This includes more than 2,350 bachelor's degree programs. Much of the focus in Congress and in the media has been on institutions, particularly those that are publicly traded. But this analysis suggests that individual programs within those institutions may vary widely in how they perform under the proposed gainf ul employment standard. An institution could very well offer both programs that are unaffected and programs that become ineligible for federal student Colleges are forbidden by law to make false promises of jobs or to inflate salary d a ~ a , sc hey play on emotions, appealing to students' desires to be valued in their careers. aid. This analysis also finds that t he type of programs that could lose el igibility under the gainful employment standard vary significantly. For instance, there are a large number of ineligible programs for medical assistants, but these programs only exceed the proposed debt-to-income standard by a few thousand dollars, meaning they could avoid penalties if they slightly reduced their costs. Others programs, like those in culinary arts, are less likely to be ineligible, but those that miss the mark often miss by a wide margin. Out of more than 12,600 programs, about 4 percent, or just over 500 programs, would lose eligibility because of the new standard. This includes 8 percent of bachelor's degree programs, 6 percent of associate degree programs, and 1 percent of programs that are generally certificate programs of two years or less. 4 2 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? Overall, the programs most likely to be affected are those tied to high-tech fields, such as e-commerce or graphic design, or those tied to jobs with low expected starting salaries, such as medical assistant or chef. Although these programs cover a range of different jobs, they employ similar marketing tactics. Colleges are forbidden by law to make false promises of jobs or to inflate salary data, so they play on emotions, appealing to students' desires to be valued in their careers. 5 TESST College of Technology in Beltsville, Md., a school owned by Kaplan Higher Education, tells would-be medical assistants that they are joining a "growing field t hat allows [them] to assist others in need." 6 Students looking at Le Cordon Bleu Institute of Culinary Arts, owned by Career Education Corporation, are encouraged to "follow [their] passion" and "explore [their] creativity. " 7 Kaplan advertises its inf ormation technology degrees as a chance for students to "be the most valued person at work." 8 And at the Art Institute of Pittsburgh's Online Division, the ads for the interior design program tell prospective students that they can have a "profound impact on people's lives." 9 These marketing pitches also often tout t he benefits of an entire industry, like health care, rather than the realities of the specific job for which the program is preparing students- jobs that are entry-level with low pay and typically have little opportunity for advancement. And as this analysis shows, many of these programs are poor investments for students. While these at-risk programs comprise only a small minority of all programs at for-profi t colleges, it would be wrong to conclude that most for-profit programs will emerge from the new federal standards unscathed. A much larger number-some 65 percent-are likely to fall in a middle ground between full eligibility and total ineligibility called "eligible with a debt warning," which requires colleges to, among other things, post prominent cigarette pack- style "debt warnings" alerting potential students to the likelihood that enrolling could be hazardous to their financial health. The gainful employment standard would not lead to a wholesale shutdown of the for-profit sector. But it would probably force many for-profits to substantially change their pricing and approach to student debt. www.educationsector.org More broadly, it would establish a new federal perspect ive on higher educat ion, involving close examinat ion of college prices relat ive to graduat es' future earnings, an idea that was first contemplated decades ago but is only now seeing the light of day. An Undefined Standard Gainful employment is not a new standard. When Congress passed t he Higher Education Act in 1965, it required that non-accredited public or private not- for-profit programs provide gainful employment in a recognized occupation in order to receive federal money for student aid. 10 When for-profit colleges later became eligible for these aid programs, Congress required them to meet t he same criteria. But Congress never fully defined gainful employment or explained how colleges could meet the standard. Even when for-profits came under intense scrutiny as part of a Congressional investigation into widespread industry fraud in the early 1990s, the term remained unclear. Instead of clarifying the Categories of Eligibility Eligible These programs have a repayment rate of at least 45 percent, and the annual loan payment is less than or equal t o 8 percent of the average annual earnings or 20 percent of discretionary income. Ineligible These programs have a repayment rate below 35 percent and an annual loan payment that is both above 12 percent of average annual earni ngs and 30 percent of discretionary income. Eligible with a Debt Warning These programs have either a repayment rate or debt-to-income ratio that exceeds the threshold for an eligible program, but not both. In other words, the repayment rate must be at or above 45 percent, or the debt-to-income ratio must be at or below 8 percent or 20 percent, but both cannot occur. Restricted These programs have a repayment rate below 45 percent and a debt-to-income ratio below 8 percent and 20 percent. They also have either a repayment ratio at or above 35 percent or a debt- to-income ratio at or below 12 percent or 30 percent, or both. www.educationsector.org requirement, Congress and federal agencies turned their attention to closing schools, tracking the rate at which borrowers defaulted on their loans, and limiting the percentage of revenue for-profit colleges could receive from federal aid programs. Today, for-profits are again in the spotlight. Enrollment at these schools grew by 160 percent in the last decade. 11 And despite enrolling only about 10 percent of all students, for-profi ts consume 25 percent of all Pell Grant dollars disbursed and 21 percent of all federal student loan dollars. 12 That's a large investment for a sector in which the average graduation rate is 20 percent for bachelor's degrees and just over 60 percent for programs of two years or less, and in which it's estimated that as many as 40 percent of student loans go into default. 13 Those numbers have prompted the federal government to take a fresh look at the sector. The U.S. Senate has held multiple hearings about the quality, recruitment practices, and cost of these institutions, questioning whether the more than $26 billion in federal aid given to these schools each year is a good investment. Likewise, the Obama administ ration is seeking greater control of these schools through the regulatory process. This June, the U.S. Department of Education proposed language on 15 issues that, among other things, would prevent for-profit institutions from paying recruiters based on student enrollment and provide more consumer protections against false advertising. A mont h later, it released a proposal to define gainful employment by relying upon measures of student borrowing, expected earnings, and student loan repayment rates. That regulation is currently going through a public comment period, and a final version will be released later in 2010. If enacted, it will go into effect on July 1, 2011. It if does, the standard would tie college quality to work-force outcomes for the first time, substantially changing the way vocational programs are judged in the process. Calculating Gainful Employment To determine whether a program meets the proposed gainful employment standard, the department will consider how much students borrow to attend that EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 3 program, the annual income of program graduates, and the rate at which program graduates repay their loans. Using those first two pieces of information, the department will create a ratio of annual earnings to debt payments. Each individual program offered by a for-profit institution and all non-degree training programs at public or private, not-for-profit colleges would have to meet certain thresholds on the debt-to- earnings comparison and maintain a certain minimum repayment rate in order to remain eligible for federal student aid funds. A program's repayment rate looks at the status of federal student loans that entered repayment in the last four years. Among those loans, it measures the dollar amount of all loans being actively repaid divided by the amount of loans that entered repayment during that time frame. The regulation defines the numerator of this equation as the original outstanding principal balance of all loans that entered repayment in the past four years and were repaid in full or had enough payments to reduce the principal owed in the last fiscal year. 14 Note that the numerator is based on the original principal value of a loan that is being repaid, Ineligible programs have a repayment rate below 35 percent and an annual loan payment that is both above 12 percent of average annual earnings and 30 percent of discretionary income. not the amount repaid. In other words, if the principal owed is reduced by at least $0.01, then the entire balance of the loan is counted in the numerator. For example, consider a school that had two students borrow $1 ,000 each. One borrower makes no payments and does not reduce the principal , the other pays enough to reduce the principal owed to $999. In this case, the repayment rate is $1 ,000 divided by $2,000, or 50 percent. The repayment rate can also be thought of as the percentage of loans being repaid, weighted f or the size of the loans. 4 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? The proposed gainful employment standard also judges programs based upon two ratios of students' annual debt payments to their earnings. They are calculated using the following three figures: Annual loan payment: The median borrowing amount among graduates from the past three years is used to calculate an annual loan payment based on the assumption that the debt is paid over 1 0 years with an interest rate equal to the standard unsubsidized Stafford loan rate. Average annual earnings: The average annual income earned by program graduates over a three-year period. 15 This data will be collected by a federal agency, most likely the Social Security Administration, and reported as a single figure to the department. Discret ionary income: The average annual earnings minus 150 percent of the poverty threshold for a single individual living in the continental United States (about $16,245 in 2009). For each program, the department calculates the annual loan payment and then compares it to bot h the annual average earnings and discretionary income numbers for that program. The department's proposal establishes thresholds for repayment rates and debt-to-income ratios. Based upon their performance relative to these thresholds, programs are placed into four different categories of eligibility: "eligible," "ineligible," "eligible with a debt warning," or "restricted." These categories rest on three types of ranges. If a program is entirely above the upper bound, then it is eligible; if it is entirely below the lower bound, then it is ineligible. All others that fall somewhere between these two thresholds are either eligible with a debt warning or restricted. Eligible: These programs have a repayment rate of at least 45 percent, and the annual loan payment is less than or equal to 8 percent of the average annual earnings or 20 percent of discretionary income. Eligible programs are free of any restrictions. Ineligible: These programs have a repayment rate below 35 percent and an annual loan payment that is both above 12 percent of average annual earnings www.educationsector.org Table 1. How to Determine If a Program Meets the Gainful Employment Standard AND
>20% >8% > 8% 12% > 20% 30% > 8% 12% >30% >12% > 20% and 30% >12% >30% and 30 percent of discretionary income. These programs will lose federal student aid eligibility. Ineligible programs may not provide federal student aid to any new students and must warn existing enrollees of debt dangers, in addition to all the other disclosures described below. Eligible with a debt warning: These programs have either a repayment rate or debt-to-income ratio that exceeds the threshold for an eligible program, but not both. In other words, the repayment rate must be at or above 45 percent, or the debt-to-i ncome ratio must be at or below 8 percent or 20 percent, but both cannot occur. 16 These programs may still participate in the federal student aid programs, but they must include in all materials and online a prominent warning saying that students may have difficulty repaying their loans. The school must also disclose its recent loan repayment and debt-to-income rates. Restricted: These programs do not meet any of the requirements for an eligible program, but exceed some of the benchmarks for an ineligible program. They occupy a middle ground. These programs have a repayment rate below 45 percent and a debt-to- income ratio below 8 percent and 20 percent. They also have either a repayment ratio at or above 35 percent or a debt-to-i ncome ratio at or below 12 percent or 30 percent, or both. Programs marked as restricted by the department will have their enrollment capped at the average of the past three years, must provide warnings to consumers about debt levels, and must get statements from area employers about why the program should continue. www.educationsector.org Repayment rate is ... Eligible Eligible Debt warning Debt warning Debt warning Debt warning Debt warning Debt warning Restricted Restricted Restricted Restricted Debt warning Debt warning Restrjcted Restricted Restricted INELIGIBLE These last two categories are opposites. A program that is eligible with a debt warning is good enough on one measure to meet the eligible threshold, but falls short in the other. A restricted program doesn't meet any of the eligible standards, but has at least one calculation that is above the ineligible threshold. (See Table 1.) Other Important Considerations In addition to the new set of standards and measurements, the proposed gainful employment rule contains a few other provisions worth mentioning. The bottom 5 percent: The gainful employment standard will go into effect in the 2012-13 academic year, but penalties will be administered differently that first year. Rather than preventing all ineligible programs from receiving federal student aid, those with low repayment and debt-to-income rates will be broken down by the type of degree or credential (associate, bachelor's, certificate, etc.) awarded. In each category, the programs will be sorted by repayment rate. The programs with the lowest rates will lose their eligibility for aid until the enrollment of all the ineligible programs equals 5 percent of the enrollment of all programs in that category. The remaining programs will face the same penalties as restricted programs. New programs: Traditionally, new programs have been able to gain access to federal student aid dollars as long as they are offered at an accredited institution. EDUCATION SECTOR REPORTS: Are You Gainfull y Employed? 5 Methodology It is possible to estimate potential income levels for individual programs because all institutions are required to report an instructional program code for each of their offerings. 1 Each code corresponds to specific professions and their earnings data-information that is kept by the U.S. Bureau of Labor Statistics. 2 Because one code can be linked to multiple professions, the salary estimate ref lects the average annual 25th percentile earnings for each instructional code. For codes tied to multiple jobs, the earnings are weighted by the number of people employed in each job. Multiplying the salary amount by 8 percent and 12 percent produced income thresholds for the average annual earnings. Calculating discretionary income required subtracting 150 percent of the poverty threshold for a single individual and then multiplying the remaining amount by 20 percent and 30 percent. Under the proposed gainful employment calculation, the income thresholds will be compared to the annual payment on debt owed by a program's students. Because actual earnings data are not available, this analysis instead calculated how much debt a student could take on if his or her annual loan payments were equal to the income thresholds determined earlier. Loan amounts were calculated by dividing the average annual earnings and the discretionary income levels by 12 to determine a monthly payment. The resulting figure was then used to calculate the original amount a student would have borrowed if he was making that payment each month tor 1 0 years and had a fixed interest rate of 6.8 percent. 3 These loan terms are identical to those on an unsubsidized federal Stafford loan. The resulting original Joan balance amounts represent the maximum debt load a student could take on. Students with higher debt burdens would be devoting a larger percentage of their income to making annual loan payments than what is allowed under the proposed standard. While the U.S. Department of Education did release estimated federal student loan borrowing levels by institution, these figures did not include average private Joan borrowing by school-additional debt that is also included in the proposed gainful employment calculations. Private student loans can be a significant source of additional debt. Moreover, the borrowing information was not reported uniformly-some inst itutional data reflected both graduate and undergraduate borrowers, while some offered separate Hgures for the two. The Jack of private student loan borrowing is especially problematic because it is a significant source of additional debt. 4 Unfortunately, there is no central repository of reliable information on private student loan borrowing at the institutional level. fi EDUCATION SECTOR REPORTS: Are You Gainfully Employed? So instead of relying on reported borrowing information, this analysis approximates students' debt levels by looking at the cost of their program, minus federal grant aid received. Where available, program costs were calculated using actual pricing information for tuition, fees, books, and supplies reported by institutions. 5 This information ls available for 1 ,890 schools in the department's Integrated Postsecondary Education Data System, or I PEDS, that also had repayment rate information available. For programs that take more than a year to complete, the total cost figure encompasses all charges that may be spread out across several years. If an institution did not specifically report costs by program, its cost estimate per program is based on the school's published figures for tuition and tees and books and supplies. Bachelor's degree programs reflect the past four years of cost information; associate degree programs reflect the past two. While students at proprietary colleges and universities do take on large levels of debt, they also receive significant amounts of federal grant aid. To account for this, each program's cost estimate was reduced by the average amount of federal grant aid received by students at that institution, data that are also reported to I PEDS. Bachelor's degree programs had their costs reduced by the average federal grant aid received over the past four years; associate degree programs had their costs reduced by the average grant aid over the past two years. Programs' eligibility under the proposed gainful employment standard was then determined by taking the cost estimates and subtracting from them the borrowing thresholds established using the Bureau of Labor Statistics data. If a program's cost minus the borrowing thresholds yielded a positive number, a student was likely to borrow more than the income estimates would allow. If the subtraction produced a negative number, students were likely to borrow less than the maximum allowable amount. This information was paired with the institutional repayment rates reported by the department to determine whether a school would be affected by the proposed standard. While there is no guarantee that such programs would actually be sanctioned under the new standard, this analysis does suggest which types of programs and institutions may need to consider reining in their borrowing over the next few years. There are several limitations to this approach. Students may borrow less than the full amount to cover program costs, or they may borrow more than the full amount The assumption that students will borrow the full cost of their education, minus available federal grants, is supported by a number of statistics on student debt and the revenue structure of for-profit colleges. An analysis of data from the National Postsecondary Student Aid Survey published www.educationsector.org Methodology, cont. by Education Sector last year shows that over 92 percent of students at for-profit colleges take out a loan to finance their And the debt levels these students assume are quite high. The department estimates that the median debt level of for-profit students ranges from $18,415 for an associate degree to over $31 ,000 for a bachelor's degree. 7 Similarly, the College Board found that over 53 percent of bachelor's degree recipients at for-profit institutions graduated owing over $30,500. 8 And while it is reasonable to expect that not every student would borrow at such a high level, for-profit colleges and their defenders note that they cannot control how much students borrow and that some take out too much debt. That over-borrowing could balance out statistics for students who take out a lesser amount in loans. The revenue structure of for-profit colleges also bolsters the assumptions about student borrowing used in this report. For-profit institutions may not take in more than 90 percent of their revenue from the federal student aid programs, and many, especially the large publicly traded companies are close to this threshold. 9 After subtracting federal grant dollars, the remaining loan money represents a very significant portion of a school's revenue. And there is evidence that the revenue that does not come from federal aid programs still comes in the form of loans. For example, Corinthian Colleges Inc., a large publicly traded company, reported that 89 percent of its revenue comes from federal aid programs and only about 1 to 2 percent comes from cash payments from students. 10 That leaves private student loans as the most likely other source of financing. Students' actual earnings could also be higher than the Bureau of Labor Statistics figures. Estimates of federal grant aid may also be too generous, because they reflect awards given to first-time, full-time students. These amounts are going to be higher than what the large number of part-time students would receive. While this approach could incorrectly identify programs as at-risk for violating the gainful employment standard when they are not, it is also possible for the opposite to occur. Some programs may produce graduates with even lower earnings than the national figures, further lowering the income threshold. This analysis is meant to provide an overall estimate of how the proposed federal rules will change the for-profit higher education sector as a whole and how different program types are likely to be affected. It is not a fool-proof predictor of which individual institutions or programs will meet the standards. www.educationsector.org Notes 1. These institutions are known as program reporters and must break down cost by program because their offerings start at multiple times throughout the year and do not follow the standard academic calendar. 2. Each student aid-eligible offering is assigned a six digit Classification of Instructional Programs (CIP) code that identifies the content area covered by a program. For example, a program in cosmetology may be assigned the code 12.0401, which corresponds to "Cosmetology/ Cosmetologist, General." Using information from the National Crosswalk Service Center, institutions can then link a program's CIP code to the corresponding Bureau of Labor Statistics codes. To continue the example, a program with a CIP code of 12.0401 has 'four corresponding codes in the bureau's database: 39-5012 (hairdressers, hairstylists, and cosmetologists), 39-5091 (makeup artists, theatrical and performance), 39-5092 (manicurists and pedicurists), 39-5094 (skin care specialists). For each profession, the SOC database provides information on the number of people employed in an occupation and thei r earnings at the 1Oth, 25th, 50th, 75th, and 90th percentiles. 3. Stan Brown, "Loan or Investment Formulas," Oak Road Systems, February 19, 2010, http://oakroadsystems.com/ math/loan.htm#LoanAmount (accessed September 7, 2010). 4. Sandy Baum and Patricia Steele, "Who Borrows Most? Bachelor's Degree Recipients with High Levels of Student Debt," College Board, April 2010, http://advocacy. cotlegeboard.org/sitesldefault/1iles!Trends-Who-8orrows-- MostBrief.pdf (accessed September 7, 201 0), 3. 5. Program reporters must provide the total cost for a program. Thus, if a two-year program is listed, the expense figure that goes with it covers both years of enrollment. 6. Kevin Carey and Erin Dillon, ''Drowning in Debt," (Washington, DC: Education Sector, July 9, 2009) http:// www.educationsector.org/analysis/analysis_show.htm?doc_ id=964333 (accessed September 7, 2010). 7. "Program Integrity: Gainful Employment (Notice of Proposed Rulemaking)," Federal Register Page 43647. 8. Sandy Baum and Patricia Steele, "Who Borrows Most? Bachelor's Degree Recipients with High Levels of Student Debt," 1. 9. "Emerging Risk: An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profrt Higher Education," U.S. Senate Health, Education, Labor, and Pensions Committee, June 24, 2010, http://harkin.senate.gov/ documents/pdf/4c23515814dca.pdf (accessed September 10, 2010), 4. 10. "COCO - 02 201 0 Corinthian Colleges Earnings Conference Call," Final Transcript, Thomson StreetEvents, February 2, 2010, http://phx.corporate-ir.net/External. File?item=UGFyZW 50SUQ9Mzc3NjM4fENoaWxkSUQ9Mzc2NTI4fFR5cGU9M0= =&1=1, (accessed September 7, 2010), 10. EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 7 Under the proposed gainful employment standard, new programs will also have to be approved by the department. They will have to fi le an applicati on with the department and include enrollment projections along with comments from unaffiliated employers about the need for such a program and the availability of related jobs. The department will then determine whether to grant the program eligibility. Longer time frames: Programs that prepare people for careers in which income levels increase substantially after a few years (such as doctors or social workers) can have their data calculated over the The ineligible programs in culinary arts have an average repayment rate of 27 percent and have costs more than $29,000 above the borrowing limits. fourth, fifth, and sixth years after their students leave school. To stay eligible, programs that use the longer time frame must show that their students' annual loan payment is no more than 20 percent of discretionary income or no more than 8 percent of average annual earnings. Overall Results Under the gainful employment proposal, the department estimates that about 5 percent of programs would be deemed ineligible and 8 percent would be restricted. 17 Another 48 percent would be eligible with a debt warning, and 39 percent would be fully eligible. 18 Among for-profit institutions, the department expects about 1 ,658 programs to be declared ineligible, but it did not say how many for- profit programs it considered overall. 19 It provided no detai ls on which institutions or program types are likely to fall into this category. It is impossible to independently verify the department's estimates because student income data 8 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? are protected by federal privacy laws. This analysis estimates how many and what kind of programs are at risk under the proposed standards by comparing program costs to the potential income levels of program graduates and by looking at the repayment rate for the institution overall. In other words, if a student borrowed to cover the entire cost of his or her program, after receiving available federal grant aid, would that amount, coupled with the institution's repayment rate, put that program in danger of losing eligibility? (See "Methodology" sidebar on page 6 for a complete explanation of these estimates.) This analysis examined 12,662 programs offered by 2,667 colleges or universities. It encompasses three different types of programs, all of which are classified by an instructional code known as a CIP. First, the analysis looked at institutions that report the total cost of specific programs. 20 This group includes 793 programs offered at public or private, not-for-profit institutions, only two of which would be negatively affected by the standard. These 6,140 programs at 1,890 institutions report students' exact cost to attend that program. The analysis also included any program offered at a for-profit institution that produced at least one bachelor's or associate degree last year. This includes 2,351 bachelor's degree programs at 431 schools and 4,171 associate degree programs at 721 schools. In every case, only institutions with repayment rate information were included. Of this sample of more than 12,600 programs, 504-or about 4 percent- would be ineligible for federal student aid funds based upon this analysis. That percentage is a bit lower than the department's estimates. Of the remaining programs, 16 percent would be eligible, 65 percent would be eligible with a debt warning, and 15 percent would be restricted. 21 (See Figure 1.) Ineligible Programs The 504 programs with high cost-to-income ratios and low repayment rates are offered at 222 different colleges or universities. Of those, 1 02 colleges had more than one ineligible program. But 196 of the institutions with an ineligible program had at least one other program that would retain its eligibility. This means that even if that program lost student aid eligibility, the school could continue offering other www.educationsector.org Figure 1. Eligibility Status Under Gainful Employment Bachelor's Degree Associate Degree Programs Programs -Ineligible Restricted Debt warning Eligible programs, so, it would not be put out of business entirely. These 504 programs represent 87 different instruc- tional codes. The instructional type with the largest number of ineligible programs is medical/clinical assistant, which represented 7 4 of the 504 violations. Other common types were programs for culinary arts/ chef trai ning (34), e-commerce (31), and accounting technology/technician and bookkeeping (26). Though medical/clinical assistant offerings were among the most common program types to violate the borrowing standards, the average amount by which they exceeded these thresholds was much lower than that for other program types-particularly those in the food services. On average, medical/clinical assistant exceeded the borrowing threshold for 12 percent of average annual income by just over $7,900. Similarly, other health-related programs like health information and medical records, medical insurance coding, and medical office assistant all had several programs in violation, but these exceeded the 12 percent threshold by an average of between $7,000 and $9,000. Since many of these programs are offered at the associate or bachelor's degree levels, that works out to only a few thousand dollars over each year. Other program types are nowhere near meeting the gainful employment standard. The ineligible programs www.educationsector.org in culinary arts have an average repayment rate of 27 percent and have costs more than $29,000 above the borrowing limits. The 12 ineligible programs in baking and pastry arts also fare poorly with an average repayment rate of 25 percent and costs more than $22,000 above the limits. Others have already raised concerns about student debt at culinary institutions. In March, the New York Times ran a front-page article on student debt at for- profit colleges, featuring a picture of students in chefs' uniforms. Inside, it discussed the story of Andrew Newburg, who paid $41 ,000 for a program at Le Cordon Bleu with the promise of a $38,000 line cook job, only to find out classmates were taking $8-an- hour dishwashing jobs. 22 Thirteen programs at Le Cordon Bleu show up on the list of ineligible schools, and 18 are on the list of restricted schools. Restricted Programs According to the analysis, 1 ,899 programs, or 15 percent, would be restricted under the proposed gainful employment standard. These offerings all had repayment rates that were too low or cost-to-income ratios that were too high, but not both. The programs are offered by 807 different institutions. Cosmetology programs were the most common type of offering to Table 2. Most Common Types of Ineligible Programs Instructional category - - MedicaVCiinical Assistant 74 Culinary Arts/Chef Training 34 E-Commerce/Eiectronic Commerce 31 Accounting Technology/Technician and 26 Bookkeeping Graphic Design 22 Health Information/Medical Records 21 Technology/Technician Interior Design 20 Administrative Assistant and Secretarial 13 Science, General Baking and Pastry Arts/Baker/f:>astry Chef 12 Design and Visual Communications, General 11 Medical Insurance Coding Specialist/Coder Fashion Merchandising EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 9 end up in this category, with 210 programs restricted. Other program types that show up in large numbers include medical/clinical assistant (142 instances), animation, interactive technology, video graphics, and special effects (83), and electrical , electronic and communications engineering technology (70). Forty-five culinary arts programs are categorized as restricted, while 15 baker/pastry chef programs fell into this category. Many of these restricted programs could be in further trouble if their graduates' earnings end up being lower than the estimates. Over 800 of the restricted programs had a repayment rate below 35 percent, and 163 of these had a repayment rate below 20 percent. If these programs end up violating the debt- to-income ratio they will become ineligible. Bachelor's and Associate Degree Programs One particular concern raised by critics of the gainful employment standard is that it would "preclude for-profit colleges from offering bachelor's degree programs," and eliminate many associate degree programs, all due to their high cost-2 3 To test these assertions, the analysis separated out all programs Table 3. Most Common Types of Restricted Programs Instructional category Cosmetology/Cosmetologist, General 210 Medical/Clinical Assistant 142 Animation, Interactive Technology, Video 83 Graphics and Special Effects Electrical, Electronic and Communications Engineering Technology!fechnician CAD/CADD Drafting and/or Design Technology !Technician Corrections and Criminal Justice, Other Legal Assistant/Paralegal Administrative Assistant and Secretarial Science, General Graphic Design Interior Design Culinary ArtS/Chef Training 70 68 66 55 53 47 45 1 Q EDUCATION SECTOR REPORTS: Are You Gainfully Employed? offered by for-profit colleges in these two degree types. This was done by using completion data from I PEDS, which each year reports the type of program and degree level for every credential conferred by a college or university. A program's total cost was estimated using the figures for tuition, fees, books, and supplies for the total number of years it would take to complete a program. This means summing the cost over four years for bachelor's degrees and over two years for associate degrees. 24 This methodology has a few additional limitations. Unlike the programs in which the institutions report specific costs, exact tuition charges are not available for these bachelor's degrees. Instead, the analysis assumes that the tuition is the same for each offering at a school. Recent research indicates price variability is less pronounced at four-year institutions than at two-year colleges. According to a research paper published in May 201 0 by a fellow at the Association for Institutional Research and the National Center for Education Statistics, only about 13.3 percent of for-profit four-year inst itutions vary their t uition by program, and 6.7 percent vary their fees by program. 25 Second, it is possible that a student may take longer to complete a degree. In that case, the cost would be even higher than the estimate. Bachelor's Degree Results The bachelor's degree subset includes 2,351 programs offered at 431 institutions. Out of all the bachelor's degree programs considered, 62 percent would be either eligible or eligible with a debt warning under the proposed gainful employment standard. An additional 29 percent would be restricted, and 8 percent- or 193 programs- would be ineligible. (See Figure 1.) Ineligible Programs The 193 programs that would be ineligible are offered at 78 colleges and universities. This includes programs at branches of the Art Institutes, the Int ernat ional Academy of Design and Technology, ITT Technical Institute, and Westwood College. Of the ineligible programs, 31 are in e-commerce--t he most of any program type. Other program types with large numbers of ineligible programs include interior design (19) and graphic design (16). On average, all of these www.educationsector.org Table 4. Most Common Types of Ineligible Programs, Bachelor's Degrees Instructional category E-Commerce/Eiectronic Commerce Interior Design Graphic Design Fashion Merchandising Animation, Interactive Technology, Video Graphics and Special Effects Web Page, Digital/Multimedia and Information Resources Design Accounting Technology/Technician and Bookkeeping Computer Graphics Design and Visual Communications, General Fashion/Apparel Design Cinematography and FilmNideo Production - mtmz:all 31 19 16 9 8 7 7 7 7 programs are well below t he minimum repayment rate of 35 percent and are more than $20,000 away f rom meeting t he debt -t o-income st andard. These results indicate t hat programs connected to greater work-force needs are less likely to be ineligible. Only a handful of programs in accounting and one program each in business management , legal assistant/paralegal, and nursing would be ineligible. By contrast , most ineligible programs are in "dream job" areas: t hey provide t raining in cutt ing-edge fields like online businesses and graphic design, or in luxury occupations like int erior design or fashion merchandising. These areas are associated wit h relat ively high borrowing levels, but do not offer large numbers of jobs. Restricted Programs About 29 percent of bachelor's degree programs would be rest ricted-meaning t hey would not be able to offer federal financial aid to new students and would have t o demonstrate a continued need f or t heir program f rom the local business community. The most common types of programs in this category are in animation, interactive technology, video graphics and special effects (79 programs}, followed by electrical, electronic and communications engineering technology (70}, correct ions and criminal justice (45}, and interior design (36}. Programs in legal assistant/ www.educationsector.org Table 5. Most Common Types of Restricted Programs, Bachelor's Degrees Instructional category Animation, Interactive Technology, Video Graphics and Special Effects Electrical, Electronic and Communications Engineering Technology/Technician Corrections and Criminal Justice, Other Interior Design Legal Assistant/Paralegal Accounting Web Page, Digital/Multimedia and Information Resources Desrgn Graphic Design Psychology, General Computer a.nd Information Systems Security 79 70 45 36 32 31 24 23 21 21 paralegal, accounting, web page, digi tal/multimedia and inf ormat ion resources design, and graphic design also appeared numerous times. Associate Degree Results The associate degree subset includes 4, 171 different programs offered by 721 instit utions. 26 Of t hese programs, 6 percent, or 267 programs, would be ineligible under the gainful employment st andard. Anot her 75 percent of programs would be f ully eligible or eligible with a debt warning, while the remaining 19 percent would be rest ricted. (See Figure 1.} Ineligible Programs The 267 ineligible programs are offered by 142 different colleges or universi ties. This includes programs offered by well -known college chains like the Art Institutes, Everest (college, university, and institute}, ITT Technical Institute, and Kaplan (college and university}. Fifty-seven different t ypes of programs fall into the ineligible category. Medical/clinical assistant programs are the most common type of offering to be ineligible, with 67 programs fall ing into this category. Programs in culinary arts/chef t raining (22} and health inf ormat ion/medical records technology (21) also EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 11 Table 6. Most Common Types of Ineligible Programs, Associate Degrees Program instructional category .. . Medical/Clinical Assistant Culinary Arts/Chef Training Health Information/Medical Records Tectmology/Techoician Accounting Technology/Technician and Bookkeeping Administrative Assistant and Secretarial Science, General Medical Office Management/Administration Baking and Pastry Arts/Baker/Past ry Cllef Medical Insurance Coding Specialist/Coder Medical Office Assistant/Specialist Cosmetology/Cosmetologist, General Graphic Design 67 22 21 "18 13 10 10 10 9 appear frequently on the list of ineligible program types. On average, none of t he most common types of ineligible programs is close to meeting the repayment rate st andard, but many are less t han $10,000 above the borrowing t hreshold. These programs would have to either significantly reduce costs or raise their repayment rates t o avoid losing eligibility. One int eresting trend that emerges f rom the data for associate programs is t he large number of medical- related programs that would be ineligible under the proposed st andard. In addition t o the medical- relat ed categories already mentioned, medical programs in insurance coding, office assistant, office management, and secretary all appear in high numbers on the list of ineligible programs. All of t hese professions have low starting salaries. As a result, many would not be able to justify t he price tag of as much as $28,000 for some of t hese programs. Restricted Programs The 787 restricted programs are offered at 375 different colleges and universities. This includes multiple branches of Argosy University, the Art Inst itutes, Brown Mackie College, Bryant and St ratton College, DeVry University, Everest (college, insti tute, and university), ITT Technical Inst itute, and Le Cordon Bleu. The most common program types on this list 12 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? Table 7. Most Common Types of Restricted Programs, Associate Degrees Program instructional category MedicaVClinical Assistant CAD/CADD Drafting and/or Design Technology/Technician Administrative Assistant and Secretarial Science, General Health Information/Medical Records Technology/Technician Medical Administrative/Executive Assistant . and Medical Secretary Medical Insurance Coding Specialist/Coder Allied Health and Medical Assisting Services/ Other Medical Office Management/Administration Graphic Design Account ing Technology/Technician and Bookkeeping Pharmacy Technician/Assistant Culinary Arts/Chef Training lltl!ft!B ~ 108 68 53 39 34 27 27 26 23 21 21 21 varied somewhat from t hose on the list of ineligible programs. Medical/clinical assistant programs again showed up on t he top with 1 08 rest ricted programs. They are followed by programs in computer aided design and drafting (68), administ rat ive assistant and secretarial science (53), and health informat ion/ medical records t echnology (39). In aggregate, data on associate and bachelor's degree programs suggest t hat a larger percentage of t hese programs might be in danger of losing eligibility than the overall sample that also included certificate programs. For bachelor's degrees, the programs at greatest risk appear to be in fields t hat are related to high-t ech jobs or luxury professions t hat may not be in high demand; for associate degrees, the concerns arise around expensive programs associated with low-salary professions. The data suggests t hat degree programs that provide training for wel l-paying, high- demand jobs should not be affected too severely. Publicly Traded Companies Several programs at publicly t raded companies show up on the lists of either ineligible or rest ricted programs. The Art Institutes, Everest University, ITT www.educationsector.org Technical Institute, and Westwood College would all have both ineligible and restricted programs. While the University of Phoenix, Strayer University, DeVry Inc., and American InterContinental University would not have any ineligible programs, they all show up on the list of restricted programs. Table 8 shows estimates of the percentage of programs at colleges owned by publicly traded companies that would be eligible, eligible with a debt warning, restricted, or ineligible. It includes programs of all levels from certificate to bachelor's degree. An Important Step Forward The proposed gainful employment regulation is a significant departure from existing laissez-faire policy on federal student aid, policy that requires little accountability for the use of funds or outcomes for students. Formally acknowledging the link between training and earnings is an important codification of the promises about jobs and salaries that for-profit institutions highlight in their marketing materials. The standard also represents a first step in better engaging employers in discussions about higher education. It means that before an institution can offer a new program it must provide assurance from local companies that the curricula are aligned with needed ski lls and that sufficient job demand exists. Restricted programs must provide the same information. Local companies hire area graduates and can recognize a quality training program. Seeking their feedback recognizes the valuable role they can play in helping to ensure that students are entering a program that is likely to produce jobs. The gainful employment standard is also a gain for students as consumers. Publishing repayment rates, debt ratios, and cost warnings gives potential enrollees information that, using a set formula, can be compared across all institutions. This information is more useful than job placement data, which can be calculated in different ways and is not easily verifiable. It is also more helpful t han graduat ion rate information, which doesn't give an accurate picture of student success at schools with large numbers of non-traditional or part-time students. But perhaps the greatest consumer benefit is providing t his information on a program-by-program basis, rather than aggregating it across an inst itut ion. For-profit colleges offer a wide variety of training programs in completely unrelated fields, so breaking apart t he information by program ensures that a nursing student, for example, can see how his or her program actually performed without getting results conflated with business programs that serve students seeking very different careers. Table 8. How Publicly Traded Companies Would Fare Under the Gainful Employment Standard Company Eligible(%) Debt warning (%) Restricted(%) Ineligible(%) Programs All publicly traded companies 4 64 21 6 3,991 American Public Education 85 15 0 0 52 Bridgepoint Education 43 57 0 0 30 Capella Education Co. 0 62 38 0 '13 Career Education Corp. 0 61 23 16 430 Corinthian Colleges Inc. 5 80 4 626 DeVry Inc. Education Management Corp. 1 40 46 13 Grand Canyon Education Inc. 22 78 0 0 46 ITI Educational Services Inc. 2 66 25 7 825 Kaplan Higher Education 5 77 12 5 316 Lincoln Educational Services 7 66 18 9 139 Strayer Education Inc. 0 84 16 0 19 Universal Technical Institute Inc. 4 96 0 0 46 University of Phoenix 0 90 10 0 487 www.educationsector.org EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 13 The gainful employment standard also explicitly introduces value as one way of judging quality and cost at the same time. Current college rankings, especially those compiled by U.S. News & World Report, already list "best value" colleges that offer good quality for their cost. But the opposite can also be true; at a certain price point, the quality of a college becomes irrelevant. A student could get the best clinical/medical assistant training in the world, but if it costs $35,000 or more, and if the average annual income for these positions is just $29,000, then the student is going to have trouble paying off the debt. The inclusion of debt-to-income ratios by the gainful employment standard is a worthwhile attempt to capture this idea with easily understandable data. At a certain price point, the quality of a college becomes irrelevant. A student could get the best clinical/medical assistant training in the world, but if it costs $35,000 or more, and if the average annual income for these positions is just $29,000, then the student is going to have trouble paying off the debt. But the proposed standard isn't perfect. It applies to all for-profit programs (except those in the liberal arts), but only to non-degree certificate programs at public and private not-for-profit colleges. Thus, a for-profit institution and a neighboring community college could offer the exact same program, but only one of them would have to meet the gainful employment standard. If the offerings and instructional program codes are the same, then the same standards should be applied to all institutions. Programs in the liberal arts should continue to be excluded because they do not carry an implicit promise of a job in a specific profession. But strictly vocational offerings should be subject to 14 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? the gainful employment standard regardless of the college's tax status. The calculation of the repayment rate also presents some difficulties. Loans are counted as being repaid if there has been any reduction in the principal owed. But this standard fails to consider whether borrowers are actually on track to pay off the debt on time or whether they are just making a few minimum installments. For example, a borrower with a $1 ,000 loan who makes enough payments to reduce the principal by $1 a year for four years is considered to be in repayment even though, at that rate, he or she wouldn't be able to pay down the debt in 1 0 years. Including both federal and alternative, or private, student loans in the borrowing figures also makes the debt-to-income ratio harder to determine. Much of private borrowing is direct to the student. There is no central repository of information on private student borrowing information, and schools may have no way of capturing all the private loans taken out by their students. Also, assuming a low fixed rat e will make the annual payment on private loans seem cheaper than it actually is. The loan also may have a 20- or 30-year repayment time frame, rather than the assumed length of 10 years. In either case, exact costs are misstated. Private student loans also don' t fit the rationale of why gainful employment needs to be defined in the first place. From a taxpayer's point of view, poor usage of federal student aid dollars is a waste of scarce resources. There is no similar taxpayer investment with private loans. Another concern with the proposed standard's debt- to-income ratio is that it only considers program completers. While this makes sense from the standpoint of wanting to make sure graduates are gainfully employed, it is also important to remember the large numbers of borrowers who drop out. Students who fail to graduate are frequently left with significant amount s of debt but none of the economic benefits associated with a college degree or certificate. One 2005 study found that students who borrowed and did not complete their program were "twice as likely to be unemployed as borrowers who received a degree, and more than 1 0 t imes as likely to default on their loan. " 27 A program that fails to graduate large numbers of its students should also be seen as not providing gainful employment. www.educationsector.org The debt-to-income ratio also fails to recognize that f ederal student loan regulations allow students to borrow beyond the total cost of their program. Students who take out far more in loans than necessary can inflate borrowing totals, which can lead to a school being penalized for something largely out of its control. 28 One way around this problem would be to compare the average borrowing amounts relative to program costs. Those that seem fairly close should be judged according to the debt figures, while programs with a large discrepancy should be subject to further investigation. If an investigation shows that increased borrowing is solely due to student decisions, then the school should be judged only on a portion of that borrowing. A common critique of the new gainful employment proposal is that it holds institutions accountable for other outcomes beyond their control. More specifically, it judges programs based on their graduates' earnings several years after they have left school. This issue recalls the rhetoric around cohort default rates, in which colleges argue that student characteristics, not program quality, play the largest role in assessing whether a student is likely to default. But this argument contradicts the schools' marketing claims that their programs can improve students' lives and lead to better jobs. Either programs lead to better jobs and higher earnings-in which case those results should be measured using a standard like gainful employment-or they don't, in which case their institutions should not be making these claims. Gaining From Gainful Employment The gainful employment standard is just one part of a larger movement to regulate for-profit colleges. Other regulations released in June propose to eliminate exemptions that previously allowed schools to tie part of recruiters' compensation to getting students to enroll. The regulations would also crack down on so-called ability-to-benefit t ests-exams given to students without a high school degree to determine their ability to handle college-level work. A U.S. Government Accountability Office report in September 2009 found that colleges were coaching ill-prepared students through these tests so they could receive federal student aid. 29 www.educationsector.org Establishing clear connections between employers, jobs, wages, and training-oriented programs is a welcome new way of thinking about education not just in terms of quality, but also in terms of value. Congress could also take legislative action in this area. The Senate's Health, Education, Labor, and Pensions Committee has already held two hearings on for-profit colleges and promises to convene more in the fall. The hearings could prompt legislation to further limit the percentage of revenue that proprietary colleges can receive from federal aid programs. Such legislation might also prevent these colleges from using money from these aid programs to pay for marketing. America's higher education system is among the most diverse in the world in terms of the types of colleges and variety of programs it provides. But, to date, federal student aid programs have done little to formally acknowledge that diversity. The gainful employment standard is an important first step in addressing t hat flaw. Establishing clear connections between employers, jobs, wages, and training- oriented programs is a welcome new way of thinking about education not just in terms of quality, but also in terms of value. Most important, it does this at the sub-institutional level , acknowledging that these types of programs have little overlap with other offerings at the same institution. Critics of the gainful employment standard are quick to disparage it as an attempt to shut down the sector. But this claim is unfounded. This analysis shows that gainful employment would likely force 4 percent of programs to close and restrict the activities of another 15 percent. But these results are not set in stone. Colleges will not be judged by the gainful employment standard for a few years yet, so they will have time to reduce their costs and student borrowing, to help students repay their debts, and to help those students fi nd higher-paying employment. And any process that can encourage reducing student costs or improving job placement is a good thing. EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 15 Notes 1. Sen. Tom Harkin, "Beware of For-Profi t Higher Education," Forbes, August 11, 2010, http:/ /www.forbes. com/201 0/ 08/01 /higher-education-student -debt -opinions- best-colleges-1 0-harkin .html (accessed September 6, 201 0). 2. Jennifer Epstein, "Pushback on Gainful Employment," Inside Higher Ed, April 22, 2010, http://www.insidehighered.com/ news/201 0/04/22/gainful (accessed September 3, 201 0). 3. Daniel Bennett, "Beating My Head on the Desk Won't Stop the Insanity," Center for College Affordability and Productivity, May 21 , 2010, http:/ /collegeaffordability.blogspot.com/20 10/05/ beating-my-head-on-desk-wont-stop.html (accessed September 3, 2010). 4. Many institutions that do not offer a traditional semester-length course schedule report information to the U.S. Department of Education by program. 5. Gregory D. Kutz, "For Profit Colleges: Undercover Testing Finds Colleges Engaged in Deceptive and Questionable Marketing Practices, " U.S. Government Accountability Office, August 4, 2010, http:// www.gao.gov/products/GA0- 1 0-948T (accessed September 7, 2010). 6. TESST College of Technology "Medical Assistant, " TESST College of Technology, http:/ lbit.ly/aJk2aO (accessed September 7, 2010). 7. Le Cordon Bleu Institute of Culinary Arts, "Le Cordon Bleu Institute of Culinary Arts in Pittsburgh," http://lecordonbleu- pittsburgh.com/index.asp?src=141574 (accessed September 7, 2010). 8. Google, "Kaplan Information Technology Degree Google Search," http://bit.ly/ biWSjk (accessed September 7, 2010). 9. The Art Institute of Pittsburgh Online Division, "Interior Design Program," http://bit.ly/9gUSbj (accessed September 7, 2010). 10. The Higher Education Act of 1965, Public Law 89-329, 89th Gong., 1st sess. (November 8, 1965), Page 30, http://ftp. resource.org/gao.gov/89-329/00004C5 7 .pdf (accessed September 3, 2010). 11. Author-calculated statistic using data from the U.S. Department of Education's Integrated Postsecondary Education Data System. 12. Author-calculated statistic using data from the U.S. Department of Education's Federal Student Aid Data Center. 13. Author-calculated statistics using data from the U.S. Department of Education's Integrated Postsecondary Education Data System. Kelly Field, ''Government Vastly Undercounts Defaults," Chronicle of Higher Education, July 11, 2010, http:/ /chronicle.com/ article/Many-More-Students- Are/66223/ (accessed September 3, 201 0). 14. Loans that are replaced by a single consolidation loan are not considered paid off. Loans that have an in-school or military deferment or entered repayment after March 31 of a given fiscal year are excluded. 15. By default, institutions have the rate calculated over the three years in repayment. If they can prove to the Department of Education that graduates' salaries increase significantly in the 16 EDUCATION SECTOR REPORTS: Are You Gainfully Employed? future, then It can oo judged over the fourth, fifth, and six years after entering repayment. 16. There are three ways a program can end up in this category: (1) it has a repayment rate above 45 percent and a debt-to- income ratio above 8 percent and 20 percent, (2) it has a debt-to-income ratio at or below 8 percent and a repayment rate below 45 percent, or (3) it has a debt-to-income ratio at or below 20 percent and a repayment rate below 45 percent. 17.James Kvaal (remarks at the conference, "Reining in For-Profit Higher Education," New America Foundation, Washington, D.C., July 30, 2010). 18.1bid. 19. "Program Integrity: Gainful Employment (Notice of Proposed Rulemaking)," Federal Register 75:142, July 26,2010 Page 43636, http://www.gpo.gov/fdsys/ pkg/FR-201 0-07-26/ pdf/201 0-17845.pdf (accessed September 3, 201 0). 20. Some programs may be spread over multiple years, but the cost figure represents the total expense to complete that program. 21. The numbers do not add up to 100 percent due to rounding. 22. Peter Goodman, "In Hard Times, Lured Into Trade School and Debt," New York Times, March 13, 2010, http://www.nytimes. com/201 0/03/14/business/14schools.html (accessed September 13, 201 0). 23. Mark Kantrowitz, "What is Gainful Employment? What is Affordable Debt?" FinAid.org, March 11, 2010, http://www. finaid.org/educators/201 00301 gainfulemployment.pdf (accessed September 3, 2010). 24. Data for all other award levels was discarded because they required fractions of a year. and it was too difficult to estimate the appropriate cost amount. 25. Sean Simone, "Tuition and Fee Differentiation at Degree Granting Postsecondary Education Institutions," Association for Institutional Research, National Center for Education Statistics, May 2010, http://www.airweb.org/images/ Simone_Final_ Report_2010.pdf (accessed September 10, 2010), 20. 26.1n total, the analysis considered 6, 7 47 programs at 790 for-profit institutions. Some colleges offered both bachelor's and associate degrees and so were considered under both categories, albeit for different programs. 27. Lawrence Gladieux and Laura Perna, "Borrowers Who Drop Out: A Neglected Aspect of the College Student Loan Trend," National Center for Public Policy and Higher Education, May 2005, http://www.highereducation.org/reportslborrowing/ borrowers.pdf (accessed September 3, 201 0). 28. Some colleges argue that excess borrowing is used to fund things like vacations and car payments. In other cases, the school may encourage students to borrow more than they need because it is easier to take out the maximum and then return money, rather than take out too little and need more. For example, a recent investigation from ABC News found that students at a branch of the University of Phoenix were being told to take out the maximum because it was easier and they could keep the extra money with no questions asked. 29. "Proprietary Schools: Stronger Department of Education Oversight Needed to Help Ensure Only Eligible Students www.educationsector.org Receive Federal St udent Aid," U.S. Government Accountability Office, August 2009, http://www.gao.gov/ new.items/ d09600. pdf (accessed September 10, 2010). www.educationsector.org EDUCATION SECTOR REPORTS: Are You Gainfully Employed? 17 From: Shireman Bob To: Yum Georgia CC: Manheimer Ann Date: 4/1/2010 6:44:12 PM Subject: Fw: Request for Follow Up Meeting This Week to Discuss Gainful Employment From: Hanis Miller To: Shireman, Bob; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran ; Tammy Halligan ; Manheimer, Ann Sent Thu Apr 01 '17:04:04 2010 Subject: RE: Request for Follow Up Meeting Ths Week to Discuss Gainful Employment Bob, et.al.: We look forward to the meeting Monday morning at 9 AM at the Department to discuss the gainful employment issue. Attending as part of the CCA delegation will be, in addition to me, Brian Moran, CCA' s Executive Vice President for Government Relations, Dr. Jonathan Guryan, University of Chicago, and Dr. Matthew Thompson of Charles River Associates, the leads on the research we will be presenting, Rebecca Campoverde from Kaplan, Anthony Guida from EDMC, and Tom Babel from Devry. If you could please let me know who will be in attendance from the Department, that would be appreciated. Attached you will find three documents. The first is the Executive Summary of the research findings. I will send you the full report tomorrow, Friday. Last minute editing on the full report was delayed by the Passover holiday. Second is the proposal CCA is putting forward as an alternative to the gainful employment proposal put forth by the Department during the negotiated rulemaking. Third is a document that summarizes the extensive tools the government already has to take actions against "bad actors" in our sector. Please let me know if you have any questions or comments. I look forward to a productive conversation Monday. Enjoy the spectacular weather. Harris From: Shireman, Bob [mailto:Bob.Shireman@ed.gov] Sent: Monday, March 29, 2010 10:48 AM To: Harris Miller; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting Ths Week to Discuss Gainful Employment Work with Ann Manheimer on arranging the meeting. Please send your research and alternative prior to the meeting so we can get concrete and specific in the discussions. Thanks, -Bob From: Harris Miller [mailto:HarrisM@career.org] Sent: Monday, March 29, 2010 10:04 AM To: Kanter, Martha; Shireman, Bob; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan Subject: Request for Foil ow Up Meeting This Week to Discuss Gainful Employment Martha/Bob/Dan/David: CCA would like to have a follow on meeting with you this week to the one Brian Moran and I had with Dan and David ten days ago to discuss a) the results of our research (which was not complete when we met) on the impact of the Department' s gainful employment proposal on students in higher education, and b) an alternative (which we discussed in general concept with Dan and David) to the Department ofEducation proposal. We can make ourselves available at almost any time starting tomonow. Please let me know whom I should contact to arrange a meeting. Thanks in advance. Harris ***************************************************************** Harris N. Miller CEO/President Career College Association 1101 Connecticut Avenue, NW, Suite 900 Washington, DC 20036 hanism@career.org + 'I 202 336 6754 Executive Assistant: Jackie McWilliams j acki em@career. org + 1 202 336 6706 www. career.org To: From: Date: Re: MEMORANDUM Interested Parties Career College Association March 29, 2010 The Myth That the Department of Education is Powerless to Stop "Bad Actors" in Postsecondary Education CCA staff and members have heard during recent visits with Administration officials, especially at the Department of Education ("the Department"), and less frequently during Capitol Hill visits, a narrative that runs as follows: Although the majority of for-profit postsecondary institutions may be high quality institutions serving their students well, there are a few "bad actors" over which the Department lacks sufficient regulatory authority. In fact, one of the justifications for the radical proposal put forth by the Department to change the meaning of "gainful employment" as it has been accepted and understood for forty years is to stop the conduct of "bad actors." Part of this same narrative is that prospective students do not have adequate consumer protections to prevent these bad actors from taking unfair advantage of them. CCA agrees that any percentage of bad actors in the sector is unacceptable. What we do not agree with, however, is the mythology that the Department lacks what is, in fact, extensive authority under current law to investigate and take action against institutions that are not following the myriad of rules that govern higher education generally, and for-profit higher education, in particular. In addition to a high degree of regulatory oversight at the federal level, each of these schools is also overseen by the other two legs of the regulatory "triad" -state government and accrediting entities that are approved by the Department itself. For example, over the last decade, the sector has seen a vast increase in active oversight by state agencies. This memorandum provides an overview of the layers of quality control and consumer protection regulation that already exist within the authority of the Department and other federal and state entities that can and do serve as a check on "bad actors." It is important to note that some significant enhancements in the law were enacted as part of the Higher Education Opportunity Act of 2008 ("HEOA"), which amended the Higher Education Act of 1965 ("HEA"). The final regulations implementing the HEOA are not effective until july 1, 2010 and, therefore, many important enhancements to the law have yet to be fully implemented. In addition, during this year's Title IV Program Integrity Negotiated Rulemaking process, the negotiators reached consensus on changes to strengthen the misrepresentation regulations. The process of reaching consensus on enhanced misrepresentation regulations, of which CCA was a part, demonstrates that higher education and the Department share the goal of weeding out bad actors through 7 common sense enforcement of and enhancements to existing law. I. Quality Control and "Bad Actors" As a threshold matter, the Department has never explained clearly how it defines a "bad actor" school or what specific rules such a school is violating. In reality, real laws apply to real schools that violate them. For example, if a bad actor is a school that misrepresents information to a potential student about placement rates or salary prospects, federal and state consumer protection laws apply. If a bad actor is a school that "lures" students to enroll through prohibited payments to admission or financial aid officials, regulations subject that school to penalties and risks to Title IV eligibility. If a bad actor is a school that charges "too high" a tuition relative to earnings, then students will default massively and the cohort default rate thresholds will act as a check on Title IV eligibility. This section describes the quality control regulations in current law put into place over the last decade to improve quality and thereby eliminate so-called "bad actors." The Higher Education Act of 1972 established Title IV eligibility for proprietary institutions consistent with the Department's goals of expanding postsecondary education access for a growing and financially needy college-aged population. Since that time, Congress has established and built upon the following measures in federal law, some generally applicable to all postsecondary institutions and some specific to proprietary schools, to ensure school and program quality: Caps on excessive cohort default rates (Fiscal Year 1989 Appropriations Act); Thirty day delay in delivery of loans to new borrowers by schools with cohort default rates of more than 30% (Omnibus Reconciliation Act of 1989); Prohibition on certification or recertification of an institution as Title IV eligible if it has lost accreditation during the past 24 months, unless the accreditation has been restored or the institution demonstrates program integrity (Omnibus Reconciliation Act of 1989); Addition of new program integrity provisions, including periodic recertification, and other requirements for strengthened national accreditation standards and procedures (Higher Education Amendments of 1992); Establishment of early 85/15 (now 90/10) ratio for proprietary schools (Higher Education Amendments of 1992); Requirements for pro rata refund policy for first-time students who withdraw (Higher Education Amendments of 1992) and return to Title IV policy as a successor to that; Enhancements to federal financial responsibility standards and requirement for letters of credit for institutions with impaired financial responsibility; Requirement for annual submission of audited financial statements and financial aid compliance audits (Higher Education Amendments of 1992); 7 Establishment of incentive compensation prohibitions on student recruitment and processing of financial aid; Strengthened federal requirements for ability-to-benefit tests and limit on percentage of ability to benefit students; Student satisfactory academic progress requirements (Omnibus Budget Reconciliation Act of 1989, Omnibus Reconciliation Act of 1990; Higher Education Technical Amendments of 1991); Required disclosure of completion and placement rate requirements for short-term programs; Establishment of the clock to credit hour conversion rules and minimum academic year requirements as part ofPell grant eligibility; Required disclosure of graduation rates (1990 Student Right to Know and Campus Security Act); Limitations on branch campuses; Increased disclosures to borrowers of student loans; and Disclosure of schools with the greatest tuition increases. In addition to these measures, institutions must also ensure that the information disclosed about programs is accurate. The Department may initiate a fine, or a limitation, suspension, or termination of Title IV eligibility for any substantial misrepresentation made by an institution regarding the nature of its educational program, its financial 1 charges, or the employability of its graduates. At the recently concluded negotiated rulemaking, the Department proposed improvements to the misrepresentation regulation that were agreed upon by consensus by stakeholders, including CCA, that will increase the oversight of the information provided by institutions. Specifically, the proposed regulatory language on which the negotiators reached consensus strengthens the current misrepresentation regulation in several ways, including: Expanding the class of persons to whom a substantial misrepresentation can be made to include accrediting agencies and state agencies, as well as prospective students and the general public; Holding institutions responsible for any misrepresentation made by companies with which they contract their services; and Broadening the definition of what constitutes "substantial misrepresentation." During negotiated rulemaking, the Department also proposed language that would support robust state regulation of postsecondary institutions. In addition, it is important to remember that under current state laws and state attorneys general have broad grounds to pursue schools in violation of state licensing or consumer protection requirements. State authorizing agencies and state attorneys general are additional tools 1 See 34 CFR 668.74(c). 7 against bad actors in the sector. There are also other oversight agencies in addition to the Department that sanction institutions for misrepresentations or inaccuracies in the information they provide. Institutions are subject to oversight by the Federal Trade Commission (proprietary institutions only), the accrediting agencies, the Federal Reserve Board (for institutional and private educational loans), the Securities and Exchange Commission (for publicly traded schools), and the Department's Federal Student Aid Office and Office of Inspector General. II. Consumer Protections As stated above, the provision of postsecondary educational services is a highly regulated activity with numerous controls and enforcement mechanisms currently available to the Department of Education in statute and regulation that permit it to identify, investigate, and end Title IV eligibility to institutions of higher education that violate federal and state law. Consumer protection enhancements applicable to the sector at the federal and state level have also grown consistently over the last decade, were further enhanced in the HEOA, and can be strengthened even more, without relying on a "gainful employment" hook that would damage quality educational service providers. A variety of consumer protections exist to inform the educational choices of prospective and current students. Institutions are required to disclose detailed information about college cost, student success metrics, and loan repayment. Under the Higher Education Act and recent amendments to that Act, schools are required to provide 2 a vast array of consumer information, including the following: The price of attendance, including tuition and fees, estimated cost of books and supplies, room and board, and transportation costs, and any additional costs for a program in which the student is enrolled or expresses an interest (HEA, 20 U.S.C. 1092(a)(1)-(2), unchanged by HEOA); Institutions must make available on their websites by October 29, 2011 a net price calculator (HEOA Section 111 amended HEA Title I, Part C; added HEA, 20 U.S.C. 1015a(a),(h)); Each institution must make available to prospective and enrolled students information about the institution's refund policy, requirements and procedures for withdrawal; and requirements for the return of Title IV, HEA grant or loan aid (HEA, 20 U.S.C. 1092(a)(1)-(2), unchanged by HEAO); Academic program and facility information to prospective and enrolled students (HEOA added 20 U.S.C. 1092(a)(1)(G)(iv)); 2 .s.e.e...HEA Section 48S(a)(l) (20 U.S.C. 1092(a)(l)); see also. Report of the National Postsecondary Education Cooperative, Information Required to be Disclosed Under the Higher Education Act of 1965: Suggestions for Dissemination, Nov. 2009 (including HEOA amendments). 7 Each institution must make available to prospective and enrolled students: names of accreditors applicable to the institution and programs, and procedures for obtaining and reviewing documents describing such accreditation (HEA, 20 U.S.C. 1092(a)(1)-(2), tmchanged by HEAO); An institution that advertises job placement rates as a means of recruiting students to enroll must make available to prospective students, at or before the time the prospective student applies for enrollment: (1) the most recent available data concerning employment statistics and graduation and (2) any other information necessary to substantiate the truthfulness of the advertisements; and (3) relevant state licensing requirements of the state in which the institution is located for any job for which the course of instruction is designed to prepare students (HEA, 20 U.S.C. 1094(a)(8), unchanged by HEOA); Institutions must make available to current and prospective students information regarding the types of graduate and professional education in which graduates of the institutions' 4-year degree programs enroll (HEOA, 20 U.S.C. 1092(a)(l)(S)); Detailed financial aid information, including information about all of the need-based and non-need based federal, state, local, private and institutional aid programs available to students at the institution (HEAO added HEA 485(a)(l)(M)); The retention rate of certificate and degree seeking, first-time, full-time undergraduate students as reported to !PEDS (HEOA added HEA 485(a)(l)(U)); The completion or graduation rate of certificate or degree seeking, first-time, full-time, undergraduate students, including data disaggregated by gender, major racial and ethnic subgroups, recipients of a Federal Pell Grant, recipients of a subsidized Stafford Loan who did not receive a Pell Grant, and students who did not receive either a Pell Grant or a subsidized Stafford Loan (HEOA added HEA 485(a)( 4) and HEA 485(a)(7)); Each institution must publicly disclose and make available to prospective and enrolled students a statement of the institution's transfer of credit policies and articulation agreements (HEOA added 20 U.S.C. 1092(h)); Institutions must make available to current and prospective students information regarding the placement in employment of, and types of employment obtained by, graduates of the institutions' degree or certificate programs (HEOA added 20 U.S.C. 1092(a)(l)(R)); Textbook cost disclosure on internet course schedule used for preregistration and registration purposes (HEOA added 20 U.S.C. 1015b); Detailed entrance and exit counseling for student borrowers, including average anticipated monthly repayment amount, repayment plan options, and debt management strategies (HEOA added new HEA 485(1) and 485(b )(l)(A)); and Detailed private education loan disclosures, including a student self-certification form. In addition, under the amendments to the Truth in Lending Act, private lenders must provide three detailed disclosures to borrowers before making 7 private student loans (HEOA added HEA 487(a)(28) and HEA 151-155 (20 U.S.C. 1019, 1019a-1019d)). The Department makes consumer information easily available to students, parents, and the public. The Department posts many consumer information items on the College Navigator website for each institution, including: Tuition, fees and other estimated student expenses for the last several years, with the percentage increase from the most recent year to the current one and a multi-year tuition calendar; The percentages of students who receive various types of aid and the average amounts of such aid; Graduation rates, disaggregated by major racial subgroups; Retention rates for full-time and part-time students; Average amount of subsidized and unsubsidized Stafford loans; and Cohort default rates for the most recent three years. In addition, the Department provides some of this consumer information direct to individual students by institution - when the student inputs the school's code on the FAFSA. It is also relevant that from the standpoint of providing tools to students to manage student loan debt, Congress first authorized the Income Based Repayment program in 2007 as part of the College Cost Reduction and Access Act of 2007, and that program is just now being actively promoted by the Department as a tool to assist graduates with loan debt management. In sum, despite the perception created by the Department's "bad actor" narrative on gainful employment, proprietary postsecondary education is highly regulated at the federal and state levels and through its accrediting bodies. The gainful employment proposal is vastly overbroad and misguided in light of the diverse array of tools that exist under current law to identify and target bad actors and to protect and assist student consumers with loan debt issues. 7 C D A Lharles. River
Prepared For: Harris N. Miller Career College Association 1101 Connecticut Ave. NW, Suite 900 Washington, DC 20036 Prepared By: Report on Gainful Employment: Executive Summary Jonathan Guryan, Ph.D., Associate Professor of Economics, University of Chicago Booth School of Business Matthew Thompson, Ph.D., Vice President Charles River Associates 1545 Raymond Diehl Road, Suite 260 Tallahassee, FL 32308 Date: March 29, 2010 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates This report addresses the definition of "gainful employment" proposed by the U.S. Department of Education as a part of negotiated rulemaking. CONSEQUENCES/IMPACT OF THE PROPOSED GAINFUL EMPLOYMENT REGULATION To estimate the impact of the proposed regulation on Title IV eligible for-profit postsecondary institutions, we collected data from Career College Association (CCA) member institutions. We analyzed data representing approximately 640,000 students and over 10,000 separate programs from institutions ranging from very small to very large. Using these data, we compared the median debt among a program's graduates to the maximum allowed loan implied by the 8-percent rule applied to the appropriate 25th percentile of earnings, calculated according to the Department of Education's instructions. Based on these calculations, we estimate that 18 percent of for-profit postsecondary programs would not satisfy the debt limit requirement of the gainful employment proposal. In our calculations, larger programs will be more likely to be impacted. Consequently, we estimate that 33 percent of students in for-profit postsecondary programs would be impacted. Applying these findings to for-profit enrollment reported in IPEDS, we estimate that approximately 360,000 students each year enter for-profit postsecondary programs that would lose eligibility for participation in the federal Title IV financial aid programs. Given recent growth rates of enrollment in for-profit postsecondary institutions, we estimate that by 2020, approximately 5.4 million students who are on track to attend programs would be denied access by the proposed regulation. Our estimate is that the impact of the regulation would be severe on racial and ethnic minority groups, in part because for-profit schools are proportionately more likely than not for-profit postsecondary schools to serve these students. We estimate that each year approximately 68,000 non-Hispanic black students and an additional 79,000 Hispanic students enter for-profit postsecondary schooling in programs that would be impacted by the proposed regulation and would not be able to attend these programs. While some capacity may exist in other sectors of higher education to absorb these students, recent reports indicate that the most likely alternatives-community colleges-are already oversubscribed in many cases, and are facing further financial cutbacks as the states that provide much of their funding face severe financial challenges. Given recent growth rates at for-profit postsecondary institutions, we estimate that by 2020 approximately 1 million non-Hispanic black students and an additional 1 million Hispanic students are on track to attend programs that would be adversely affected, and would be denied access as a result. Based on our estimates, the impact of the regulation would vary across types of programs. Because the limits on borrowing do not vary with the length of program, longer programs would be more severely impacted. Whereas approximately 18 percent of students in less than 2 year programs would be impacted, we estimate that approximately 40 percent of students in 2- and 4-year programs would be impacted. We also estimate that the impact would not be limited to a few areas of study, but would impact a wide variety of programs. For example, we estimate that nearly 14 percent of Health Professional and Related Clinical Page 1 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates Sciences, including Nursing, programs and more than 46 percent of Engineering Related Technologies/Technicians programs would not currently satisfy the proposed debt limit rule. A SOLUTION IN SEARCH OF A PROBLEM We are unaware of any, scientific or otherwise, study by the Department of Education that outlines what the problem is that the proposed regulation is meant to address. The problem that the regulation aims to solve has not been clearly stated - neither its nature nor its extent. As a result, we believe, the proposed regulation is not well-designed to address a specific problem. Any regulation aimed at solving a specific problem should be tailored to address that problem without causing undue harm to other individuals. Based on a few anecdotal references to complaints of high debt levels by students, posted in the public comments to Negotiated Rulemaking on the Department's website, we suspect that the Department of Education aims to protect some students who take on more debt than they can expect to repay. We also suspect that the number of students who take on more debt than is in their personal interest is small, but we are not aware of a study of this population that would inform this speculation. A regulation aimed at protecting these students should focus on identifying these students and should address these students directly. Because the proposed regulation applies to schools rather than students, it would affect students who are not over-borrowing along with any who may be over-borrowing. Are Default Rates Higher at For-Profit Colleges? One stated rationale for the proposed regulation is that default rates are higher among students at for-profit postsecondary schools than among those at not-for-profit colleges. Our analysis of the Beginning Postsecondary Students Survey data shows that at least half of the difference in default rates between for-profit and not-for-profit schools is because they serve different types of students. For-profit schools are more likely to serve low-income students, racial and ethnic minority students, students who are the first in their immediate family to attend postsecondary schooling, and students whose families have collected public assistance. Students in these groups are more likely to default on student loans after attending both for-profit and not-for-profit colleges. We estimate that if all schools served students with moderate family resources, loan default rates at for-profit schools would be cut by more than half and the difference in default rates between for-profit and not-for-profit schools would also be cut approximately in half. These estimates are based on regression-based controls for students' family income, dependent status, race/ethnicity, program completion status, parental education, family welfare receipt, and Pell eligibility. It is possible that controlling for additional student characteristics, if data were available, would reduce the default rate gaps even more. Page2 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates RATIONALE FOR THE METRICS OF THE REGULATION The debt limit portion of the proposed Gainful Employment regulation focuses on the ability of recent graduates to repay loans in the early years of their post-schooling careers. The choice of metrics to assure students' ability to pay is logically flawed. Furthermore, the basis of the debt limit on earnings early in the career stands in contrast with standard economic analysis of education, which clearly says that the choice of how much to borrow for schooling should be based on the benefits of schooling, and not on the earnings level at the beginning of a career. Any proposal aimed at helping students make smart decisions about investments in education should compare the costs of schooling to the gains that accrue over the full career as a result of that schooling. It should not compare costs to the level of earnings of recent graduates. The 8 Percent Debt Limit Consider the 8 percent limit on debt payments. First, no scientific or data-driven rationale has been presented for an 8 percent limit as opposed to any other number. No evidence has been presented, for example, that loan default rates increase dramatically as student loan payments cross this threshold. And though no specific rationale has been given for the 8 percent number, to the extent that it is based on rules of thumb from other types of borrowing, such logic would also be flawed. Borrowing for the purpose of education is inherently different from borrowing to purchase a home because the economic returns tend to be much larger. Education is a source of social mobility, so any restriction on student borrowing will tend to be harmful to students who would have enjoyed large gains from the schooling investment. Second, it cannot logically make sense to say that the average student cannot afford to pay 8 percent of her annual earnings to cover student loans for 10 years if those loans paid for education that raised her earnings more than 8 percent each year for the rest of her working life. Academic studies consistently find that students with more education on average earn more, and that these returns to education are large on average, for example, in 2-year Associate degree programs. Academic estimates of the return to education -the increase in annual earnings that result from each additional year of schooling - have ranged from 8 to 15 percent, and have been rising steadily over the past 30 years. Our best estimate is that the return per year of Associate degree schooling is currently more than 1 0 percent. This means that those who earn a 2-year degree earn between 20 and 25 percent more each year than those with just a high school education. If the average return to a year of schooling is 10 percent, this means that the average student in a 2-year program could pay 8 percent of her earnings just with the additional earnings due to the schooling, even after accounting for taxes. These average benefits also do not include additional economic benefits of schooling. Additional benefits of education include increased employment rates, increased likelihood of health insurance coverage, decreased criminality and improved health. Page 3 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates 25th Percentile of Earnings Many features of the proposed regulation share the flaw that limits on borrowing are based on the estimated earnings that graduates would experience in the early years after graduation. This is a flaw because the benefits of education accrue over a long period of time. A policy aimed at protecting students would compare the benefits of education and the costs of education. A key feature of education is that the costs are paid up front, both in terms of foregone earnings and tuition, and the benefits accrue over the entire working life. To focus exclusively on the short-term benefits is to ignore the long-term benefits and to cause students to under-invest in education. This under-investment would likely be harmful to many students affected by the proposed regulation. One example is the use of the 25 1 h percentile of earnings as an implied ability to repay loans. The proposed regulation places a limit on the median debt among students at a program. This limit is based on the 25th percentile of earnings in occupations for which that program prepares students. Presumably, the 25th percentile is meant to be an estimate of the typical starting salary of graduates of the program. The use of the 25th percentile is flawed for multiple reasons. Most fundamentally, the premise of limiting borrowing for education based on early-career earnings is inappropriate and would be harmful to low-income students who rely on student loans for access to education beyond high school. In addition, the choice of the 25th percentile appears to be ad hoc, possibly based on the fact that it is one of the statistics that the Bureau of Labor Statistics publishes for each occupation. However, there is no scientific basis for using the 25th percentile of earnings as an estimate of the early career experience of workers rather than some other percentile (and we reiterate that limits should not be based on the level of earnings of early career workers in the first place, but rather an estimate of the individual gains to earnings that result from the education) . Other percentiles could be calculated fairly easily based on the same data used by the Bureau of Labor Statistics. Furthermore, the particular way to calculate the 25th percentile is not innocuous. Small changes in the way one calculates this number causes large differences in the estimate of early career earnings. One concern would be that future changes in the method of calculating this number could have serious consequences. We estimate that differences in earnings levels resulting from changes in how the 25th percentile is calculated would lead to large differences in the number of students impacted by the proposed regulation. This suggests that further consideration should be given to: (a) whether the 25th percentile concept is appropriate, and (b) whether the method of calculating the student's estimated ability to pay is overly sensitive to small changes in the future and valid from a scientific standpoint. 1 0-year Repayment The proposed regulation indicates that annual loan payments should be based on a 1 0-year repayment period. The use of the 1 0-year repayment length is another way that the Page4 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates regulation would overweight the early costs of education and ignore the future benefits. As mentioned above, the benefits of additional schooling accrue for the entire working career, which for most students lasts significantly longer than 1 0 years, in many cases three times as long. By calculating loan payments using a 1 0-year repayment, the regulation in a sense imposes a decision rule on students that weights the costs of schooling two- to three-times as much as the total benefits of schooling. Overweighting of costs in this way would be shortsighted if it were done by students making education decisions. Any regulation that imposes such a decision rule on students would cause many students who would otherwise benefit from additional education to be harmed. Further Analysis of the Methodology Used to Compute the Metrics of the Regulation The proposed regulation is based on a formula that has many moving parts. For each piece of the debt limit formula, decisions must be made that determine the precise way the value will be calculated. These decisions are not all straightforward, can have large effects on the impact of the regulation, and have not to our knowledge been based on scientific research or subject to sensitivity analyses. One prominent example is the method used to calculate the 25th percentile of earnings. While such a statistic sounds straightforward, it is not. Most areas of study prepare students for multiple occupations, as defined by the Bureau of Labor Statistics. There is not a singular method for calculating the 25th percentile of earnings among workers entering multiple occupations. The method proposed by the Department of Education during Negotiated Rulemaking indicates that a weighted average of 25 1 h percentiles within each of the occupations should be used. Taking a weighted average of 25th percentiles within occupations does not, however, give the 25th percentile of earnings among the workers in those occupations. Take, for example, the case of Business, Management and Marketing. One of the occupations for which that area of study prepares students, according to the Department of Education, is Chief Executive. Thus, the Department of Education's method bases the early career earnings of students finishing business management degrees in part on the 25 1 h percentile of earnings of chief executives. We suspect that a recent college graduate has a vanishingly small chance of earning a chief executive salary in the first few years after finishing school, though some will become chief executives later in their careers. Assuming the Department's goal is to generate an estimate of the early earnings of a program's graduates, there are some types of occupations for which taking the weighted average of percentiles may make sense, and others for which it does not. Even when a weighted average may be appropriate, how to weight is an important question that must be addressed. There is not a simple solution to the general problem of how to estimate the future earnings of a program's graduates. and more thought and study should be given to how to address it. One risk that should be addressed is that future decisions about which occupations for which a program prepares students could have very large effects on the resulting borrowing limits for that program. Since these decisions may be made for other Page 5 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates reasons, or capriciously, the regulation would be at risk of having unintended consequences based on future seemingly unrelated decisions. There has also been no guidance as to what defines a program for the purpose of the proposed regulation. For our analyses, we define a program as an area of study (i.e. a CIP code) , at a particular location or campus, for a specific program length (i.e. less than 2-year, 2-year, or 4-year). An alternative would be to define a program based on an institution's OPEID code rather than a campus. Doing so could create unintended incentives to combine campuses into OPEID codes. This is another indication that the proposed regulation's implementation at the school or institution level, rather than at the student level, is problematic. CONCLUSION In summary, the proposed regulation is not currently formulated to address a specific problem effectively. Secretary of Education Arne Duncan has stated publicly that he wants to ensure that the Department understands its proposal thoroughly so that it prevents any "unintended consequences." Our analysis suggests that the "unintended consequences"-cutting off access to hundreds of thousands of students who want postsecondary education-will be much more substantial than the intended consequence, which we believe to be-though we are not certain-reducing the number of students who over borrow. To start, the Department of Education has not clearly defined what the problem is that the regulation aims to address. As discussed above, some perceived problems the regulation may intend to address are not problems at all but rather a reflection of the fact that for-profit postsecondary schools serve a very different population than not-for-profit postsecondary schools. If the Department of Education wishes to address the problem that some students take on excessive debt, the proposed regulation is not well designed to do so. By applying a rule at the school or program level, many other students would be negatively affected. Our analysis suggests that 33 percent of students currently in for-profit postsecondary schooling would be denied access. Many more students would be denied access to postsecondary schooling than would be protected from excessive borrowing. Furthermore, it should not be assumed that public postsecondary institutions, particularly community colleges, would absorb these students. Given the fiscal conditions of the states, it is not obvious that community colleges will be able to increase capacity to meet the increasing demand for postsecondary schooling. Finally, because for-profit schools disproportionately serve racial and ethnic minority students and students from low-income family backgrounds, the regulation would have the effect of reducing access to higher education to groups of students that have historically had the lowest levels of access. Page6 PROPOSED DISCLOSURE ELEMENTS AS THEY RELATE TO CERTAIN EDUCATIONAL PROGRAMS Prospective students should have sufficient information made available to them at the time of the enrollment process such that they can make an informed decision regarding their enrollment. Information should include the cost of their program of study, a reasonable projection of potential earnings in their chosen field upon graduation and throughout their life of employment in that field, a reasonable estimate of the debt students typically incur to complete their program, and the options they will have in selecting plans for repaying that debt. Thjs information should be made available to the prospective student before incurring any financial obligation to the school. This disclosure would substitute for the debt to earnings ratio proposed to define the term "gainful employment" as used in provisions of Sections 1001 and 1002 ofthe HEA. Under the Higher Education Act as most recently reauthorized, prospective students and borrowers are required to be given much of this information. Among the information that schools will be required to provide are: The price of attendance, including tuition and fees, estimated costs of books and supplies, room and board, and transportation costs, and any additional costs for a program in which the student is enrolled or expresses an interest; A net price calculator; The prices for books; Detailed financial aid information; The retention rate of certificate- or degree-seeking, first-time, undergraduate students as reported to IPEDS; The completion or graduation rate of certificate- or degree-seeking, first-time, full- time, undergraduate students; including data disaggregated by gender; major racial and ethnic subgroup (as defined in IPEDS); recipients of a Federal Pell Grant; recipients of a subsidized Stafford Loan who did not receive a Pell Grant; and students who did not receive either a Pel! Grant or a subsidized Stafford Loan; The placement in employment of, and types of employment obtained by, graduates of the institution's degree or certificate programs; The types of graduate and professional education in which graduates of the institution's four-year degree programs enroll; Information published by the Department of Education for students at any time that information regarding loan availability is provided; Detailed entrance and exit counseling for student borrowers, including average anticipated monthly repayment amount, repayment plan options, and debt management strategies; and Detailed private education loan disclosures, including a student self-certification form. The additional information proposed to be disclosed here would complete the information for prospective students by providing additional disclosure on the occupations which the student may pursue based on his/her educational program, information relating to salary levels for those occupations, average student loan indebtedness of graduates of the program, and projected annual loan repayment amounts for the average level of indebtedness. Regulations pertaining to the mjsrepresentation of information would apply to these disclosures. 668.41 Reporting and disclosure of information (h) Prospective students - report on employment obtained by graduates of certain degree and certificate programs. For a program offered by the institution under 668.8(c)(3) or (d), the institution must provide a notice to prospective students, prior to the student enrolling in or entering into a financial obligation to the institution, including but not limited to the following information: (i) identification of one or more occupations for which the program helps the student prepare; (ii) annual wage and salary information reported at the 25 111 and 75 1 h percentile for the identified occupation(s) from the Department of Labor' s Occupational Information Network (O*NET) or a link to O*NET with an explanation that the prospective student can find labor market and wage and salary information on that site relating to employment in various occupations; (iii) wage and salary data for graduates from the most recently completed year for which data are available, if the institution collects such data for the purposes of this section; (iv) average federal student loan indebtedness of graduates of the institution with respect to their attendance at that institution, on a program, degree-level , or institution-wide basis; (v) average institutional loan indebtedness of graduates of a program, degree-level , or institution-wide basis, if the institution provides institutional loans to its students as defined in 668.28(a)(5)(i); (vi) the percentage of graduates who borrowed private student loans with respect to their attendance at that institution, on a program, degree-level, or institution-wide basis; and (vii) the expected annual loan repayment amounts for the average federal and institutional student loan indebtedness, on a standard 10-year repayment plan and at least one other repayment plan. [Note - we would request preamble language on several issues, including the following: 1. For a program that does not have a SOC code identified to it or salary information to a SOC code on the O*NET site, the institution could provide some alternative information. An institution could simply provide the CIP code for the program and a list of SOC Codes that are associated with that CIP Code. 2. The institution could identify several occupations but must identify the one that the largest percentage enter into, if the institution collects that information. 3. Institutions need to be able to clarify for students that the average data provided may not be accurate for their particular sUuation. 4. For pwposes of allowing institutions to provide actual salary data if they collect it, it is important not to require institutions to disclose any information they may collect, as it may not be comprehensive enough to give good consumer information.] 2 From: Jenkins, Harold To: Woiff,Russell CC: Finley. Steve Date: 4/2/2010 9:10:00 AM Subject: FW: Request for Follow Up Meeting This Week to Discuss Gainful Employment (b)(S) Harold From: Jenkins, Harold Sent: Friday, April 02, 2010 9:03AM To: Manheimer, Ann Cc: Yuan, Georgia; Wolff, Russell; Finley, Steve Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment l(b)(5) Harold From: Manheimer, Ann Sent: Friday, April 02, 2010 8:56AM To: Harris Miller Cc: Brian Moran; Tammy Halligan; Bergeron, David; Madzelan, Dan; Kanter, Martha; Shireman, Bob; Wolff, Russell; Jenkins, Harold; Madzelan, Dan; Picoult, Francine; Finley, Steve; Yuan, Georgia; Smith, Kathleen; Arsenault, Leigh Subject: RE: Request for Follow Up Meeting Ths Week to Discuss Gainful Employment Harris- from the Office of the Under Secretruy, Bob Shireman, Leigh Arsenault and I will be attending; from the Office ofPostsecondruy Education, Dan Madzelan and David Bergeron will be attending, and from the Office of General Counsel, Harold Jenkins, Steve Finley, Russ Wolff, Steve Finley, and possible, Georgia Yuan, will be attending. We look forward to hearing your presentation- Ann Manheimer, 260-1488 From: Harris Miller [ mailto:HanisM@career.org] Sent: Thursday, April 01, 2010 6:04PM To: Shireman, Bob; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Bob, et.al.: We look forward to the meeting Monday morning at 9 AM at the Department to discuss the gainful employment issue. Attending as part of the CCA delegation will be, in addition to me, Brian Moran, CCA's Executive Vice President for Government Relations, Dr. Jonathan Guryan, University of Chicago, and Dr. Matthew Thompson of Charles River Associates, the leads on the research we will be presenting, Rebecca Campoverde from Kaplan, Anthony Guida from EDMC, and Tom Babel from Devry. If you could please let me know who will be in attendance from the Department, that would be appreciated. Attached you will find three documents. The first is the Executive Summary of the research findings. I will send you the full report tomorrow, Friday. Last minute editing on the full report was delayed by the Passover holiday. Second is the proposal CCA is putting forward as an alternative to the gainful employment proposal put forth by the Department during the negotiated rulemaking. Third is a document that summarizes the extensive tools the government already has to take actions against "bad actors" in our sector. Please let me know if you have any questions or comments. I look forward to a productive conversation Monday. Enjoy the spectacular weather. Harris From: Shireman, Bob [mailto:Bob.Shireman@ed.gov] Sent: Monday, March 29, 2010 10:48 AM To: Harris Miller; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Work with Ann Manheimer on arranging the meeting. Please send your research and alternative prior to the meeting so we can get concrete and specific in the discussions. Thanks, -Bob From: Harris Miller [mailto:HarrisM@career.org] Sent: Monday, March 29, 2010 10:04 AM To: Kanter, Martha; Shireman, Bob; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan Subject: Request for Follow Up Meeting This Week to Discuss Gainful Employment Martha/Bob/Dan/David: CCA would like to have a follow on meeting with you this week to the one Brian Moran and I had with Dan and David ten days ago to discuss a) the results of our research (which was not complete when we met) on the impact of the Department's gainful employment proposal on students in higher education, and b) an alternative (which we discussed in general concept with Dan and David) to the Department of Education proposal. We can make ourselves available at almost any time starting tomorrow. Please let me know whom I should contact to arrange a meeting. Thanks in advance. Harris ***************************************************************** Harris N. Miller CEO/President Career College Association 110'1 Connecticut Avenue, NW, Suite 900 Washington, DC 20036 hanism@career.org + 1 202 336 6754 Executive Assistant: Jackie McWilliams j ackiem@career. org +1 202 336 6706 www.career.org From: Jenkins, Harold To: Matinyqci, FrM Sann Ronald Woodward, Jennifer CC: Date: 4/2/20'10 1:37:44 PM Subject; FW: Request for Follow Up Meeting This Week to Discuss Gainful Employment FYI. From: Harris Miller [ mailto:HanisM@career.org] Sent: Friday, April 02, 2010 1:26PM To: Manheimer, Ann Cc: Brian Moran; Tammy Halligan; Bergeron, David; Madzelan, Dan; Kanter, Martha; Shireman, Bob; Wolff, Russell; Jenkins, Harold; Madzelan, Dan; Picoult, Francine; Finley, Steve; Yuan, Georgia; Smith, KathJeen; Arsenault, Leigh Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Ann: Thank you very much. Attached is the full research report for which I sent you and your colleagues the Executive Summary yesterday. I realize it is a holiday weekend, but I encourage those attending the meeting to read it, if at all possible. It is excellent work done by top notch scholars. I look forward to seeing you Monday. Harris From: Manheimer, Ann [mailto:Ann.Manheimer@ed.gov] Sent: Friday, April 02, 2010 8:56AM To: Harris Miller Cc: Brian Moran; Tammy Halligan; Bergeron, David; Madzelan, Dan; Kanter, Martha; Shireman, Bob; Wolff, Russell; Jenkins, Harold; Madzelan, Dan; Picoult, Francine; Finley, Steve; Yuan, Georgia; Smith, Kathleen; Arsenault, Leigh Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Harris - from the Office of the Under Secretary, Bob Shireman, Leigh Arsenault and I will be attending; from the Office of Postsecondary Education, Dan Madzelan and David Bergeron will be attending, and from the Office of General Counsel, Harold Jenkins, Steve Finley, Russ Wolff, Steve Finley, and possible, Georgia Yuan, will be attending. We look forward to hearing your presentation- Ann Manheimer, 260-1488 From: Harris Miller [mailto:HanisM@career.org] Sent Thursday, April 01, 2010 6:04PM To: Shireman, Bob; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Bob, et.al.: We look forward to the meeting Monday morning at 9 AM at the Department to discuss the gainful employment issue. Attending as part of the CCA delegation will be, in addition to me, Brian Moran, CCA's Executive Vice President for Government Relations, Dr. Jonathan Guryan, University of Chicago, and Dr. Matthew Thompson of Charles River Associates, the leads on the research we will be presenting, Rebecca Campoverde from Kaplan, Anthony Guida from EDMC, and Tom Babel from Devry. If you could please let me know who will be in attendance from the Department, that would be appreciated. Attached you will find three documents. The first is the Executive Summary of the research findings. I will send you the full report tomorrow, Friday. Last minute editing on the full report was delayed by the Passover holiday. Second is the proposal CCA is putting forward as an alternative to the gainful employment proposal put forth by the Department during the negotiated rulemaking. Third is a document that summarizes the extensive tools the government already has to take actions against "bad actors" in our sector. Please let me know if you have any questions or comments. I look forward to a productive conversation Monday. Enjoy the spectacular weather. Harris From: Shireman, Bob [ mailto:Bob.Shireman@ed.gov] Sent: Monday, March 29, 2010 10:48 AM To: Harris Miller; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Work with Ann Manheimer on arranging the meeting. Please send your research and alternative prior to the meeting so we can get concrete and specific in the discussions. Thanks, -Bob From: Harris Miller [mailto:HarrisM@career.org] Sent: Monday, March 29, 2010 10:04 AM To: Kanter, Shireman, Madzelan, Bergeron, David Cc: Brian Moran; Tammy Halligan Subject: Request for Follow Up Meeting This Week to Discuss Gainful Employment Martha/Bob/Dan/David: CCA would like to have a follow on meeting with you this week to the one Brian Moran and I had with Dan and David ten days ago to discuss a) the results of our research (which was not complete when we met) on the impact of the Department's gainful employment proposal on students in higher education, and b) an alternative (which we discussed in general concept with Dan and David) to the Department ofEducation proposal. We can make ourselves available at almost any time starting tomorrow. Please let me know whom I should contact to arrange a meeting. Thanks in advance. Harris ***************************************************************** Harris N. Miller CEO/President Career College Association 1101 Connecticut Avenue, NW, Suite 900 Washington, DC 20036 harrism@career.org + l 202 336 6754 Executive Assistant: Jackie McWilliams j acki em@career. org + 1 202 336 6706 www. career.org C D A ( River .l'l""\.. As.suc1arcs Prepared For: Harris N. Miller Career College Association 1101 Connecticut Ave. NW, Suite 900 Washington DC 20036 Report on Gainful Employment Prepared By: Jonathan Guryan, Ph.D., Associate Professor of Economics, University of Chicago Booth School of Business Matthew Thompson, Ph.D., Vice President Charles River Associates 1545 Raymond Diehl Road, Suite 260 Tallahassee, FL 32308 Date: April 2, 2010 Report on Gainful Employment April 2, 2010 Disclaimer This report was prepared at the request of Harris Miller and the Career College Association. It is based on data and information that were available at the time of the analyses. If additional data or information become available we may update or modify our report. Page i Report on Gainful Employment April 2 , 2010 Table of Contents 1. WHAT ARE POSSIBLE RATIONALES FOR THIS PROPOSAL? WHAT PROBLEM IS THE PROPOSED REGULATION AIMING TO SOLVE? .... .... .... .... .... .... .... .... ..... .... .... .... 1 2. ARE THE PROBLEMS AS SEVERE AS ASSUMED? .................................................... ? 2 .1. COMPARING STUDENT CHARACTERISTICS .... .... .... ..... ... .... .... .. .. .... .... .... ..... ... .... .... .. .. .... .... .... 8 2 .2. DEFAULT RATES 14 3. WHAT IS THE RATIONALE FOR SUBSIDIZING LOANS FOR HIGHER EDUCATION?16 3.1. WHAT ARE THE BENEFITS OF HIGHER EDUCATION? .. .... ..... ... .... .... ..... .... ..... ... .... .... .. .. .... .... .. 17 3.2. PRESIDENT 0BAMA RECOGNIZES THE IMPORTANCE OF EDUCATION BOTH AS AN ENGINE OF ECONOMIC GROWTH FOR THE COUNTRY AND AS A SOURCE OF ECONOMIC PROGRESS FOR INDIVIDUALS FROM ALL CORNERS OF THE U.S. SOCIAL STRUCTURE ... .. .. .... ..... ... .... .... .... .... ... 18 4. WHAT ARE THE BENEFITS OF AN ASSOCIATE DEGREE EDUCATION IN PARTICULAR? ... ..... ..... ... .... .... .... .... .... ..... .... .... .... ... ..... ..... .... .... .... .... ..... ..... ... .... .... .... ... 20 4 .1. THE PROPOSAL'S FOCUS ON ANNUAL INCOME IGNORES THE OTHER BENEFITS OF EDUCATION:21 5. WHAT EFFECTS MIGHT THE PROPOSED REGULATION HAVE? .... .. ..................... 24 5 .1. WHAT ARE THE EFFECTS OF INCREASED ACCESS TO FUNDING FOR HIGHER EDUCATION AND HOW DO THESE VARY ACROSS DIFFERENT TYPES OF STUDENTS? .. .... .... .. .. .... .... .... ..................... .. 24 5.2. HOW TO MEASURE THE 25 PERCENTILE OF EARNINGS? .... .. .. .... ........... ............ ... .. .... .... .... . 24 5.3. PRELIMINARY ANALYSIS BASED ON DATA SUBMITTED BY CCA MEMBER INSTITUTIONS .... .... ... 30 6. WHAT ALTERNATIVE REGULATIONS OR POLICIES MIGHT BE SUGGESTED TO ADDRESS THE PROBLEM AT HAND? ...... ........ ...... .................................. ........ .......... 36 6 .1. FURTHER CRITICISMS OF THE PROPOSED REGULATION ........................................................ 36 6 .2. TO DIRECTLY ADDRESS THE PROBLEM, REGULATION SHOULD FOCUS ON DISCLOSURE AND ENSURING THAT STUDENTS MAKE INFORMED DECISIONS .... .... .... .. .. .... ..... .................... ..... .... 37 7. CONCLUSION .... .... .... .... .... ............. .... .... ........ ..... .... .... .... .... .... .... ..... .... .... .... .... ......... ... 38 8. APPENDIX A ...... .... .... ..... .... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... .... . 39 Page ii Report on Gainful Employment April 2, 2010 This report addresses the definition of"gainful employment" proposed by the U.S. Department of Education as a part of negotiated rulemaking. At present the proposal would define gainful employment so that a program's students would be required to have a median debt level no greater than 8 percent of the 25th percentile of annual earnings among individuals working in occupations for which that program prepares students. The 25th percentile of earnings would be calculated from Bureau of Labor Statistics (BLS) data, and is presumably meant to be an estimate of the typical starting annual earnings for someone finishing that program. Annual loan payments would be calculated from the median debt level based on a 1 0-year repayment plan using the interest rate on unsubsidized Stafford loans. For programs that do not meet the 8 percent loan-to-income cut-off, an alternative is to have a 90 percent repayment rate for recent graduates. In this document, six basic areas are covered: 1. What are possible rationales for this proposal? What problem is the proposed regu- lation aiming to solve? 2. Are the problems as severe as assumed? 3. What is the rationale for subsidizing loans for higher education? 4. What are the benefits of an Associate degree education in particular? 5. What effects might the proposed regulation have? 6. What alternative regulations or policies might be suggested to address the problem at hand? 1. WHAT ARE POSSIBLE RATIONALES FOR THIS PROPOSAL? WHAT PROBLEM IS THE PROPOSED REGULATION AIMING TO SOLVE? Presumably, the motivation behind the proposed regulation is to protect students from taking on "too much debt". Taking on excessive debt may lead to an inability to repay the debt, resulting in default. There may be a belief that some students agree to borrow so much there is little chance they will be able to repay the loan in the future. There may also be a belief among policymakers that, regardless of whether the loans are eventually paid back, some amounts of debt are too high per se. 1 The proposal's focus on for-profit schools implies that there is a belief that the problems of excessive debt burden and high default rates are either specific to, or more severe at, for-profit schools. There has been no analysis of whether differences in debt levels or differences in default or delinquency rates across types of schools are the result of actions by the schools or due to differences in the types of students that the schools serve. 1 Further, the proposed legislation assumes that individuals do not have the ability to determine appropriate levels of personal debt without government guidance. One argument that the Department of Education may advance is that students do not have all of the necessary information to make informed decisions, and thus government guidance is necessary. Page 1 Report on Gainful Employment April 2, 2010 Later in this document, we address whether in fact it appears that default rates are higher at for-profit schools, and whether some of this difference is a result of serving students from different backgrounds. The focus on for-profit schools suggests that another possible motivation for the proposed regulation is that the Department of Education believes the cost offor-profit programs is too high. This sense that the cost to students is greater at for-profit programs is surely based almost exclusively on a comparison of tuitions. However, the full cost of schooling must also include foregone earnings if the student must cease working to attend school, and other less obvious but very real costs. Since for-profit programs tend to offer more flexibility both in terms of the timing and location of schooling, these types of costs tend to be lower. Compare the costs for a student currently earning $30,000 per year who could continue to work while completing a 2-year for-profit program, but who would have to stop working to attend a community college program because it conflicts with his work schedule. Even if the tuition at the community college were significantly less, the total cost to the student (tuition plus any foregone earnings) is likely lower at the for-profit program. It may be useful to discuss why policy makers should think of high default or debt levels as being something students should be protected from. Consider high default rates. The negative effects of loan default may include future difficulty securing loans. Without these costs, a defaulted loan is similar, from the student's standpoint, to a grant. If there were no long-term penalty from defaulting it would be in the student's interest to borrow monies he will not pay back. Thus, to the extent that the regulation's intent is to protect students, it should be made clear that it should protect students from the penalties associated with default, not from the funding stream that makes an education possible. One might imagine an alternative regulation that was aimed at reducing the number of students who strategically take out loans with no intention of repaying. But, it would seem that such a regulation would focus on the process by which students are approved for loans, and on lenders rather than schools. Next consider the concept of "too much debt". It is important to consider the purpose of the debt before deeming it excessive. As we will discuss later in this document, the standard economic analysis of higher education treats it as an investment. Since education so consistently yields high returns in the form of increased earnings, lower unemployment rates, lower crime rates and even better health and longevity, it can be a smart worthwhile investment to borrow even large amounts to be educated. The question of how much debt is too much can be answered in different ways. The Department of Education proposal focuses on the ability to make the associated loan payments relative to annual income. Another way to view the decision is to ask whether taking on the debt and getting the education increases the present value of a student's lifetime earnings. Those with more education tend to earn more per year. This is of course a benefit.2 This benefit should be weighed against the costs. A significant cost of education typically is to forego earnings while in school. The other main cost is tuition. In Table 1 below, we calculate how much debt a student can take on such that comparing all of the costs and benefits getting more education leads to an increase in lifetime earnings net of the debt costs. Before we turn to these calculations, it may be helpful to consider both the benefits of education and the 8 percent proposed debt limit together. It is widely accepted among academic economists that each 2 There are other benefits of education that will be discussed later. The following calculation is conservative in that it ignores non-income benefits of education. Page2 Report on Gainful Employment April 2, 2010 additional year of education increases earnings by some percentage. This percentage has varied from about 7 to 15 percent over the past 40 years. Recent estimates peg this number currently near 15 percent. This means each year of schooling causes a student's annual earnings to be higher by 15 percent every year that she works. In the first year after school, her earnings are 15 percent higher than they would be if she had not gone to school. It cannot make sense to have a limit on debt payments that is less than the earnings return to education. It does not make logical sense to say that she cannot afford to spend more than 8 percent of her earnings to have that 15 percent bump in pay. If the government "protects" her from making these debt payments, she loses the 15 percent annual bonus, and her expenditures are 8 percent lower. It does students no favors to decrease their earnings by more than you decrease their required expenditures. If she could not afford to make the debt payments, she certainly cannot afford not to make them. She has less discretionary income in the world without the debt payments than she does in the world with the debt payments. This argument ignores the other costs of education, namely the foregone earnings while in school. Thus, this argument does not imply that it is always a good investment to pay up to 15 percent of your income per year to finance the tuition for a year of schooling. However, it very clearly shows that it is wrong to say that someone is unable to pay more than 8 percent of her annual income to finance schooling. Thus, to the extent that the proposal is meant to protect students from taking on debt payments they cannot afford, it is misguided. Here we consider not just whether students can afford these levels of debt, but how much one should be willing to borrow to finance a 2-year program if the goal is to maximize lifetime earnings net of costs. Each row of Table 1 shows the calculation for slightly different situations. In all cases, we consider a student deciding whether to get two additional years of schooling at age 18. Consider the first row. Here we evaluate the choice of a student who would earn $30,000 per year with a High School Degree, and $34,992 per year if she spends two years earning her Associates Degree. This corresponds to an 8 percent increase in earnings for each year of schooling (i.e. an 8 percent "return to education"). This is a fairly conservative estimate that may have been appropriate 30 years ago before returns to education increased so dramatically. Column 2 denotes the rate at which the student discounts earnings and costs that will come in the future. Much of the benefits of education come far in the future so how much these are discounted are important. Column 3 shows the increase in lifetime earnings associated with the extra education, in net present value. In other words, this is how much more someone with an Associate Degree will earn over her lifetime than someone with a High School Degree, properly discounting to account for the fact that much of the benefits will come many years in the future. Column 4 shows the annual loan payments associated with the maximum debt someone could take on to cover tuition costs and still not erase the amount in column 3. Column 5 shows the ratio of that annual debt payment to annual earnings with an Associate Degree. The calculation is repeated for more appropriate 1 o and 15 percent schooling returns, and for a 3 percent discount rate. A 1 o percent return to schooling is closer to estimates of the return per year to a 2-year Page 3 Report on Gainful Employment April 2, 2010 college education (e.g. Kane and Rouse, 1995)3 which are based on the experiences of people who graduated high school in the 1970s and 1980s. Estimates of contemporaneous returns to schooling tend to be closer to 15 percent per year of education (e.g. Goldin and Katz, 2008). Table 1: How much is really too much debt? (1) (2) (3) (4) (5) (6) (7) Maximum annual debt payments Net present for 10 years Debt to Return value of such that income% Annual Debt to per year lifetime education a with max- payments if income% of school- Discount earnings good in- imum 10 paid off over if paid in ing rate difference vestment year loan 20 years 20 years 8% 5% $24,696.74 $3,135.44 9.00% $1,904.92 5.40% 10% 5% $45,783.80 $5,812.60 16.00% $3,531.42 9.70% 15% 5% $100,194.22 $12,720.42 35.00% $7,728.23 21 .30% 8% 3% $57,967.21 $6,786.99 19.40% $4,471.15 12.80% 10% 3% $88,196.71 $10,326.35 28.40% $6,802.83 18.70% 15% 3% $166,197.14 $19,458.89 53.60% $12,819.19 35.30% Note: The calculations are for an individual who would earn $30,000 per year with a high school degree and $34,992, $36,300, or $39,675 with a 2-year associate degree and an 8, 10, or 15 percent return to education per year of schooling. A number of things should be noted from the calculations: The increase in lifetime earnings associated with two additional years of education can be quite large, even for someone who would have earned $30,000 per year without that schooling. For a 10 percent return to education, using a 5 percent discount rate, the lifetime earnings benefit is more than $45,000. This number is net of the cost of foregone earnings during the two years while she is in school. 4 This calculation implies that someone who is trying to maximize her lifetime earnings should be willing to pay $45,000 for those two years of education. Paying anything less than that in tuition, the schooling will benefit her over the course of her life. 3 This paper, co-authored by current member of the President's Council of Economic Advisors (CEA) Cecilia Rouse, shows that community college and other 2-year programs yield approximately the same returns per credit hour as 4-year colleges. 4 If an individual is able to continue working while completing her two year education this benefit increases by as much as $60,000, the current cost of foregone earnings. Page 4 Report on Gainful Employment April 2, 2010 The net present value of the increase in lifetime earnings depends significantly on how future earnings streams are discounted. The more the future is discounted, the lower the benefits of education are. Using a 3 percent discount rate, the lifetime earnings benefit of a 2-year degree is almost $90,000 if the return is 1 o percent per year of schooling. The return to education matters enormously in determining how much individuals should be willing to pay for schooling. If the return is 15 percent per year, the present value increase in earnings from a 2-year program is more than $100,000 even using a 5% discount rate. The Department of Education proposal essentially almost completely discounts (i.e. ignores) all future benefits of education by focusing on the ability to pay in the years immediately following the finish of school. This is present in the choice of estimated starting salary (i.e. the 25 1 h percentile annual earnings) as the ability to pay, in the focus on repayment rates among recent graduates, and in the use of the 10-year repayment schedule to calculate loan payments. The proposed regulation is misguided in that it is not a function of the benefits of education. If the returns to education were to continue to rise, as they have for the past 30 years, students would be restricted from borrowing more to get this valuable training. Only the children of the rich (i.e. those who could afford to pay tuition without borrowing) would be able to get this valuable education. Using a 5 percent discount rate, and assuming a 10 percent return to schooling, a student who would earn $30,000 per year with a high school education would earn $45,784 more over her lifetime if she gets an Associate Degree. This calculation accounts both for the fact that she would spend two years early in her life earning nothing while she is in school, and that the higher earnings associated with education will come in the future. If she is able to work while in school then the increase in lifetime earnings is even greater. The student described above could pay close to $45,000 in tuition for the two years of schooling and still end up ahead. If she borrowed to cover all of these tuition costs, her annual loan payments would be $5,813 for the ten years she spends repaying, and in this time her loan payments would be 16% of her annual earnings (double the Department of Education limit). While it would surely be difficult to make the payments during the 1 0-year repayment period, the calculation shows that even taking on this high level of debt is a good investment for the student. Any restriction on borrowing that is more stringent than the levels shown in Table 1 will lead the student described to earn less over her lifetime. One reason the loan payments in the table may appear high, even though taking on this much debt is a good investment for the students, is that the repayment horizon is shorter than the time during which the benefits of education accrue. The proposed regulation's use of a 1 0-year repayment rate is another way in which it ignores the future benefits of education. If the student were to pay back over 20 years instead of 10, the loan payment to income ratio for the student described above would be 9. 7 percent rather than 16 percent. For the 8 percent return to education calculation, the 20-year loan payment to income ratio would be 5.4 percent rather than 9.0 percent. For a 15 percent return to education, the calculations indicate that one should be willing to pay approximately 20 percent of his income for a 20-year repayment period. The reason this increases lifetime earnings is that 15 of that 20 percent is accounted for by the earnings increase resulting from Page 5 Report on Gainful Employment April 2, 2010 the schooling. For the working years after the loan is repaid, the 15 percent benefit is enjoyed with no cost. A major part of the costs of education considered in the calculation is the foregone earnings the student gives up if she attends school full-time. Schools that allow students to work and earn money while in school are therefore less costly, even if the tuition charged is the same. The calculations above would indicate a higher debt ceiling if foregone earnings were not considered as a cost. The calculation above assumes that the difference in earnings between college and high school educated individuals is the same at all ages. If instead the earnings of college educated students start similar to those of high school educated students but grow faster, the role of discounting the future is even more important. Illustration: If the 8 percent loan limits were applied to medical school Doctors spend much of their early years earning pay that is lower than they will earn in the long run, but continuing to train on the job. Much of the earnings benefits of a medical education come when doctors are far into their career. For such occupations, restricting debt levels to an amount that can be repaid given early-career earnings would preclude borrowing for extremely valuable investments. Furthermore, the lifetime benefits of a medical degree are quite large. Thus, for many it is worth making the investment of time and large sums of money to obtain the degree. This is the case even though it is typical for doctors to leave medical school with significant debt. Here we show that if loan payments for medical school were limited to be 8 percent of the early earnings of doctors, medical education would be largely restricted to students who could pay tuition costs without much borrowing. In this case doctors would largely be drawn from wealthy families. The vast majority of racial minority students and students whose parents have less than a college education would not be allowed to become doctors. In fact more than half of the households in the U.S. do not have a net worth high enough to pay the amount of medical school tuition that would not be covered by loans. To complete the calculation, we use the median medical school tuition for non-resident programs from the Association of American Medical Colleges web site. We ignore the costs of a medical education incurred during residency years. The median four-year tuition at medical school is $168,840. If someone financed 80 percent of this, it would require borrowing $135,072. To pay this loan back over the 1 0-year horizon at the unsubsidized Stafford loan rates would require an annual loan payment of $19,054 (or $1 ,588 per month). To satisfy the proposed 8 percent criteria, someone would have to earn an annual salary of $238,173. Payscale.com indicates that the typical annual salary of a doctor with 1-4 years of experience is, in fact, $140,000. Given these calculations, the median medical school would not meet the proposed standards. We can also ask who would be able to afford medical school tuition if borrowing were only allowed up to the limit implied by the 8 percent standard. Using the $140,000 annual salary, the maximum debt that leaves annual payments no more than 8 percent of annual earnings is $79,397. Thus, to be able to attend medical school, students and their families would have to find the funds to cover more than half of the tuition costs, or $89,443. Page6 Report on Gainful Employment April 2, 2010 Table 2: Paying for Medical School Median non-resident medical school tuition, 2009-10 Total tuition, 4 years non-resident Debt required to pay 80 percent of tuition Annual loan payment with 10 year repayment Annual earnings required to satisfy 8 percent rule Median salary of Doctors with 1-4 years experience Maximum allowed debt to satisfy 8 percent rule Remaining tuition that would have to be paid without borrow- ing Source: AAMC.org, Payscale.com. (http :1/services.aamc.org/tsfreports/report_ median .cfm?yea r _of_ study=201 0) $42,210 $168,840 $135,072 $19,054 $238,173 $140,000 $79,397 $89,443 How many families in the U.S. have the ability to pay nearly $90,000 without borrowing? The Survey of Consumer Finances, sponsored by the Federal Reserve Board, indicates that in 2007, about one-third of U.S. households had total net worth less than $90,000. This means that students living in about this fraction of households would be precluded from becoming doctors. Many households who have slightly more than $90,000 in net worth hold a good deal of that wealth as housing equity, meaning that they would have to choose between owning a home and allowing their child to become a doctor. For minority students, the problem would be even worse. The median net worth of non-whites and Hispanics in 2007 was $28,200. Thus, the vast majority of non-white and Hispanic students would likely not be able to become doctors, regardless of their potential for success. 2. ARE THE PROBLEMS AS SEVERE AS ASSUMED? The Department of Education's proposal presumably aims to address a specific perceived problem. In this section we explore whether that problem is as severe as might be thought given summary measures comparing for-profit and not-for-profit schools. What is the problem that the proposal aims to address? We suspect that the Department of Education sees the following problem: (a) a significant number of students take on more debt than they can afford to repay upon entering the labor force and (b) this problem is more severe for students who attend for-profit schools. We infer the latter because the proposed regulation treats for-profit schools differently than not- for-profit schools. Here we address whether it is the case that default rates are strongly related to the for- profit status of schools. The data strongly suggest that a large portion of the difference in default rates between for-profit and not-for-profit schools is because for-profit and not-for-profit schools serve very different student populations. For-profit schools are more likely to serve low-income, minority students. Page? Report on Gainful Employment April 2, 2010 without parental support. They are more likely to serve students who are the first in their families to attend college. Because of their access to outside resources, these groups of students are more likely to default at both for-profit and not-for-profit schools. We estimate that if for-profit and not-for-profit schools served the same population of students that the default rates would be significantly closer across the types of schools. One might effectively argue that it is bad public policy to punish institutes of higher education for serving students from groups who historically have not had wide access to schooling. Furthermore. in part because the student populations are different, persistence rates at for-profit and not- for-profit schools are different. Students who complete higher education programs are more likely to find the jobs for which those programs prepare students. Some of the difference in default rates across types of schools is accounted for by the higher completion rates at not-for-profit schools (particularly 4-year programs). It would also seem to be bad policy to punish schools for the decisions by students not to complete. At the very least, such a policy punishes the students who work to complete the program by restricting access for all students, not just those who fail to complete. Here we lay out the data on which the former conclusions are based. First, consider the difference in characteristics of students by the type of school attended. Specifically, the data below come from the Beginning Postsecondary Students Longitudinal Study, 1996 cohort. This is a survey administered by the U.S. Department of Education that follows a nationally representative sample of students who entered postsecondary education for the first time in 1996. We focus on this cohort of students rather than more recent data because a follow-up survey has been done that allows for measurement of default rate by this cohort. 2.1. COMPARING STUDENT CHARACTERISTICS A series of figures shows that the demographic and socioeconomic background of students attending for- profit and not-for-profit are different in systematic ways. All comparisons are based on the fi rst institution attended, so those who begin at community college and transfer to a 4-year institution are categorized as community college students. We first examine the characteristics of students who entered postsecondary education in 1996, because these are the students for whom we can track default rates in the NCES data (BPS) . For comparison, we also show comparable figures (Appendix A) calculated from the 2008 National Postsecondary Student Aid Study (NPSAS:08). Figure 1 below shows the average age at which students begin postsecondary schooling. Beginning students at for-profit schools are on average 25 years old. Students at not-for-profit public and private programs of 2 years or less are on average 22-23 years old. In contrast, students entering 4-year not-for- profit colleges are significantly younger, less than 19 years old on average. This difference shows that the set of students entering these different programs are not the same. Though most of the differences between for-profit and not-for-profit college students have held up since 1996, this is one that has changed. While for-profit students continue to be older when they begin, the average age difference is much closer today than it was in 1996. Page 8 Report on Gainful Employment April 2, 2010 Figure 1: Average age at which students first enroll in postsecondary schooling 26.0 25.0 24.0 (I) 23.0 0) <U (I) 0) 22.0 <U Qj ~ 21.0 20.0 19.0 18.0 For-profit Private not-for- Private not-for- Publi c <=2 Publi c 4-year profit <=2 profit 4-year Age first enrolled Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Next, we tum to the average income of students and/or their parents (Figure 2) . Specifically, we consider the total income of either parents (for those who are dependents) or students (for those who are independent at the time they apply) . Students at for-profit schools have the lowest income, prior to entering college, of any group. VVhereas the average prior family or individual income of students entering for-profit schools was $22,165 (in 1996 dollars), it was 71 percent higher among public 2-year-or- less students, 154 percent higher (i.e. more than 2 %times) among public 4-year students, and 178 percent higher (i.e. close to 3 times) among private 4-year students. Page 9 Report on Gainful Employment April 2, 2010 Figure 2: Average income of parents or independent students prior to school entry $70.000 ~ $60.000 $50.000 Q) E 0 $40.000 (.) c Q) 0'1 ! $30.000 ,_ ~ <{ $20.000 $10.000 $0 For-profit Private not- Private not- Publi c <=2 Publi c 4-year for-profit <=2 f or-profit 4-year Average income. parents or independent. 1994 Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. For-profit students do not just come from families with lower average income, they are also more likely to come from families that are quite poor. Consider the percent of students whose families collected AFDC (Aid for Families with Dependent Children, the precursor to TANF, and commonly known as "welfare"). Figure 3 shows a full 16 percent of students who began at for-profit schools in 1996 came from families collecting AFDC. This was more than double the rate of students attending not-for-profit 2-year-or-less programs. At publ ic and private not-for-profit 4-year programs the corresponding rates are 2.6 and 1.6 percent. Page 10 Report on Gainful Employment April 2, 2010 Figure 3: Percent of students from families who received AFDC prior to school entry 18 16 14 _,_ 12 _,_ - 10 c - <1> 0 lii a.. 8 ~ - 6 -'- 4 _.___ 2 - '- - 0 L::_::_::_::_::_::_: 1;.;.:.:-:-:-:-.' L .I " For-profit Pri vate not-for- Privat e not-for- Publi c <=2 Publi c 4-year profit <=2 profit 4-year Percent receieved AFDC. 94-95 Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Students attending for-profit schools are also significantly more likely to be single parents at the time they begin school. A full 28.5 percent of for-profit students were single parents prior to beginning school in 1996. At not-for-profit 2-year-or-less programs, less than 12 percent were single parents upon entering. At 4-year programs single parents were extremely rare, less than 2 percent of students (Figure 4 below). One interesting thing that has changed is that single parents are more likely today to attend college than they were in 1996, but they are still significantly more likely to attend for-profit schools. Page 11 Report on Gainful Employment April 2, 2010 Figure 4: Percent of students who were single parents prior to school entry 30 ~ 25 20 c <ll 15 0 .... <ll Q_ 10 For-profit Private not-for- Private not-for- Publi c <=2 Publi c 4-yeal' profit <=2 profit 4-year Percent single parent. 1995-96 Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Students at for-profit schools are also the first in their immediate family to attend college. Figure 5 shows the fraction of students at each school type who have at least one parent with at least some college education. The figure shows that these rates are lower at for-profit schools, particularly when compared with 4-year not-for-profit schools. Page 12 Report on Gainful Employment April 2, 2010 Figure 5: Percent of students whose parents attended at least some college 80.0 70 0 For profit Not for profit r-- -- -- ,__. r-- 600 ,.- 500 - f.-- r--- c 4> 40.0 e 4> Q. r----",.- -- - r--- r-- 300 - - '----- c-
uf; Prrvate for Pnvate lor Prrune for Public less- Public 2-year Public 4-year Prrvale not-fo1- Pnvate not-for- prolit,less-thao- prol>l, 2-yeat profit. 4-year than-2-year 2-year profn 4-year 2-year Percent whose pare11ts have some college or more Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Finally, Figure 6 shows that for-profit schools are much more likely to serve students from racial and ethnic minority groups. The fraction of students at for-profit schools who are either Black or Hispanic was 43.9, 37.2 and 51.4 percent at less than 2-year, 2-year and 4-year programs respectively. Private not-for- profit less-than-2-year programs also are likely to serve Black or Hispanic students (35.9 percent) . However, the share of students who are Black or Hispanic at all other not-for-profit school groups was less than 25 percent. Page 13 Report on Gainful Employment April 2, 2010 Figure 6: Percent of students who are Black or Hispanic 60 0 500 40.0 c: 30.0 "' 0.. 2().0 ...._.. 100 00 For profit Not for profit Pmatetor prol'lt, tess4han. 2,yea Puva!e not-for PriVate noHot Pt<Yale not-tor Pubht tess. Publie2-year Publit .t-year profit tess-tha.,. profit 2-year profil4-year than 2Yel 2-year
Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. 2.2. D EFAULT RATES Using the same Beginning Postsecondary Students Longitudinal Survey data, we also compared 6-year default rates of students at different types of schools. The default rate is computed as the fraction of students in the 1996 entering cohort with any student borrowing who ever default by 2001. This is calculated in the same way as Mark Kantrowitz did in his recent report. The light blue bars in Figure 7 below show the raw default rates of students starting in different types of schools. All for-profit students are considered together. Because sample sizes are small in particular groups, less-than-2-year and 2-year schools are combined. Without adjusting for the differences in student background across the different school groups, the 6-year default rate is significantly higher at for-profit schools than at not-for-profit schools. At for profit schools, almost 25 percent of the 1996 cohort borrowers defaulted on at least one loan at some point by 2001. The default rate is 17.1 percent at private not-for-profit 2-year-or-less programs, and 8.5 percent at public not-for-profit 2-year-or-less programs. The rates at not-for-profit 4-year programs are both around 6.3 percent. Page 14 Report on Gainful Employment April 2, 2010 Figure 7: 6-year default rates by type of school, controlling for student characteristics 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% For-profit Pri vate NFP 2- Pri vate NFP 4- Publi c 2-year or Publi c 4-year year or less year less Default rates Default rates. controlling for race. gender. fami ly income. persi stence. Peii/AFDC receipt. single parenthood Notes: Calculations from the Beginning Postsecondary Students Survey: 1996 cohort and 2001 follow-up. The light bars show the fraction of students beginning in each type of school in 1996 who ever defaulted by 2001 . The dark bars show the default rates after controlling for race, gender, persistence and completion, Pell grant receipt in 95-96, family AFDC receipt in 94-95, parent or own income (if dependent), and dependency status. The dark blue bars show our estimates of what the default rates would be if all schools had similar entering student bodies. To estimate this, we run a regression of individual students' default status on controls for their race/ethnicity, gender, family income, dependency status, whether they persisted or completed their program, and whether they received a Pell grant. The dark blue bars show what we estimate the default rates would be if all schools served white male students who are dependent, whose parents earn between $60-75K per year, who completed their programs and who did not receive a Pell grant. The estimates show that if all schools served similar students with similar backgrounds and who completed their programs, the differences in default rates between for-profit and not-for-profit schools would narrow considerably. Whereas the difference in 6-year default rates between for-profit and public 4-year schools is 18.3 percentage points (24.6- 6.3) without controlling for the differences in student characteristics, this difference is almost cut in half to 9.6 percentage points (12.2- 2.6) when adjustments for student characteristics are made. This measure of default also overestimates the difference because students in shorter programs have more time to default by 2001 . Furthermore, this narrowing is what Page 15 Report on Gainful Employment April 2, 2010 happens when adjustments are made for the characteristics that are observed in the BPS data. One might suspect that there are other dimensions along which for-profit and not-for-profit students are different. It is possible that if we had data on those characteristics and were able to adjust for them that the difference in default rates would narrow more. In addition to narrowing the difference in default rates between for-profrt and not-for-profit students, adjusting for student characteristics also lowers the default rate at for-profit considerably. These estimates imply that the default rate at for-profrt schools would be cut in half (from 24.6 to 12.2 percent) if for-profit schools served wealthier non-minority students, and students who were more likely to complete. 3. WHAT IS THE RATIONALE FOR SUBSIDIZING LOANS FOR HIGHER EDUCATION? The standard economic analysis of education considers the choice of an individual whether to get an additional year of schooling. 5 In this standard way of thinking, individuals weigh the costs and benefits of schooling. The costs are the earnings foregone if one attends school full time, and tuition/fees. The benefits include increased earnings in future years. Individuals choose to get more education so long as the benefits are larger than the costs. Education is an investment, meaning that the costs are paid up front and the benefits come in the future. To properly weigh the costs and benefits, one must discount benefits that will not be realized for many years. To simplify things, use the interest paid on savings accounts or the expected return on personal investments as the discount rate. Now consider the education choice of two students: one who has enough personal or family wealth to pay tuition costs out of savings, the other who must borrow to finance the tuition costs. For someone who would pay tuition costs out of savings, the decision comes down to comparing the present value of increased lifetime earnings (the benefits) to the foregone earnings while in school and the tuition (the costs) . If the benefits are greater than the costs, then the student should continue in her schooling. If the costs are larger than the benefits, she should end her schooling and begin working.6 Compare this decision with someone who must borrow to pay the tuition costs. This student must consider as costs the additional interest payments associated with the loan. Those payments must be paid in the future. If the interest rate on the loan were equal to the interest rate used for discounting (in this case the interest paid on savings) , then the decision would be the same for both students. Since the unsubsidized interest rate charged on student loans is typically higher than the interest rate paid on savings accounts, the cost of furthering education is higher for this student. 5 The standard reference is Human Capital by Gary Becker (University of Chicago), who won the Nobel Prize in Economics for this and other work. 6 Vllhile it is necessary to consider as a cost the interest she does not earn on the money she takes out of saving to pay tuition, these interest payments are discounted because they would have happened in the future. If we use the savings account interest rate as the discount rate, the discounting eliminates this from consideration. Page 16 Report on Gainful Employment April 2, 2010 In short, because borrowing interest rates are higher than savings interest rates, the cost of schooling is higher for those who must borrow to pay for higher education. Because these students almost by definition come from poorer families, this problem creates access differences that relate to wealth, socioeconomic status, and race. Subsidies for student loans are meant to narrow the difference between borrowing and saving interest rates so that the costs of education are less related to family wealth. Any restriction of access to debt financing for higher education will have the effect of decreasing access more for poor and minority students. This is completely at odds with the intent and spirit of the Higher Education Act. Notice that the economic analysis of the schooling decision does not depend on the level of earnings. Instead, it focuses on the increase in earnings resulting from the schooling. The proposal's focus on the ability of students to pay back their loans quickly leads it to focus on the level of earnings. This will have the effect of differentially punishing students with poor labor market prospects and who would gain the most from higher education. Students with poor labor market prospects would have low earnings, and likely high unemployment rates, without any higher education. Among these students, the ones who would benefit greatly from additional focused schooling may end up in occupations with low earnings. But, these earnings may be much higher than the student's personal alternative. The proposal would limit how much this student could borrow based on the low level of earnings, and not based on the large gains that would be realized from the doors opened by education. 3.1. WHAT ARE THE BENEFITS OF HIGHER EDUCATION? Education is widely recognized as a source of social mobility. Though the US is regarded as a "land of opportunity," correlations in earnings between fathers and sons are actually quite high. To understand how much social mobility there is in the U.S., consider a family of four right at the poverty threshold. Based on the best current estimates, it would on average take the descendants 5 or 6 generations before their income is within 5 percent of the national average.? What's more, studies find less social mobility among families with low net worth, suggesting that the inability to borrow restricts social mobility. In other words, restrictions on borrowing (coming from poorly functioning credit markets and high interest rates) makes being bom into wealth or poverty quite determinative of earnings in adulthood. One large reason for the effect of net worth and borrowing constraints on intergenerational mobility is likely access to schooling. As an example consider the economic progress made by African Americans during the past century. While legislative changes such as the Civil Rights Act of 1964 have led to significant progress in reducing discrimination, economic research suggest very strongly that improvements in educational opportunities for blacks have been more important. Until recently successive cohorts of blacks have obtained progressively more education, and in turn their earnings have caught up to whites. 7 Mazumder, Bhashkar, "Fortunate Sons: New Estimates of lntergenerational Mobility in the United States Using Social Security Earnings Data," Review of Economics and Statistics 2005. Page 17 Report on Gainful Employment April 2, 2010 One of the most important ways in which the labor market in the U.S. has changed in the past 30 years is that the benefits of education have increased dramatically. Those with more education have always earned more on average than those with less. But, the difference in earnings between those with and without a college education has increased sharply since 1980. In 1980, 4-year college graduates earned about 40 percent more (about 1 o percent per year of additional schooling) than comparable high school graduates. By 2005, the benefit of a college education was more than 70 percent (almost 18 percent per year of schooling) . It is more important than it has been since the 1920s to be educated, and more important than ever to get education beyond high school. The changes that have led to this dramatic increase in the monetary benefits to education have also led to very high levels of inequality. The difference in earnings and economic well-being between the rich and the poor is also as large as it has been since the early part of the 20 1 h century. And, how much education you have is significantly determinative of which side of that inequality you lie on. Those with more education have benefited from the rich getting richer in the past 30 years. Those with less education have been hurt terribly by the poor getting poorer during that same time. All of this argues strongly that is as important as it has ever been to assure that all students who will benefit have access to higher education. The social costs of restricted access are larger than they have been in almost a century. 3.2. PRESIDENT 0BAMA RECOGNIZES THE IMPORTANCE OF EDUCATION BOTH AS AN ENGINE OF ECONOMIC GROWTH FOR THE COUNTRY AND AS A SOURCE OF ECONOMIC PROGRESS FOR INDIVIDUALS FROM ALL CORNERS OF THE U.S. SOCIAL STRUCTURE. In a Washington Post column, published on July 12, 2009, President Obama called for increase in 5 million students with certificate or associate degree in the next 1 o years. Here are two quotes from what he wrote: "In an economy where jobs requiring at least an associate's degree are projected to grow twice as fast as jobs requiring no college experience, it's never been more essential to continue education and training after high school. That's why we've set a goal of leading the world in college degrees by 2020. Part of this goal will be met by helping Americans better afford a college education." Barack Obama, The Washington Post, July 12, 2009. we believe it's time to reform our community colleges so that they provide Americans of all ages a chance to team the skills and knowledge necessary to compete for the jobs of the future. Our community colleges can serve as 21st-century job training centers, working with local businesses to help workers team the skills they need to fill the jobs of the future. We can reallocate funding to help them modernize their facilities, increase the quality of online courses and ultimately meet the goal of graduating 5 million more Americans from community colleges by 2020." Barack Obama, The Washington Post, July 12, 2009. What the President calls for cannot be done without increasing the capacity of community colleges and for profit schools. Even with increased federal support, community colleges will face funding problems as states continue to deal with severe fiscal problems. By decreasing access to the specific programs the President wants to increase, the proposal will make the President's goal almost surely unattainable. The for-profit education sector will be essential in helping the President to achieve this goal. For example, consider that enrollment at for-profit colleges has grown significantly more than at non-profit Page 18 Report on Gainful Employment April 2, 2010 schools. In other words, as the demand for higher education has increased in recent years- likely as a response to the increased returns described above- the non-profit sector has not been able to meet that need. The for-profit sector has. Consider the growth rates of enrollment in public, private not-for-profit and private for-profrt colleges over the past 5, 1 o and 20 years. Overall enrollment in higher education has grown by more than 2 percent per year during the past 10 years. Capacity at neither public nor private not-for-profit colleges has grown fast enough to keep up with this increased demand. Note that some of this demand comes from natural population growth, while some comes from an increased desire to get a college education due to the high returns. Capacity growth in the not-for-profit (public or private) sectors has not matched the overall increase in demand for higher education over either the last 5, 10 or 20 years. Table 3: Five, ten and twenty year enrollment growth by type of institution, through 2007 Private Private Not-for- For- Total Public profit profit Total percent growth in enroll- ment: 20 years 39.78% 32.80% 33.60% 438.23% 10 years 25.79% 21 .10% 18.80% 225.60% 5 years 9.85% 5.80% 9.40% 99.60% Average annual growth rate: 20 years 1.70% 1.40% 1.50% 8.80% 10 years 2.30% 1.90% 1.80% 13.70% 5 years 1.90% 1.10% 1.80% 14.80% Source: Digest of Education Statistics, 2008, Table 188. During that same time, the private for-profit sector has grown to meet the needs of students not-for-profit schools cannot serve. Enrollment growth rates have been significantly higher. Though the private for- profit sector is smaller than the other two sectors, the significantly higher growth rates have ensured that overall enrollment could increase. To meet President Obama's call for 5 million more Associate degree or certificate holders from 2-year programs, capacity will have to increase in some or all of these sectors. Fiscal difficulties in the states are likely to restrict community colleges and state colleges from meeting this need, even with increased funding called for by the President. Given the historical role of for-profit schools in meeting increased demand, it is likely that these schools will be the most able to expand quickly in response to this need. Restrictions on student borrowing will curtail the for-profit sector from meeting these needs, and will make it less likely that the President's goal will be met. Page 19 Report on Gainful Employment April 2, 2010 4. WHAT ARE THE BENEFITS OF AN ASSOCIATE DEGREE EDUCATION IN PARTICULAR? The Bureau of Labor Statistics administers a survey each month called the Current Population Survey. This is the survey that is used to calculate the official unemployment rate that is released each month as a barometer of the health of the economy. In that survey, individuals are asked questions about their employment status, earnings, educational attainment and demographic information. Since 1996, individuals have also been asked about their access to health insurance. The following table presents estimates of the difference in various outcomes between those with an Associate degree and those with exactly a high school education. We look separately at "academic" and "vocational/occupational" Associate degrees. All estimates control for individuals' years of labor market experience, and for changes over time in the outcomes that affect all individuals in the same way. Positive effects on annual earnings: The way to read the table is the following. The first row shows how much more those with an Associate degree earn on an annual basis than those with a high school degree. For example, males with a Vocational/Occupational Associate degree earn 23.2 percent more each year than males with a high school degree. If the average Associate program were 2 years, this would correspond to an 11 .6 percent earnings return to each year of schooling. Table 4: The Benefits of an Associate Degree Education Benefit of Associate degree or some college, relative to a high school education for: Annual earnings Percent employed full time Percent employed Percent with employer sponsored health insurance Percent with any health insurance Males Associate: Vocational/ Associate: Occupational Academic 23.20% 3.50% 2.60% 10.10% 9.10% 27.40% 2.10% 2.50% 8.70% 9.30% Females Associate: Vocational/ Associate: Occupational Academic 27.20% 30.30% -2.00% -0.70% 0.20% 0.50% 6.40% 8.40% 5.30% 6.70% Note: Regression estimates from the Current Population Survey. The table shows the difference in various outcomes between those with an Associate degree and those with exactly a high school education. Two types of Associate degrees are considered, vocational/occupational and academic. These self-reported by the respondents to the Current Population Survey according to the guidelines described by the Bureau of Labor Statistics. Men who go on to get a vocational Associate degree earn 23.2 percent more each year than comparable high school graduates. The return to an academic Associate degree is slightly larger for men -a 27.4percent increase in annual earnings. For women, the returns are even higher. Women who get a vocational Associate degree earn 27.2 percent more than high school graduate women, and women who Page 20 Report on Gainful Employment April 2, 2010 get an academic Associate degree earn 30.3 percent more than women who stop schooling after completing high school. Positive effects on employment for men: The benefits of an Associate degree extend beyond the earnings of those who work. Men with a vocational Associate degree are 3.5 percent more likely to be employed than high school graduates. Men with an academic Associate degree are 2.1 percent more likely to be employed than high school graduates. For women, there is no corresponding effect on employment. Women with Associate degrees are actually less likely to be employed full-time than high school graduates, but equally likely to be employed. Though there is no effect on employment for women, it appears (based on the earnings effects and the health insurance effects discussed below) that those who work are in better jobs than they would be if they did not get the additional education. Positive effects on health insurance: An Associate degree education also helps to reduce the number of uninsured. There is of course great interest currently in access to health insurance. For both men and women, those with an Associate degree are significantly more likely to have health insurance. As compared with high school graduates, men with a vocational Associate degree are 10.1 percent more likely to have employer provided health insurance and 9.1 percent more likely to have health insurance of any kind. Men with an academic Associate degree are 8.7 percent more likely to have employer provided health insurance and 9.3 percent more likely to have health insurance of any kind. Women with a vocational Associate degree are 6.4 percent more likely to have employer provided health insurance and 5.3 percent more likely to have health insurance of any kind. Men with an academic Associate degree are 8.4 percent more likely to have employer provided health insurance and 6.7 percent more likely to have health insurance of any kind. 4.1. THE PROPOSAL'S FOCUS ON ANNUAL INCOME IGNORES THE OTHER BENEFITS OF EDUCATION: Academic research has shown that there are many benefits of education beyond the large increases in annual income. Reduced unemployment: The proposed regulation is based on the 25 1 h percentile of earnings among those working. But, individuals with more education are less likely to be unemployed. It is perfectly rational for a student to be willing to pay more than 8 percent of her annual income to avoid joblessness. Insulation from recessions: Recessions typically hit the least educated the most severely. Consider the current recession and the unemployment rates of people with different levels of education, in January 2008, January 2009 and January 2010, shown below. Page 21 Report on Gainful Employment April 2, 2010 Table 5: Unemployment Rates by Schooling Level Jan- Jan- Jan- 08 09 10 Less than HS 7.7% 12.4% 15.2% High School 4.6% 8.1% 10.1% Associate or Some College 3.6% 6.4% 8.5% Bachelor or more 2.1% 3.9% 4.9% Source: The Employment Situation, Bureau of Labor Statistics. First, notice that even in normal economic conditions, such as January 2008, unemployment rates are strongly related to schooling levels. In addition to earning less, those with fewer years of schooling are much more likely to experience unemployment. This is true when comparing students with a high school education to students with some college and/or an Associate degree. Second, notice that the increase in unemployment rates that has happened during the current severe recession has impacted all groups, but the less educated more than others. Those with a high school education saw their unemployment rates increase from 4.6 to 10.1 percent over the last two years, a 5.5 percentage point increase. In comparison, those with some college or an Associate degree saw their unemployment rate increase by 4.9 percentage points. It is typical that recessions are differentially burdensome on the least educated. Furthermore, the most recent employment numbers for February 201 o show that while the overall unemployment remained steady at 9.7 percent, this obscures very different experienced for more and less educated Americans. For those with less than a high school degree and high school graduates, the unemployment rate rose by 0.4 percentage points (15.2 to 15.6 percent for high school dropouts; 10.1 to 10.5 percent for high school graduates) . For those with a Bachelor's degree or more, the unemployment rate remained essentially unchanged, rising from 4.9 to 5.0 percent. The only education group for which the unemployment rate fell significantly this month was those with an Associate degree or some college. For this group, the unemployment rate fell by 0.5 percentage points, from 8.5 to 8.0 percent). Increased access to health care and health insurance: As shown above, those with more education are more likely to have both employer-provided health insurance and any health insurance at all. This relationship is partly explained by the positive effect of schooling on the likelihood of being employed, and partly explained by the effect of education on income. Those with more income are more likely to be able to afford health insurance. For this reason, and possibly because more educated people make more informed decisions regarding the management of their own health, individuals wffh more education tend to be healthier. Their mortality rates are lower, they are less likely to smoke, more likely to exercise, more likely to engage in preventative care, more likely to properly manage chronic conditions such as diabetes. Page 22 Report on Gainful Employment April 2, 2010 "In 1999, the age-adjusted mortality rate of high school dropouts ages 28-64 was more than twice as large as the mortality rate for those with some college (Lyert et al. 2001 , table 26)."8 Comparing across countries, those with higher average education levels have longer life-expectancy at birth (i.e. people live longer in countries with more educated populations) . Some argue that this relationship is just an association, that either health causes people to get more education, or that there is a third factor that causes both health and education to rise together. There are, however, policy experiments that suggest this relation may be causal -that increasing education may cause improvements in health. Various studies show that laws that require children to complete more years of schooling (increases in the compulsory schooling age) lead to improvements in health when those kids become adults.9 Educated mothers also have healthier babies: One study shows that increases in the number of colleges nearby increases the likelihood that women attend college, and in turn makes them more likely to have healthy babies. The study finds that the women were more likely to obtain prenatal care, and less likely to smoke and drink alcohol during pregnancy. They were also more likely to be married at the time they gave birth and had fewer children.10 Reduced criminality: There is evidence that obtaining more education makes it less likely that someone will engage in crime. A study by Lochner and Moretti (2004) finds that compulsory schooling laws reduce the likelihood that people become incarcerated. The effect is large for whites, and even larger for blacks. They estimate that there is an additional15-25 percent benefit to each year of education in the form of reduced crime that is not accounted for by the increased earnings that educated people enjoy. In other words if we consider the reduced cost of crime imposed on society because of education, the total benefit of education should be 15-25 percent larger than the increase in earnings that results from the additional schooling. General fulfillment: In addition to the benefits of education that are easily measurable, surely education and learning brings some direct satisfaction. To the extent that students enjoy learning new ideas and new skills, these are real benefits and they are not accounted for as a benefit of education if we just focus on monetary earnings. People buy things all the time that bring them pleasure but no monetary return. For example, consider vacations, televisions, tickets to sporting events, clothing, food. None of these purchases increase earnings, but no one would dispute that these are reasonable things to buy. To point out that the proposed regulation is misguided as a way to protect students from borrowing too much, consider the following. Would there be support for a regulation that restricted individuals from spending more than 8 percent of their annual earnings on food? This may sound ridiculous, but the logic is quite similar to the proposal's. Through its effects on schools, the proposed restriction intends to protect students from spending more than 8 percent of their annual earnings to be educated. Put this 8 Quoted in "Education and Health: Evaluating Theories and Evidence" chapter 2 in Making Americans Healthier: Social and Economic Policy as Health Policy, ed. Robert F. Schoeni, James S. House and George A. Kaplan, Russell Sage Foundation, 2008. 9 See e.g. Lleras-Muney, 2005; Oreopolous, 2003; Arendt, 2005; Spasojevic, 2003. 10 Currie and Moretti, 2003. Page 23 Report on Gainful Employment April 2, 2010 way, the declaration that this is too much to spend on education is not very different logically from a declaration that it would be too much to spend on any other good that people need or enjoy, such as food or clothing. 5. WHAT EFFECTS MIGHT THE PROPOSED REGULATION HAVE? 5.1. WHAT ARE THE EFFECTS OF INCREASED ACCESS TO FUNDING FOR HIGHER EDUCATION AND HOW DO THESE VARY ACROSS DIFFERENT TYPES OF STUDENTS? There is relatively good scientific evidence of how college costs and the ability to borrow affects access to higher education. The evidence is divided into two types: (1) estimates of the effect of reducing the price of higher education, e.g. through grants, on college attendance, and (2) estimates of the effect of increasing access to borrowing, e.g. through subsidized loans, on college attendance. While estimates of the effect of eligibility for Pell grants are mixed, various studies of other sources of grants find a significant effect of reducing the cost of college on college attendance. Studies of the G.l. Bill and the Social Security student benefit find large effects of these grants on the likelihood that those who are eligible go to college. Dynarski (2003) for example finds that an extra $1 ,000 grant (i.e. reduction in tuition) increases college attendance by 4 percentage points. There are fewer good studies of the effect of access to loans on college attendance. Reyes (1995) shows that when loan eligibility changed differentially across income groups in the early 1980's, college enrollment rates increased for the groups for whom loan eligibility increased. Dynarski (2005) finds positive but smaller effects of loan eligibility on college attendance based on a study of changes in eligibility induced by the Higher Education Amendments of 1992. A more recent experimental study may be directly relevant.11 A group of researchers simplified the FAFSA and worked with H&R Block to automatically fill out the form using information already entered from individuals' 1040 tax forms. For randomly selected households, H&R Block pre-populated the FAFSA form and offered to assist the family in filling out the form. Relative to a randomly selected comparison group, the assistance increased college enrollment significantly both for recent high school graduates and for older independent students with no college experience. There was no effect on a second treatment group who were just given information about the FAFSA but no assistance. These results show that barriers to the availability of financing restrict access to higher education. Based in part on this research, the President and Secretary of Education recently announced that the FAFSA form will be drastically simplified.12 5.2. HOW TO MEASURE THE 25TH PERCENTILE OF EARNINGS? The proposed regulation places a limit on the median debt among students at a program. This limit is based on the 25 1 h percentile of earnings in occupations for which that program prepares students. 11 Bettinger, Eric, Bridget Terry Long and Philip Oreopolous, "Increasing Postsecondary Enrollment Among Low-Income Families: A Project to Improve Access to College Information and Financial Aid" (http://gseacademic.harvard.edul-longbr/FAFSA_Project_- _Bettinger _Long_ Oreopoulos_ -_Description_1-09.pdf) 12 http://www2. ed .gov /news/pressrelea ses/2009/06/06242009 .html Page 24 Report on Gainful Employment April 2, 2010 Presumably, the 25th percentile is meant to be an estimate of the typical starting salary of graduates of the program. However, it is clear that the proposal has the potential to act as a limit on tuitions that for-profit schools will be able to charge. The extent of these limits will depend on how the 25th percentile of earnings for a given area of study (CIP code) is determined. In Appendix A of the proposed regulations, the Department of Education has provided a step-by-step method for calculating what it considers to be the 25th percentile of earnings for a particular CIP code. The Department proposes using the wage, earnings and employment data that are regularly collected by the Bureau of Labor Statistics. However, since the employment information is reported by occupation based on the Standard Occupational Classification (SOC) system, rather than area of study (CIP codes) , areas of study must be linked to one (or more) occupations. According to the Department's methodology the 25th percentile of earnings for each program (based on the 6-digit CIP code) can be calculated using the following method: First, determine all occupations based on the SOC codes available from the 0-Net crosswalk (http://online.onetcenter.org/crosswalk/CIP/) that are associated with each 6-digit CIP code. Next, for each soc code determine employment and annual 25th percentile wages using data from the Bureau of Labor Statistics (BLS) available at http://www.bls.gov/oes/current/oes_stru.htm. Finally, based on the above values calculate for each CIP code the weighted average of the annual 25th percentile wages using the total employment of each soc code as the weights. According to the Department, this weighted average represents the 25th percentile of earnings for each 6-digit CIP code. While the Department's calculations are clear and concise, they are neither simple nor correct. The Department's choice of how to calculate the 25th percentile is also far from innocuous. Below, we describe three ways in which the calculation of expected earnings can be quite sensitive to choices concerning the method. All of these choices are made either explicitly or implicitly, and all of them can have significant effects both on the earnings levels and on the ultimate impact of the proposed regulation. These examples also point out that future changes in seemingly technical inputs, such as which occupations are matched in the CIP to soc crosswalk, have the potential to have large impacts on programs and students. In calculating the earnings measure the Department makes assumptions regarding the occupations for which a graduate is likely to enter and the relative importance of each of these occupations in determining earnings. In addition, the calculated earnings measure is not the 25th percentile across the SOC codes. Modifying either the assumptions or the method for calculating earnings can have substantial impacts on whether a program meets the 25th percentile/8 percent rule. Even without explicit changes from the Department, programs may change from meeting the proposed regulation to not meeting the proposed regulation because of future changes in BLS coding or employment patterns. The correspondence between CIP codes and BLS occupation codes is important: Table 6 below shows the weighted average for the Culinary Arts/Chef Training area of study based on the 25th percentiles of the occupations that are assigned to that CIP code. According to the CIP to SOC crosswalk that is used by the Department to determine the "25th Percentile" this area of study includes four occupations: Chefs and Head Cooks; Cooks, Private Household; Cooks, Restaurant; and Cooks, All Page 25 Report on Gainful Employment April 2, 2010 Other. While Culinary Arts programs are designed to train Chefs as defined in the first occupational category, the Department's definition appears to include those individuals working as cooks at fast food restaurants and cafeterias, and short order cooks. While the majority of students who complete Culinary Arts/Chef Training programs do not work at fast food restaurants, these workers' low earnings would be used to estimate graduates' ability to afford student loan payments. Table 6: Department of Education Calculation of the 25th Percentile Weighted 25th Number Area of Study Average Percentile Employed 12.0503 Culinary Arts/Chef Training $19,278 35-1011.00 Chefs and Head Cooks $29,050 98,040 35-2013.00 Cooks, Private Household $19,030 960 35-2014.00 Cooks, Restaurant $18,230 899,620 35-2019.00 Cooks, All Other $18,390 17,340 52.0201 Business Administration/Management $62,379 11-1011 .00 Chief Executives $102,080 301 ,930 11-1021.00 General and Operations Managers $62,900 1,697,690 11-2022.00 Sales Managers $65,350 333,910 11-3011.00 Administrative Services Managers $52,240 246,930 11-3051 .00 Industrial Production Managers $64,390 154,030 11-3071 .01 Transportation Managers $59,830 96,300 11-9021.00 Construction Managers $60,650 220,550 11-9151 .00 Social and Community Service Managers $42,110 117,150 11-9199.00 Managers, All Other $64,440 365,460 13-1051 .00 Cost Estimators $42,720 218,400 13-1111.00 Management Analysts $54,890 535,850 25-1011 .00 Business Teachers, Postsecondary $46,400 69,690 51.3501 Massage Therapy/Therapeutic Massage $45,777 25-1071 .00 Health Specialties Teachers, Postsecondary $54,850 125,100 31-9011.00 Massage Therapists $23,630 51 ,250 The choice to use a weighted average of 2Sh percentiles is important: More general areas of study are mapped to many occupations. To calculate the 25th percentile of earnings among graduates of a program, the Department's method takes a weighted average of the 25 1 h percentiles in each of the assigned occupations. Taking a weighted average of 25th percentiles within occupations does not, however, give the 25th percentile of earnings among the workers in those occupations. Take, for example, the case of Business Administration/Management (shown in the table above). One of the occupations for which that area of study prepares students, according to the Department of Education, is Chief Executive. Thus, the Department of Education's method bases the Page 26 Report on Gainful Employment April 2, 2010 early career earnings of students finishing with Business Management degrees in part on the 25th percentile of earnings of Chief Executives. We suspect that a recent college graduate has a vanishingly small chance of earning a Chief Executive salary in the first few years after finishing school , though some will become Chief Executives later in their careers. An important implication of this example is that the allowable debt levels would be very sensitive to future decisions concerning which occupations match to each CIP code. Removing 'Chief Executive' from the set of occupations for which a Business Administration/Management program prepares students, for example, would significantly lower the estimated earnings, and in turn the allowable debt. As another example, consider trying to calculate the 25 1 h percentile of earnings among workers in two equally large states: a very high-wage state and a very low-wage state. To make the illustration clear, imagine the extreme situation in which the lowest-paid worker in the high wage state earns twice as much as the highest-paid worker in the low-wage state. The average of the 25th percentiles will fall somewhere in the range between the highest-paid worker from the low-wage state and the lowest-paid worker from the high-wage state. However, the 25 1 h percentile earner among all the workers in both states is someone in the middle of the pack in the low-wage state. The choice to take a weighted average of percentiles may be appropriate in some situations, and the determination depends on the way the relevant occupations are defined. Consider, for example, that a student leaving a program has a 50 percent chance of entering occupation X and a 50 percent chance of entering occupation Y. This student will remain in either of these parallel occupations for his career. In this case, the average of the 25 1 h percentiles in occupations X and Y may be an appropriate estimate of his early career earnings experience. In contrast, consider a student leaving a program who will enter the entry-level occupation A after which he will eventually progress to occupation B. In this case, the weighted average of 25th percentiles does not tell us about his experience early in his career. In some cases occupations are defined by the Bureau of Labor Statistics to correspond to a typology represented by occupations X andY, and in other cases (as illustrated by some of the examples in the table above) occupations are defined to correspond more closely to occupations A and B. The estimate of earnings does not distinguish by degree level: Furthermore, the CIP code is not specific to a level of degree, but rather just to the area of study. Therefore, an individual with an Associate's degree in Business Administration/Management will have the same CIP code as an individual with a Master' s degree in Business Administration/Management. Thus, the Department's assessment of earnings (and measure of affordable debt) will be the same for these two individuals. How to weight information from different occupations is important: Assuming the Department's goal is to generate an estimate of the early earnings of a program's graduates given that they may be prepared for multiple occupations, a weighted average of percentiles may make sense. Even when a weighted average may be appropriate, how to weight is an important question that must be addressed. The Department's current approach of using total employment in the full labor market (and not specific to either degree earners or for-profit students) is likely inappropriate in many situations. For example, the table above shows the occupations associated with Massage Page 27 Report on Gainful Employment April 2, 2010 Therapy/Therapeutic Massage. In this case the teachers of health specialties (which includes Massage Therapy and other health specialties) receives more than 70 percent of the weighted average when it likely represents a much smaller percentage of Massage Therapy graduate placements. From a mathematical point of view, the problem is that percentiles are not linear. As a result the average of percentiles within groups is not the percentile of the full population. It is therefore possible that the Department of Education's method for calculating the 25th percentile of earnings would not survive the rulemaking process. For this reason, in our calculations of impact below we present estimates that are based on an alternative method of calculating the 25th percentile among the workers in the occupations that match to an area of study. What is the 2Sh Percentile? As noted above the Department's calculated earnings measure is not the 25 1 h percentile of the occupations that are assigned to a CIP code. An arguably more appropriate measure of the 25th percentile can be obtained by sorting the individual earnings information of all individuals in occupations assigned to a given CIP code and determining the earnings at the 25th percentile of that set of workers. To do this, we first obtained a crosswalk between CIP codes and BLS occupation codes from the National Center for Education Statistics (NCES), a division of the U.S. Department of Education. We then merged this information with earnings data from the Current Population Survey (CPS) March Annual Demographic File. Each March, the CPS includes more-detailed questions about annual earnings and demographics. For each CIP code, we sorted the annual earnings of individuals in the occupations that were matched to that CIP code, and calculated the 25th percentile of annual earnings. The table below compares the difference in "25th percentiles" based on the alternative methods of selected CIP codes. In addition, for each CIP code we have computed the implied maximum debt allowed based on an 8 percent limit on annual loan payments (assuming a 1 0-year repayment schedule at 6.8 percent interest). As is clear from the table, the maximum debt can vary substantially depending on the calculation of the 25th percentile. Page 28 Report on Gainful Employment April 2, 2010 Table 7: Comparison of 25m Percentile Earnings and Maximum Debt Level f or Selected CIP Codes Full-Time Earners De artment of Education CIP 25th Maximum 25th Maximum Code CIP Description Percentile Debt Percentile Debt 10.0202 Radio & Television Broadcasting $27,000 $15,312 $27,207 $15,430 Technology/Technician $7.940 1 12.0503 Culinary Arts/Chef Training $14,000 $19,278 $10,933 14.0901 Computer Engineering, General $48,000 $27,222 1 $73,752 $41 ,826 14.0903 Computer Software Engineering $47,000 $26,655 ' $73,791 $41 ,848 (New) 14.1001 Electrical, Electronics & Communi- $45,000 $25,520 $75,437 $42,782 cations Engineering 15.1301 Drafting & Design Technolo- $35,000 $19,849 $35,266 $20,000 gy!Technician, General 15.1399 Drafting/ Design Engineering Tech- $35,000 $19,849 $35,130 $19,923 nologies/Technicians, Other (New) 31.0501 Health & Physical Education, Gen- $32,000 $18,148 ! $19,927 $11 ,301 era I 31 .0504 Sport & Fitness Administra- $32,000 $18,148 $18,989 $10,769 lion/Management 43.0203 Fire Science/Firefighting $45,000 $25,520 I $31 ,532 $17,883 47.0201 Heating, Air Conditioning, Ventilation $29,700 $16,843 $31 ,070 $17,620 & Refrigeration Maintenance Tech- nology!Technician 51 .2001 Pharmacy (PharmD, BS/BPharm) $41 ,000 $23,252 1 $80,585 $45,701 51.3501 Massage Therapy/Therapeutic Mas- $36,000 $20,416 $45,777 $25,961 sage 52.0201 Business Administra- $45,000 $25,520 l $62,379 $35,376 !ion/Management I 52.0408 General Office Occupations & Cieri- $23,000 $13,044 $23,239 $13,179 cal Services 52.1902 Fashion Merchandising $35,000 $19,849 I $36,460 $20,677 52.1904 Apparel and Accessories Marketing $35,000 $19,849 $36,460 $20,677 Operations As shown above, the particular way to calculate the 25th percentile is not innocuous. Small changes in the way one calculates this number causes large differences in the estimate of early career earnings. One concern would be that future changes in the method of calculating this number could have serious consequences. We estimate that differences in earnings levels resulting from changes in how the 25th percentile is calculated would lead to large differences in the number of students impacted by the proposed regulation. This suggests that further consideration should be given to: (a) whether the 25th percenti le concept is appropriate, and (b) whether the method of calculating the student's estimated ability to pay is overly sensitive to small changes in the future and valid from a scientific standpoint. Page 29 Report on Gainful Employment April 2, 2010 5.3. PRELIMINARY ANALYSIS BASED ON DATA SUBMITTED BY CCA MEMBER INSTITUTIONS To estimate the impact of the proposed regulation on the Title IV eligible for-profit postsecondary institutions, we collected data from Career College Association (CCA) member institutions. Specifically, we collected student/loan level data from each institution based on the population included in their 2006, 2007 and 2008 Cohort Default Rate calculation. These data include information on student loans and default status on all students entering repayment during a given cohort year for 3 years after entering repayment, and are the actual data that the institution's cohort default rate is based upon. We also received individual level demographic data from each institution including race, gender, program of study (CIP code) , OPEID, campus information, total loan amounts (both public and private) , and length of program. In all, we received data from 17 different institutions, representing approximately 450 campuses, 640,000 students and over 10,000 separate programs from institutions ranging from very small to very large. In order to determine the impact of the proposed regulation on the CCA schools for which we received data, we calculated both the 25th percentile of earnings based on the methodology used by the Department of Education, and the median debt of graduating students from each of the schools and programs with available data. In addition, we calculated the 25th percentile of earnings for each CIP code based on full-time earners in the CPS data. This alternative 25 1 h percentile of earnings calculation was done according to the method described in the previous section. The median total loan amounts (public and private) accrued by graduating students were calculated for each school, OPEID, campus, program length, and 6-digit CIP code. The Department of Education's methodology requires that students who do not take any loans (public or private) should be included in the median calculation as having accrued o loans. Since the data we have available for the CCA schools only include students who have taken some form of government loan, we needed to impute the number of students not taking any loans. Also, some schools did not provide data on the private loans taken by students so we needed to impute the value of private loans in these instances. We do not have data on students who do not take any public loans, but take private loans. We have not included any adjustment for these individuals.1 3 In order to account for students not taking any loans, we used I PEDS data to calculate the average percent of students in private, for-profit institutions that do not take any loans (approximately 20 percent). Since the population that we observe in the data are only 80 percent of the total population that should be included in the calculations we use the 37 .5th percentile of total loans amounts instead of the 50th percentile as this would impute a total of 20 percent of the total population as having o loans (since they would all be below the median). In cases where no data was available to assess the amount of private loans taken, we multiplied the value of public loans by 1.47 since the average percent of total loans that were public (based on NPSAS:2008 data from the NCES) was approximately 70 percent. 13 For most schools we do not have information on loans students took at prior postsecondary institutions. As a result, we underestimate median total debt, thus possibly underestimate the fraction of programs that would be impacted by the proposed debt limit rule. Page 30 Report on Gainful Employment April 2, 2010 Based on the 25th percentile of earnings determined above, we calculated the maximum amount of debt that could be accrued using the 8 percent rule proposed by the Department of Education (assuming a 10- year repayment schedule at 6.8percent interest). Comparing the maximum debt value with the median debt actually accrued from the students in each program, we determined the programs which would currently be impacted by the proposed regulation (i.e. the programs whose median debt was higher than the maximum allowed under the regulation's guidelines). As shown in Table 8, our analysis implies that approximately 18 percent of the programs we examined would be impacted by the 8-percent/25 1 h-percentile rule when using the Department of Education's income calculation. Using the CPS full-time earners results in nearly 25 percent of the programs being impacted. The impact is disproportionately on larger programs as nearly 34 percent of students are impacted using the Department's approach, and almost 50 percent are impacted using the CPS full-time earners. In the sample of students analyzed, approximately 29 percent of black students and 35 percent of Hispanic students would be in programs impacted by the proposed regulation. In addition, 25 percent of women are in programs that would be affected. All of these percentages are higher when the alternative measure of the 25 1 h percentile of earnings is used to evaluate programs. Table 8: Percent of CIPs Impacted by Proposed Regulation (Assuming 8 Percent Debt Ratio Using the 25th Percentile of Income) Median Loan Based on Graduates Total Percent of Percent of Percent of Percent of Number of Programs Students Females Blacks Programs Impacted Impacted Impacted Impacted Department of Education 25 111 Percentile 10,725 18.19% 33.72% 24.79% 28.91% CPS 25 111 Percentile 10,695 24.58% 49.10% 39.95% 44.91% Source: Data provided by CCA member institutions. Percent of Percent of Hispanics Asians Impacted Impacted 34.89% 44.26% 47.40% 65.14% As shown in Table 9 below, if the sample of schools and programs used in the analysis is representative of the full set of for-profit schools and programs- and we caution that not enough analysis has been done yet to ascertain whether this is a reasonable assumption- these estimates imply that each year 361 ,000 students, including 68,300 non-Hispanic black students, 78,500 Hispanic, and 179,000 women, would Page 31 Report on Gainful Employment April 2, 2010 enter for-profit postsecondary programs that would lose eligibility for participation in the federal Title IV financial aid programs.14 While some capacity may exist in other sectors of higher education to absorb these students, recent reports indicate that the most likely alternatives-community colleges-are already oversubscribed in many cases, and are facing further financial cutbacks as the states that provide much of their funding face severe financial challenges. Given recent growth rates at for-profit postsecondary institutions, we estimate that by 2020 approximately 1 million non-Hispanic black students and an additional 1 million Hispanic students are on track to attend programs that would be adversely affected, and would be denied access as a result.15 14 The annual flow of students in for-profit programs is estimated from the 12-month enrollment reported in the IPEDS. Since the IPEDS figures provide the stock of students enrolled at a given point in time we divide the number of students enrolled in a 4-year program by 4, the number of students enrolled in a 2-year program by 2, and then add those results to the number enrolled in less than 2- year programs to obtain an estimate of the flow of students Into for-profit schools. This is likely an underestimate of the flow because all students do not stay enrolled for the full length of the program and institutions are categorized base on the longest program offered (so, some students recorded in a 4-year program are enrolled in something less than four years). 15 Estimates based on the CPS full-time earners and estimates of impacted students by state are provided in the appendix. Page 32 Report on Gainful Employment April 2, 2010 Year Table 9: Estimated Number of Students Impacted by 2020 Median Loan Based on Graduates 25th Percentile Based on Department of Education Calculation Number of Total Number of African- Number of Number of Female American Hispanic Students Students Students Students Impacted Impacted Impacted Impacted Number of Asian Students Impacted Using the Department of Education's 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio 2011 361,172 179,149 68,348 78,545 2012 392,955 194,914 74, 363 85,456 2013 427,535 212,066 80,907 92,977 2014 465,158 230,728 88,027 101,159 2015 506,092 251,032 95,773 110,060 2016 550,628 273,123 104,201 119,746 2017 599,084 297,158 113,371 130,283 2018 651,803 323,307 123,347 141,748 2019 709,162 351,759 134,202 154,222 2020 771,568 382,713 146,012 167,794 Total Students Impacted 5,435,157 2,695,948 1,028,550 1,181,990 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools, that for-profit schools will cont inue to grow at 8.8% per year (the growth rate over the last five years), and the relat ive student composition does not change during this period. 15,875 17,272 18,792 20,445 22,245 24,202 26,332 28,649 31,170 33,913 238,895 Based on our estimates, the impact of the regulation would vary across types of programs. Because the limits on borrowing do not vary with the length of program, longer programs would be more severely impacted. Whereas approximately 18 percent of students in less than 2 year programs would be impacted, we estimate that approximately 40 percent of students in 2- and 4-year programs would be impacted. Table 10 below shows the percent of programs and students impacted by program length. the results based on the CPS 25 1 h percentile are also provided in Table 10 below. Page 33 Report on Gainful Employment April 2, 2010 Table 10: Percent of CIPs Impacted by Proposed Regulation (Assuming 8 Percent Debt Ratio Using the 25th Percentile of Income) Median Loan Based on Graduates Total Percent Percent Percent Percent Percent Percent Number of of of of of of of Programs Students Females Blacks Hispanics Asians Program Type Programs Impacted Impacted Impacted Impacted Impacted Impacted Department of Education 25 1 h Percentile Less than 2 Years 2,335 10.66% 18.79% 7.94% 17.06% 13.43% 18.08% 2 Year 4,493 18.52% 39.04% 27.86% 35.71% 52.76% 56.35% 4 Year 2,892 22.23% 40.93% 39.19% 34.98% 53.71% 51 .43% CPS 25 1 h Percentile Less than 2 Years 2,335 15.59% 25.88% 16.22% 24.84% 17.65% 31 .86% 2 Year 4,494 24.81% 50.03% 37.95% 49.88% 68.54% 74.62% 4 Year 2,853 28.74% 68.79% 68.47% 65.58% 76.91% 78.01% Source: Data provided by CCA member institutions. We also estimate that the impact would not be limited to a few areas of study, but would impact a wide variety of programs. Table 11 below reports the results aggregated to general CIP categories for categories for which we have data on at least 1 oo programs. For example, we estimate that nearly 14 percent of Health Professional and Related Clinical Sciences, including Nursing, programs and more than 46 percent of Engineering Related Technologies/Technicians programs would not currently satisfy the proposed debt limit rule as defined by the Department. If the alternative measure of 25 1 h percentile earnings were to be adopted, the percent of impacted programs and students substantially would be higher. Page 34 Report on Gainful Employment April 2, 2010 Table 11 : Percent of CIPs Impacted by Proposed Regulation (Assuming 8 Percent Debt Ratio Using the 25th Percentile of Income) Median Loan Based on Graduates Total Percent Percent Percent Percent Percent Percent Number of of of of of of of Programs Students Females Blacks Hispanics Asians CIP CIP Description Programs Impacted Impacted Impacted Impacted Impacted Impacted Department of Education Income Calculation 9 Communications, Journalism, & Related Fields 111 32.43% 70.89% 77.00% 68.40% 68.05% 86.67% 10 Graphic Communications 219 28.31% 51.27% 45.19% 53.47% 57.24% 55.81% 11 Computer & Information Sciences & Support 1,390 19.35% 32.80% 25.12% 35.15% 42.05% 41 .66% Services 12 Personal & Culinary Services 542 27.31% 88.82% 85.02% 80.35% 88.81% 94.00% 13 Education 192 26.04% 51 .56% 55.46% 43.28% 26.43% 30.10% 15 Engineering Related Technologies/Technicians 535 46.73% 81 .70% 66.91% 80.37% 75.63% 91.35% 22 Law, Legal Services, & Legal Studies 331 9.97% 21 .91% 22.36% 8.37% 5.28% 2.56% 42 Psychology 185 33.51% 70.71% 69.90% 75.13% 54.15% 78.81% 43 Protective Services 806 9.43% 13.97% 13.79% 11.48% 26.57% 18.02% 47 Mechanic & Repair Technology 160 39.38% 80.84% 73.46% 77.70% 77.64% 87.86% 50 Visual & Performing Arts 1,342 22.35% 56.10% 57.61% 50.60% 58.39% 63.86% 51 Health Professions & Related Clinical Sciences 2,322 13.48% 15.31% 15.57% 14.54% 7.43% 17.53% 52 Business, Management, Marketing, & Related 2,356 11.50% 9.31% 9.24% 9.83% 12.59% 13.52% Support Services CPS Full-Time Earners 9 Communications, Journalism, & Related Fields 111 31.53% 71.84% 76.45% 69.71% 71.25% 86.67% 10 Graphic Communications 219 39.27% 84.21% 84.07% 80.68% 91 .13% 91 .73% 11 Computer & Information Sciences & Support 1,390 29.57% 62.37% 57.27% 64.20% 74.15% 75.99% Services 12 Personal & Culinary Services 537 32.03% 92.81% 89.96% 88.14% 94.45% 96.90% 13 Education 192 32.29% 60.30% 55.85% 95.85% 93.21% 90.29% 15 Engineering Related Technologies/Technicians 535 48.79% 84.17% 68.27% 82.38% 78.42% 94.01% 22 Law, Legal Services, & Legal Studies 356 14.89% 28.66% 28.87% 22.11% 14.76% 7.69% 42 Psychology 185 36.22% 73.48% 72.81% 77.02% 56.45% 81 .78% 43 Protective Services 806 18.24% 39.90% 40.76% 38.17% 54.61% 70.43% 47 Mechanic & Repair Technology 160 41.88% 81 .05% 73.72% 77.85% 77.82% 88.04% 50 Visual & Performing Arts 1,342 26.01% 66.07% 68.47% 68.60% 66.59% 75.50% 51 Health Professions & Related Clinical Sciences 2,322 20.24% 26.89% 26.89% 24.38% 13.56% 38.07% 52 Business, Management, Marketing, & Related 2,298 18.41% 32.04% 30.91% 36.13% 38.00% 44.06% Support Services Source: Data provided by CCA member institutions. Page 35 Report on Gainful Employment April 2, 2010 6. WHAT ALTERNATIVE REGULATIONS OR POLICIES MIGHT BE SUGGESTED TO ADDRESS THE PROBLEM AT HAND? 6.1 . FURTHER CRITICISMS OF THE PROPOSED REGULATION Thus far this report has focused primarily on the first provision of the Department of Education's proposal, which would limit median debt to be no more than 8 percent of the 25th percentile of earnings in specified occupations. Programs that fail this test could retain gainful employment status by meeting alternative tests. Schools would be allowed to show that the graduates of the program at their school in particular earn more than the 25th percentile upon entering the workforce. This provision would seem to address some of the concerns raised above. However, to properly conduct a survey of graduates would be costly, and some of these costs would be passed on to students. Furthermore, there is no guidance as to how such a survey would need to be conducted. Would schools be required to show that the respondents were a representative sample of all graduates? How would this be determined? How large a sample would the estimated earnings need to be based on? Should the survey focus on the earnings in the appropriate occupations, as specified by the Department of Education, or would earnings in other occupations count? How would students who chose to take jobs in other higher-paying occupations be treated? How would students who chose to take jobs in other occupations because they were unable to find work in the specified occupation be treated? These and other questions would need to be answered. Many of these questions highlight that the implementation of this part of the proposal would be messy at best, and quite possibly arbitrary. Programs that failed the 8 percent test could also retain gainful employment status by showing that they maintained 90 percent repayment rates. As others have noted, this would not be based on default behavior as defined in the Cohort Default Rate calculation. Students who are not current in their payments, even though they have not yet reached the point of default, would count against a school 's clean record. Students in deferment or forbearance would also apparently count against a school's repayment rate. It is difficult to know how many programs would satisfy this standard. Most problematic, the data necessary to calculate this rate is not readily available to schools. It is therefore almost impossible to analyze whether the 90 percent standard is appropriate. Furthermore, without the data underlying this calculation, it is not possible for schools to monitor problems, or to affect the behavior that leads to low repayment rates. It is also not clear whether the Department of Education based the standard on any analysis of data. One argument described above is that it cannot be good policy to have limits on student loan payments that are less than the benefits to earnings from schooling. The argument is the following. Standard estimates of the return to education suggest that a student who completes a 2-year program earns 20 percent more per year, every year she works. If the debt payment limit were less than 20 percent, she could make the loan payments out of her 20 percent schooling bonus, and still have money left over. Page 36 Report on Gainful Employment April 2, 2010 If the Department of Education were to consider a debt limit that is approximately equal to the return to education, several additional factors would need to be considered. For example: Programs are different lengths. Longer programs have larger returns. Would the department institute different loan limitations for 1-, 2- and 4-year programs? How would the limit be set if there were variation within a program in how long students attended (or how many credits students earned)? The return to education changes over time. It has risen dramatically in the past 30 years. How would the Department of Education decide what the return is in each year? 6.2. To DIRECTLY ADDRESS THE PROBLEM, REGULATION SHOULD FOCUS ON DISCLOSURE AND ENSURING THAT STUDENTS MAKE INFORMED DECISIONS A comparison of expected returns to education with the costs of education is what students are doing when they decide whether to get a higher education, and whether to take on loans to finance that education. If the problem the policy is trying to solve is that students are not doing this well- that they are not making informed, considered decisions based on comparisons of expected benefits and costs- then the regulation should address this problem. To make this case, it may be necessary first to refocus the discussion on which problem is in need of solving. Whereas the current proposal appears to be based on the perception that students take on too much debt, we bel ieve this is misguided. As argued above, standard economic analysis clearly indicates that the amount of debt should be dictated by the benefits of the investment, not by the level of income. It may not be in the students' interest to be restricted from taking on large amounts of debt; that debt may be the key to a better future. The important thing is to make sure that students make informed and intelligent decisions about whether loans are right for them, and whether the benefits of the schooling they wish to finance are large enough to repay the debt they take on. This focus on making smart informed decisions leads directly to a policy based on provision of information, and assistance analyzing the consequences of borrowing. One way that this problem could be addressed directly is through different forms of disclosure and education: Increased scrutiny could be placed on lenders to ensure that every student who takes on a loan is made aware ofthe costs associated with the loan, the magnitude of the annual or monthly payment, and the length of the payback period. Disclosure could also include mandated information regarding typical earnings of workers in the occupation for which the student is preparing. For example, lenders could be required to show students the 25 1 h percentile or median of annual earnings in the appropriate occupation. This could be extended further so that students would be shown a mock budget based on an estimate of their earnings in the appropriate occupation, their loan payments, and a standardized set of necessary expenses. This could be done either in a standardized paper form, or an online application could be developed to allow students to enter various earnings and expense values to see how they fit into the budget. Page 37 Report on Gainful Employment April 2, 2010 7. CONCLUSION In summary, the proposed regulation is not currently formulated to address a specific problem effectively. Secretary of Education Arne Duncan has stated publicly that he wants to ensure that the Department understands its proposal thoroughly so that it prevents any "unintended consequences." Our analysis suggests that the "unintended consequences" -cutting off access to hundreds of thousands of students who want postsecondary education-will be much more substantial than the intended consequence, which we believe to be-though we are not certain-reducing the number of students who over borrow. To start, the Department of Education has not clearly defined what the problem is that the regulation aims to address. As discussed above, some perceived problems the regulation may intend to address are not problems at all but rather a reflection of the fact that for-profit postsecondary schools serve a very different population than not-for-profit postsecondary schools. If the Department of Education wishes to address the problem that some students take on excessive debt, the proposed regulation is not well designed to do so. By applying a rule at the school or program level, many other students would be negatively affected. Our analysis suggests that 33 percent of students currently in for-profit postsecondary schooling would be denied access. Many more students would be denied access to postsecondary schooling than would be protected from excessive borrowing. Furthermore, it should not be assumed that public postsecondary institutions, particularly community colleges, would absorb these students. Given the fiscal conditions of the states, it is not obvious that community colleges will be able to increase capacity to meet the increasing demand for postsecondary schooling. Finally, because for-profit schools disproportionately serve racial and ethnic minority students and students from low-income family backgrounds, the regulation would have the effect of reducing access to higher education to groups of students that have historically had the lowest levels of access. Page 38 Report on Gainful Employment April 2, 2010 8. APPENDIX A Appendix Figure 1 : Average age at which students first enroll in postsecondary schooling, 2008 23 22.5 22 21.5 Q) 21 0) ro Q) 0) 20.5 ro ..... Q) > 20 <( 19.5 19 18.5 18 For-profit Pri vat e not-for- Privat e not-for- Public <=2 Publi c 4-year profit <=2 profit 4-year Age first enroll ed Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Page 39 Report on Gainful Employment April 2, 2010 Appendix Figure 2: Average income of parents or independent students prior to school entry, 2008 90,000.00 80.000.00 70.000.00 <I> 60.000.00 E 0 (.) 50.000.00 c <I> Ol 40.000.00 ttl ... ~ <( 30.000.00 20.000.00 10.000.00 0.00 For-profit Private not- for-profit <=2 Private not- for-profit 4- year Pllblic <=2 Average income, parents or independent. 2007 Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Pllblic 4-year Page 40 Report on Gainful Employment April 2, 2010 Appendix Figure 3: Percent of students from families who received AFDC prior to school entry, 2008 18 ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16 14 12 c 10 Q) 0 ..... f 8 6 4 2 0 For-profit Pri vate not-for- Private not-for- Publi c <=2 profit <=2 profit 4-year Percent receieved Food Stamps. 2007-08 Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Publi c 4-year Page 41 Report on Gainful Employment April 2, 2010 Appendix Figure 4: Percent of students who were single parents prior to school entry, 2008 35 ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 25 c 20 Q) () .... Q) a. 15 10 5 0 For-profit Pri vate not-for- Private not-for- Publi c <=2 profit <=2 profit 4-year Percent single parent. 2007-08 Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Publi c 4-year Page 42 Report on Gainful Employment April 2, 201 0 Appendix Figure 5: Percent of students whose parents attended at least some college, 2008 000 For profit BOO 700 60.0 50.0 .. E .. ., .. 0. 400 300 200 0.0 r:>rrvale for-protot r:>uvate lo .. prolrl 2 yea.s or more 2yt&r Not for profit Pubhc 4-year ooMoctorate 4-)'l)at PrrYal e not-for doctorate prole 4 year Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Prwa1e not-fo.-. protrt 4-yr
Ptl'l$18 not-lor pro(J1 4year doctorate Page 43 Report on Gainful Employment April 2, 201 0 Appendix Figure 6: Percent of students who are Black or Hispanic, 2008 60.0 ~ 50.0 40.0 c ~ 30.0 "' 0. 10.0 0.0 For profit Not for profit Private for- Private for- PriVate not-for- Private not-for- Private not-for- Public less- Public 2-year Public 4-year Public 4-year profitless-than profrt 2years or profrt less than proflt4Yr pro1it4-year thar)-2-year nondoctol'31e doctorate 2 - ~ a r more 4-year nondoctorale doctorate Percent Black or Hispanic Notes: Calculated from the National Postsecondary Student Aid Study, 2008 Page 44 Report on Gainful Employment April 2, 201 0 Appendix Table 1 Estimated Number of Students Impacted by 2020 Median Loan Based on Graduates 25th Percentile Based on Full-Time Earners (CPS) Number of Total Number of African- Number of Number of Number of Female American Hispanic Asian Students Students Students Students Students Year Impacted Impacted Impacted Impacted Impacted Using the 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio 2011 525,924 288,663 106,169 106,729 23,365 2012 572,206 314,065 115,511 116,121 25,421 2013 622,560 341,703 125,676 126,340 27,658 2014 677,345 371,773 136,736 137,458 30,092 2015 736,952 404,489 148,769 149,554 32,740 2016 801,803 440,084 161,860 162,715 35,621 2017 872,362 478,811 176,104 177,034 38,756 2018 949,130 520,946 191,601 192,613 42,167 2019 1,032,653 566,790 208,462 209,563 45,877 2020 1,123,527 616,667 226,807 228,004 49,914 Total Students Impacted 7,914,462 4,343,989 1,597,695 1,606,132 351 ,613 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools, that for-profit schools wi ll continue to grow at 8.8% per year (the growth rate over the last five years), and the relative student composition does not change during this period. Page 45 Report on Gainful Employment April 2, 201 0 Appendix Table 2 Estimated Annual Number of Students Impacted by State Median Loan Based on Graduates 25th Percentile Based on Department of Education Calculation Number of Total Number of African- Number of Number of Number of Female American Hispanic Asian Students Students Students Students Students State lmeacted lmeacted lmeacted lmeacted lmeacted Using the 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio AL 1,134 630 470 13 11 AR 1,204 718 297 22 19 AZ 33,998 15,928 3,377 3,160 924 CA 44,910 22,958 3,935 16,101 6,713 co 7,593 3,363 981 1,004 248 CT 5,648 2,169 870 1,015 120 DC 4,681 2,266 2,150 368 172 FL 25,202 12,307 5,601 7,738 487 GA 10,324 5,727 4,979 491 242 lA 6,684 3,705 292 117 50 IL 18,988 9,294 4,290 2,372 677 IN 4,978 2,732 1,115 195 37 KS 1,681 893 270 108 58 KY 3,292 1,865 574 41 41 LA 3,885 2,242 1,581 57 42 MA 5,765 2,893 520 742 240 MD 4,297 1,960 2,155 188 94 Ml 8,949 5,099 3,043 232 109 MN 9,406 5,038 1,309 325 365 MO 5,510 2,953 1,349 106 80 MS 1,111 667 576 7 23 NC 2,307 1,116 863 69 44 NH 1,284 760 17 55 18 NJ 9,118 4,366 1,969 2,294 430 NM 1,612 926 102 650 27 NV 2,722 1,344 411 472 265 NY 18,845 8,797 4,928 4,439 1,129 OH 11,686 6,147 3,401 291 129 OK 2,456 1,273 417 163 49 OR 2,901 1,579 107 183 148 PA 16,909 7,653 3,334 896 299 Rl 1,839 936 189 324 38 sc 1,523 878 655 46 19 TN 5,682 2,911 1,848 124 67 TX 29,176 14,832 5,846 12,457 718 UT 2,675 1,380 33 231 83 VA 7,032 3,720 2,854 328 250 WA 3,964 2,107 269 261 490 WI 2,004 1,116 707 100 46 wv 3,226 941 321 215 80 Total Students Impacted 361 ,172 179,149 68,348 78,545 15,875 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools. States with less than 1,000 students who are impacted and Puerto Rico are not reported above. Page 46 Report on Gainful Employment April 2, 201 0 Appendix Table 3 Estimated Annual Number of Students Impacted by State Median Loan Based on Graduates 25th Percentile Based on Full-Time Earners (CPS) Number of Total Number of African- Number of Number of Number of Female American Hispanic Asian Students Students Students Students Students State lmeacted lmeacted lmeacted lmeacted lmeacted Using the 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio AL 1,652 1,016 730 18 17 AR 1,753 1,157 461 29 28 AZ 49,506 25,665 5,246 4,294 1,360 CA 65,396 36,992 6,113 21,879 9,881 co 11 ,056 5,419 1,525 1,364 365 CT 8,224 3,495 1,351 1,379 177 DC 6,816 3,650 3,340 500 253 FL 36,698 19,830 8,700 10,515 717 GA 15,034 9,228 7,733 667 355 HI 1,029 548 23 27 1,002 lA 9,733 5,970 454 158 74 IL 27,650 14,976 6,664 3,223 996 IN 7,249 4,402 1,732 265 54 KS 2,449 1,438 420 146 86 KY 4,794 3,005 892 56 61 LA 5,657 3,613 2,455 78 62 MA 8,395 4,662 808 1,008 353 MD 6,256 3,159 3,348 256 139 ME 1,279 924 26 13 19 Ml 13,032 8,217 4,727 315 161 MN 13,697 8,118 2,033 441 538 MO 8,024 4,759 2,095 144 117 MS 1,618 1,075 895 10 34 NC 3,359 1,798 1,341 94 64 NE 1,181 739 149 41 15 NH 1,870 1,224 26 74 26 NJ 13,277 7,036 3,058 3,117 633 NM 2,347 1,492 158 884 39 NV 3,964 2,166 638 641 391 NY 27,441 14,174 7,654 6,031 1,662 OH 17,017 9,905 5,283 395 189 OK 3,576 2,051 647 222 72 OR 4,225 2,544 166 249 218 PA 24,622 12,331 5,179 1,217 441 Rl 2,679 1,507 293 440 55 sc 2,217 1,415 1,018 62 28 TN 8,274 4,691 2,871 168 99 TX 42,485 23,899 9,081 16,926 1,057 UT 3,896 2,223 52 314 123 VA 10,239 5,994 4,434 446 369 WA 5,773 3,395 418 354 722 WI 2,918 1,798 1,098 135 68 vw 4,697 1,517 499 292 118 Total Students Impacted 525,924 288,663 106,169 106,729 23,365 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools. States with less than 1,000 students who are impacted and Puerto Rico are not reported above. Page 47 From: Manheimer Ann To: Jenkins, Harold Arsenault Leigh Wolff> Russell Finley Steve Picoult Francine Yuan, Georgia CC: Sellers Fred Kolotos, John Date: 4/2/2010 9:00:16 AM Subject: FW: Request for Follow Up Meeting This Week to Discuss Gainful Employment Forwarding so you can access the attachments - not sure you could on the last message - Ann From: Harris Miller [mailto:HarrisM@career.org] Sent: Thursday, April 01, 2010 6:04PM To: Shireman, Kanter, Madzelan, Dan; Bergeron, David Cc: Brian Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Bob, et.al.: We look forward to the meeting Monday morning at 9 AM at the Department to discuss the gainful employment issue. Attending as part of the CCA delegation will be, in addition to me, Brian Moran, CCA' s Executive Vice President for Government Relations, Dr. Jonathan Guryan, University of Chicago, and Dr. Matthew Thompson of Charles Ri ver Associates, the leads on the research we will be presenting, Rebecca Campoverde from Kaplan, Anthony Guida from EDMC, and Tom Babel from Devry. If you could please let me know who will be in attendance from the Department, that would be appreciated. Attached you will find three documents. The first is the Executive Summary of the research findings. I will send you the full report tomorrow, Friday. Last minute editing on the full report was delayed by the Passover holiday. Second is the proposal CCA is putting forward as an alternative to the gainful employment proposal put forth by the Department during the negotiated rulemaking. Third is a document that summarizes the extensive tools the government already has to take actions against "bad actors" in our sector. Please let me know if you have any questions or comments. I look forward to a productive conversation Monday. Enjoy the spectacular weather. Ranis From: Shireman, Bob [mailto:Bob.Shireman@ed.gov] Sent: Monday, March 29, 2010 10:48 AM To: Ranis Miller; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Work with Ann Manheimer on arranging the meeting. Please send your research and alternative prior to the meeting so we can get concrete and specific in the discussions. Thanks, -Bob From: Harris Miller [mailto:HanisM@career.org] Sent: Monday, March 29,2010 10:04 AM To: Kanter, Martha; Shireman, Bob; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan Subject Request for Follow Up Meeting This Week to Discuss Gainful Employment Martha/Bob/Dan/David: CCA would like to have a follow on meeting with you this week to the one Brian Moran and I had with Dan and David ten days ago to discuss a) the results of our research (which was not complete when we met) on the impact of the Department's gainful employment proposal on students in higher education, and b) an alternative (which we discussed in general concept with Dan and David) to the Department ofEducation proposal. We can make ourselves available at almost any time starting tomorrow. Please let me know whom l should contact to arrange a meeting. Thanks in advance. Harris ***************************************************************** Harris N. Miller CEO/President Career College Association 1101 Connecticut Avenue, NW, Suite 900 Washington, DC 20036 hanism@career. org + l 202 336 6754 Executive Assistant: Jackie McWilliams j acki em@career. org + 1 202 336 6706 www. career.org To: From: Date: Re: MEMORANDUM Interested Parties Career College Association March 29, 2010 The Myth That the Department of Education is Powerless to Stop "Bad Actors" in Postsecondary Education CCA staff and members have heard during recent visits with Administration officials, especially at the Department of Education ("the Department"), and less frequently during Capitol Hill visits, a narrative that runs as follows: Although the majority of for-profit postsecondary institutions may be high quality institutions serving their students well, there are a few "bad actors" over which the Department lacks sufficient regulatory authority. In fact, one of the justifications for the radical proposal put forth by the Department to change the meaning of "gainful employment" as it has been accepted and understood for forty years is to stop the conduct of "bad actors." Part of this same narrative is that prospective students do not have adequate consumer protections to prevent these bad actors from taking unfair advantage of them. CCA agrees that any percentage of bad actors in the sector is unacceptable. What we do not agree with, however, is the mythology that the Department lacks what is, in fact, extensive authority under current law to investigate and take action against institutions that are not following the myriad of rules that govern higher education generally, and for-profit higher education, in particular. In addition to a high degree of regulatory oversight at the federal level, each of these schools is also overseen by the other two legs of the regulatory "triad" -state government and accrediting entities that are approved by the Department itself. For example, over the last decade, the sector has seen a vast increase in active oversight by state agencies. This memorandum provides an overview of the layers of quality control and consumer protection regulation that already exist within the authority of the Department and other federal and state entities that can and do serve as a check on "bad actors." It is important to note that some significant enhancements in the law were enacted as part of the Higher Education Opportunity Act of 2008 ("HEOA"), which amended the Higher Education Act of 1965 ("HEA"). The final regulations implementing the HEOA are not effective until july 1, 2010 and, therefore, many important enhancements to the law have yet to be fully implemented. In addition, during this year's Title IV Program Integrity Negotiated Rulemaking process, the negotiators reached consensus on changes to strengthen the misrepresentation regulations. The process of reaching consensus on enhanced misrepresentation regulations, of which CCA was a part, demonstrates that higher education and the Department share the goal of weeding out bad actors through 7 common sense enforcement of and enhancements to existing law. I. Quality Control and "Bad Actors" As a threshold matter, the Department has never explained clearly how it defines a "bad actor" school or what specific rules such a school is violating. In reality, real laws apply to real schools that violate them. For example, if a bad actor is a school that misrepresents information to a potential student about placement rates or salary prospects, federal and state consumer protection laws apply. If a bad actor is a school that "lures" students to enroll through prohibited payments to admission or financial aid officials, regulations subject that school to penalties and risks to Title IV eligibility. If a bad actor is a school that charges "too high" a tuition relative to earnings, then students will default massively and the cohort default rate thresholds will act as a check on Title IV eligibility. This section describes the quality control regulations in current law put into place over the last decade to improve quality and thereby eliminate so-called "bad actors." The Higher Education Act of 1972 established Title IV eligibility for proprietary institutions consistent with the Department's goals of expanding postsecondary education access for a growing and financially needy college-aged population. Since that time, Congress has established and built upon the following measures in federal law, some generally applicable to all postsecondary institutions and some specific to proprietary schools, to ensure school and program quality: Caps on excessive cohort default rates (Fiscal Year 1989 Appropriations Act); Thirty day delay in delivery of loans to new borrowers by schools with cohort default rates of more than 30% (Omnibus Reconciliation Act of 1989); Prohibition on certification or recertification of an institution as Title IV eligible if it has lost accreditation during the past 24 months, unless the accreditation has been restored or the institution demonstrates program integrity (Omnibus Reconciliation Act of 1989); Addition of new program integrity provisions, including periodic recertification, and other requirements for strengthened national accreditation standards and procedures (Higher Education Amendments of 1992); Establishment of early 85/15 (now 90/10) ratio for proprietary schools (Higher Education Amendments of 1992); Requirements for pro rata refund policy for first-time students who withdraw (Higher Education Amendments of 1992) and return to Title IV policy as a successor to that; Enhancements to federal financial responsibility standards and requirement for letters of credit for institutions with impaired financial responsibility; Requirement for annual submission of audited financial statements and financial aid compliance audits (Higher Education Amendments of 1992); 7 Establishment of incentive compensation prohibitions on student recruitment and processing of financial aid; Strengthened federal requirements for ability-to-benefit tests and limit on percentage of ability to benefit students; Student satisfactory academic progress requirements (Omnibus Budget Reconciliation Act of 1989, Omnibus Reconciliation Act of 1990; Higher Education Technical Amendments of 1991); Required disclosure of completion and placement rate requirements for short-term programs; Establishment of the clock to credit hour conversion rules and minimum academic year requirements as part ofPell grant eligibility; Required disclosure of graduation rates (1990 Student Right to Know and Campus Security Act); Limitations on branch campuses; Increased disclosures to borrowers of student loans; and Disclosure of schools with the greatest tuition increases. In addition to these measures, institutions must also ensure that the information disclosed about programs is accurate. The Department may initiate a fine, or a limitation, suspension, or termination of Title IV eligibility for any substantial misrepresentation made by an institution regarding the nature of its educational program, its financial 1 charges, or the employability of its graduates. At the recently concluded negotiated rulemaking, the Department proposed improvements to the misrepresentation regulation that were agreed upon by consensus by stakeholders, including CCA, that will increase the oversight of the information provided by institutions. Specifically, the proposed regulatory language on which the negotiators reached consensus strengthens the current misrepresentation regulation in several ways, including: Expanding the class of persons to whom a substantial misrepresentation can be made to include accrediting agencies and state agencies, as well as prospective students and the general public; Holding institutions responsible for any misrepresentation made by companies with which they contract their services; and Broadening the definition of what constitutes "substantial misrepresentation." During negotiated rulemaking, the Department also proposed language that would support robust state regulation of postsecondary institutions. In addition, it is important to remember that under current state laws and state attorneys general have broad grounds to pursue schools in violation of state licensing or consumer protection requirements. State authorizing agencies and state attorneys general are additional tools 1 See 34 CFR 668.74(c). 7 against bad actors in the sector. There are also other oversight agencies in addition to the Department that sanction institutions for misrepresentations or inaccuracies in the information they provide. Institutions are subject to oversight by the Federal Trade Commission (proprietary institutions only), the accrediting agencies, the Federal Reserve Board (for institutional and private educational loans), the Securities and Exchange Commission (for publicly traded schools), and the Department's Federal Student Aid Office and Office of Inspector General. II. Consumer Protections As stated above, the provision of postsecondary educational services is a highly regulated activity with numerous controls and enforcement mechanisms currently available to the Department of Education in statute and regulation that permit it to identify, investigate, and end Title IV eligibility to institutions of higher education that violate federal and state law. Consumer protection enhancements applicable to the sector at the federal and state level have also grown consistently over the last decade, were further enhanced in the HEOA, and can be strengthened even more, without relying on a "gainful employment" hook that would damage quality educational service providers. A variety of consumer protections exist to inform the educational choices of prospective and current students. Institutions are required to disclose detailed information about college cost, student success metrics, and loan repayment. Under the Higher Education Act and recent amendments to that Act, schools are required to provide 2 a vast array of consumer information, including the following: The price of attendance, including tuition and fees, estimated cost of books and supplies, room and board, and transportation costs, and any additional costs for a program in which the student is enrolled or expresses an interest (HEA, 20 U.S.C. 1092(a)(1)-(2), unchanged by HEOA); Institutions must make available on their websites by October 29, 2011 a net price calculator (HEOA Section 111 amended HEA Title I, Part C; added HEA, 20 U.S.C. 1015a(a),(h)); Each institution must make available to prospective and enrolled students information about the institution's refund policy, requirements and procedures for withdrawal; and requirements for the return of Title IV, HEA grant or loan aid (HEA, 20 U.S.C. 1092(a)(1)-(2), unchanged by HEAO); Academic program and facility information to prospective and enrolled students (HEOA added 20 U.S.C. 1092(a)(1)(G)(iv)); 2 .s.e.e...HEA Section 48S(a)(l) (20 U.S.C. 1092(a)(l)); see also. Report of the National Postsecondary Education Cooperative, Information Required to be Disclosed Under the Higher Education Act of 1965: Suggestions for Dissemination, Nov. 2009 (including HEOA amendments). 7 Each institution must make available to prospective and enrolled students: names of accreditors applicable to the institution and programs, and procedures for obtaining and reviewing documents describing such accreditation (HEA, 20 U.S.C. 1092(a)(1)-(2), tmchanged by HEAO); An institution that advertises job placement rates as a means of recruiting students to enroll must make available to prospective students, at or before the time the prospective student applies for enrollment: (1) the most recent available data concerning employment statistics and graduation and (2) any other information necessary to substantiate the truthfulness of the advertisements; and (3) relevant state licensing requirements of the state in which the institution is located for any job for which the course of instruction is designed to prepare students (HEA, 20 U.S.C. 1094(a)(8), unchanged by HEOA); Institutions must make available to current and prospective students information regarding the types of graduate and professional education in which graduates of the institutions' 4-year degree programs enroll (HEOA, 20 U.S.C. 1092(a)(l)(S)); Detailed financial aid information, including information about all of the need-based and non-need based federal, state, local, private and institutional aid programs available to students at the institution (HEAO added HEA 485(a)(l)(M)); The retention rate of certificate and degree seeking, first-time, full-time undergraduate students as reported to !PEDS (HEOA added HEA 485(a)(l)(U)); The completion or graduation rate of certificate or degree seeking, first-time, full-time, undergraduate students, including data disaggregated by gender, major racial and ethnic subgroups, recipients of a Federal Pell Grant, recipients of a subsidized Stafford Loan who did not receive a Pell Grant, and students who did not receive either a Pell Grant or a subsidized Stafford Loan (HEOA added HEA 485(a)( 4) and HEA 485(a)(7)); Each institution must publicly disclose and make available to prospective and enrolled students a statement of the institution's transfer of credit policies and articulation agreements (HEOA added 20 U.S.C. 1092(h)); Institutions must make available to current and prospective students information regarding the placement in employment of, and types of employment obtained by, graduates of the institutions' degree or certificate programs (HEOA added 20 U.S.C. 1092(a)(l)(R)); Textbook cost disclosure on internet course schedule used for preregistration and registration purposes (HEOA added 20 U.S.C. 1015b); Detailed entrance and exit counseling for student borrowers, including average anticipated monthly repayment amount, repayment plan options, and debt management strategies (HEOA added new HEA 485(1) and 485(b )(l)(A)); and Detailed private education loan disclosures, including a student self-certification form. In addition, under the amendments to the Truth in Lending Act, private lenders must provide three detailed disclosures to borrowers before making 7 private student loans (HEOA added HEA 487(a)(28) and HEA 151-155 (20 U.S.C. 1019, 1019a-1019d)). The Department makes consumer information easily available to students, parents, and the public. The Department posts many consumer information items on the College Navigator website for each institution, including: Tuition, fees and other estimated student expenses for the last several years, with the percentage increase from the most recent year to the current one and a multi-year tuition calendar; The percentages of students who receive various types of aid and the average amounts of such aid; Graduation rates, disaggregated by major racial subgroups; Retention rates for full-time and part-time students; Average amount of subsidized and unsubsidized Stafford loans; and Cohort default rates for the most recent three years. In addition, the Department provides some of this consumer information direct to individual students by institution - when the student inputs the school's code on the FAFSA. It is also relevant that from the standpoint of providing tools to students to manage student loan debt, Congress first authorized the Income Based Repayment program in 2007 as part of the College Cost Reduction and Access Act of 2007, and that program is just now being actively promoted by the Department as a tool to assist graduates with loan debt management. In sum, despite the perception created by the Department's "bad actor" narrative on gainful employment, proprietary postsecondary education is highly regulated at the federal and state levels and through its accrediting bodies. The gainful employment proposal is vastly overbroad and misguided in light of the diverse array of tools that exist under current law to identify and target bad actors and to protect and assist student consumers with loan debt issues. 7 C D A Lharles. River
Prepared For: Harris N. Miller Career College Association 1101 Connecticut Ave. NW, Suite 900 Washington, DC 20036 Prepared By: Report on Gainful Employment: Executive Summary Jonathan Guryan, Ph.D., Associate Professor of Economics, University of Chicago Booth School of Business Matthew Thompson, Ph.D., Vice President Charles River Associates 1545 Raymond Diehl Road, Suite 260 Tallahassee, FL 32308 Date: March 29, 2010 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates This report addresses the definition of "gainful employment" proposed by the U.S. Department of Education as a part of negotiated rulemaking. CONSEQUENCES/IMPACT OF THE PROPOSED GAINFUL EMPLOYMENT REGULATION To estimate the impact of the proposed regulation on Title IV eligible for-profit postsecondary institutions, we collected data from Career College Association (CCA) member institutions. We analyzed data representing approximately 640,000 students and over 10,000 separate programs from institutions ranging from very small to very large. Using these data, we compared the median debt among a program's graduates to the maximum allowed loan implied by the 8-percent rule applied to the appropriate 25th percentile of earnings, calculated according to the Department of Education's instructions. Based on these calculations, we estimate that 18 percent of for-profit postsecondary programs would not satisfy the debt limit requirement of the gainful employment proposal. In our calculations, larger programs will be more likely to be impacted. Consequently, we estimate that 33 percent of students in for-profit postsecondary programs would be impacted. Applying these findings to for-profit enrollment reported in IPEDS, we estimate that approximately 360,000 students each year enter for-profit postsecondary programs that would lose eligibility for participation in the federal Title IV financial aid programs. Given recent growth rates of enrollment in for-profit postsecondary institutions, we estimate that by 2020, approximately 5.4 million students who are on track to attend programs would be denied access by the proposed regulation. Our estimate is that the impact of the regulation would be severe on racial and ethnic minority groups, in part because for-profit schools are proportionately more likely than not for-profit postsecondary schools to serve these students. We estimate that each year approximately 68,000 non-Hispanic black students and an additional 79,000 Hispanic students enter for-profit postsecondary schooling in programs that would be impacted by the proposed regulation and would not be able to attend these programs. While some capacity may exist in other sectors of higher education to absorb these students, recent reports indicate that the most likely alternatives-community colleges-are already oversubscribed in many cases, and are facing further financial cutbacks as the states that provide much of their funding face severe financial challenges. Given recent growth rates at for-profit postsecondary institutions, we estimate that by 2020 approximately 1 million non-Hispanic black students and an additional 1 million Hispanic students are on track to attend programs that would be adversely affected, and would be denied access as a result. Based on our estimates, the impact of the regulation would vary across types of programs. Because the limits on borrowing do not vary with the length of program, longer programs would be more severely impacted. Whereas approximately 18 percent of students in less than 2 year programs would be impacted, we estimate that approximately 40 percent of students in 2- and 4-year programs would be impacted. We also estimate that the impact would not be limited to a few areas of study, but would impact a wide variety of programs. For example, we estimate that nearly 14 percent of Health Professional and Related Clinical Page 1 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates Sciences, including Nursing, programs and more than 46 percent of Engineering Related Technologies/Technicians programs would not currently satisfy the proposed debt limit rule. A SOLUTION IN SEARCH OF A PROBLEM We are unaware of any, scientific or otherwise, study by the Department of Education that outlines what the problem is that the proposed regulation is meant to address. The problem that the regulation aims to solve has not been clearly stated - neither its nature nor its extent. As a result, we believe, the proposed regulation is not well-designed to address a specific problem. Any regulation aimed at solving a specific problem should be tailored to address that problem without causing undue harm to other individuals. Based on a few anecdotal references to complaints of high debt levels by students, posted in the public comments to Negotiated Rulemaking on the Department's website, we suspect that the Department of Education aims to protect some students who take on more debt than they can expect to repay. We also suspect that the number of students who take on more debt than is in their personal interest is small, but we are not aware of a study of this population that would inform this speculation. A regulation aimed at protecting these students should focus on identifying these students and should address these students directly. Because the proposed regulation applies to schools rather than students, it would affect students who are not over-borrowing along with any who may be over-borrowing. Are Default Rates Higher at For-Profit Colleges? One stated rationale for the proposed regulation is that default rates are higher among students at for-profit postsecondary schools than among those at not-for-profit colleges. Our analysis of the Beginning Postsecondary Students Survey data shows that at least half of the difference in default rates between for-profit and not-for-profit schools is because they serve different types of students. For-profit schools are more likely to serve low-income students, racial and ethnic minority students, students who are the first in their immediate family to attend postsecondary schooling, and students whose families have collected public assistance. Students in these groups are more likely to default on student loans after attending both for-profit and not-for-profit colleges. We estimate that if all schools served students with moderate family resources, loan default rates at for-profit schools would be cut by more than half and the difference in default rates between for-profit and not-for-profit schools would also be cut approximately in half. These estimates are based on regression-based controls for students' family income, dependent status, race/ethnicity, program completion status, parental education, family welfare receipt, and Pell eligibility. It is possible that controlling for additional student characteristics, if data were available, would reduce the default rate gaps even more. Page2 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates RATIONALE FOR THE METRICS OF THE REGULATION The debt limit portion of the proposed Gainful Employment regulation focuses on the ability of recent graduates to repay loans in the early years of their post-schooling careers. The choice of metrics to assure students' ability to pay is logically flawed. Furthermore, the basis of the debt limit on earnings early in the career stands in contrast with standard economic analysis of education, which clearly says that the choice of how much to borrow for schooling should be based on the benefits of schooling, and not on the earnings level at the beginning of a career. Any proposal aimed at helping students make smart decisions about investments in education should compare the costs of schooling to the gains that accrue over the full career as a result of that schooling. It should not compare costs to the level of earnings of recent graduates. The 8 Percent Debt Limit Consider the 8 percent limit on debt payments. First, no scientific or data-driven rationale has been presented for an 8 percent limit as opposed to any other number. No evidence has been presented, for example, that loan default rates increase dramatically as student loan payments cross this threshold. And though no specific rationale has been given for the 8 percent number, to the extent that it is based on rules of thumb from other types of borrowing, such logic would also be flawed. Borrowing for the purpose of education is inherently different from borrowing to purchase a home because the economic returns tend to be much larger. Education is a source of social mobility, so any restriction on student borrowing will tend to be harmful to students who would have enjoyed large gains from the schooling investment. Second, it cannot logically make sense to say that the average student cannot afford to pay 8 percent of her annual earnings to cover student loans for 10 years if those loans paid for education that raised her earnings more than 8 percent each year for the rest of her working life. Academic studies consistently find that students with more education on average earn more, and that these returns to education are large on average, for example, in 2-year Associate degree programs. Academic estimates of the return to education -the increase in annual earnings that result from each additional year of schooling - have ranged from 8 to 15 percent, and have been rising steadily over the past 30 years. Our best estimate is that the return per year of Associate degree schooling is currently more than 1 0 percent. This means that those who earn a 2-year degree earn between 20 and 25 percent more each year than those with just a high school education. If the average return to a year of schooling is 10 percent, this means that the average student in a 2-year program could pay 8 percent of her earnings just with the additional earnings due to the schooling, even after accounting for taxes. These average benefits also do not include additional economic benefits of schooling. Additional benefits of education include increased employment rates, increased likelihood of health insurance coverage, decreased criminality and improved health. Page 3 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates 25th Percentile of Earnings Many features of the proposed regulation share the flaw that limits on borrowing are based on the estimated earnings that graduates would experience in the early years after graduation. This is a flaw because the benefits of education accrue over a long period of time. A policy aimed at protecting students would compare the benefits of education and the costs of education. A key feature of education is that the costs are paid up front, both in terms of foregone earnings and tuition, and the benefits accrue over the entire working life. To focus exclusively on the short-term benefits is to ignore the long-term benefits and to cause students to under-invest in education. This under-investment would likely be harmful to many students affected by the proposed regulation. One example is the use of the 25 1 h percentile of earnings as an implied ability to repay loans. The proposed regulation places a limit on the median debt among students at a program. This limit is based on the 25th percentile of earnings in occupations for which that program prepares students. Presumably, the 25th percentile is meant to be an estimate of the typical starting salary of graduates of the program. The use of the 25th percentile is flawed for multiple reasons. Most fundamentally, the premise of limiting borrowing for education based on early-career earnings is inappropriate and would be harmful to low-income students who rely on student loans for access to education beyond high school. In addition, the choice of the 25th percentile appears to be ad hoc, possibly based on the fact that it is one of the statistics that the Bureau of Labor Statistics publishes for each occupation. However, there is no scientific basis for using the 25th percentile of earnings as an estimate of the early career experience of workers rather than some other percentile (and we reiterate that limits should not be based on the level of earnings of early career workers in the first place, but rather an estimate of the individual gains to earnings that result from the education) . Other percentiles could be calculated fairly easily based on the same data used by the Bureau of Labor Statistics. Furthermore, the particular way to calculate the 25th percentile is not innocuous. Small changes in the way one calculates this number causes large differences in the estimate of early career earnings. One concern would be that future changes in the method of calculating this number could have serious consequences. We estimate that differences in earnings levels resulting from changes in how the 25th percentile is calculated would lead to large differences in the number of students impacted by the proposed regulation. This suggests that further consideration should be given to: (a) whether the 25th percentile concept is appropriate, and (b) whether the method of calculating the student's estimated ability to pay is overly sensitive to small changes in the future and valid from a scientific standpoint. 1 0-year Repayment The proposed regulation indicates that annual loan payments should be based on a 1 0-year repayment period. The use of the 1 0-year repayment length is another way that the Page4 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates regulation would overweight the early costs of education and ignore the future benefits. As mentioned above, the benefits of additional schooling accrue for the entire working career, which for most students lasts significantly longer than 1 0 years, in many cases three times as long. By calculating loan payments using a 1 0-year repayment, the regulation in a sense imposes a decision rule on students that weights the costs of schooling two- to three-times as much as the total benefits of schooling. Overweighting of costs in this way would be shortsighted if it were done by students making education decisions. Any regulation that imposes such a decision rule on students would cause many students who would otherwise benefit from additional education to be harmed. Further Analysis of the Methodology Used to Compute the Metrics of the Regulation The proposed regulation is based on a formula that has many moving parts. For each piece of the debt limit formula, decisions must be made that determine the precise way the value will be calculated. These decisions are not all straightforward, can have large effects on the impact of the regulation, and have not to our knowledge been based on scientific research or subject to sensitivity analyses. One prominent example is the method used to calculate the 25th percentile of earnings. While such a statistic sounds straightforward, it is not. Most areas of study prepare students for multiple occupations, as defined by the Bureau of Labor Statistics. There is not a singular method for calculating the 25th percentile of earnings among workers entering multiple occupations. The method proposed by the Department of Education during Negotiated Rulemaking indicates that a weighted average of 25 1 h percentiles within each of the occupations should be used. Taking a weighted average of 25th percentiles within occupations does not, however, give the 25th percentile of earnings among the workers in those occupations. Take, for example, the case of Business, Management and Marketing. One of the occupations for which that area of study prepares students, according to the Department of Education, is Chief Executive. Thus, the Department of Education's method bases the early career earnings of students finishing business management degrees in part on the 25 1 h percentile of earnings of chief executives. We suspect that a recent college graduate has a vanishingly small chance of earning a chief executive salary in the first few years after finishing school, though some will become chief executives later in their careers. Assuming the Department's goal is to generate an estimate of the early earnings of a program's graduates, there are some types of occupations for which taking the weighted average of percentiles may make sense, and others for which it does not. Even when a weighted average may be appropriate, how to weight is an important question that must be addressed. There is not a simple solution to the general problem of how to estimate the future earnings of a program's graduates. and more thought and study should be given to how to address it. One risk that should be addressed is that future decisions about which occupations for which a program prepares students could have very large effects on the resulting borrowing limits for that program. Since these decisions may be made for other Page 5 Report on Gainful Employment: Executive Summary March 29, 2010 Charles River Associates reasons, or capriciously, the regulation would be at risk of having unintended consequences based on future seemingly unrelated decisions. There has also been no guidance as to what defines a program for the purpose of the proposed regulation. For our analyses, we define a program as an area of study (i.e. a CIP code) , at a particular location or campus, for a specific program length (i.e. less than 2-year, 2-year, or 4-year). An alternative would be to define a program based on an institution's OPEID code rather than a campus. Doing so could create unintended incentives to combine campuses into OPEID codes. This is another indication that the proposed regulation's implementation at the school or institution level, rather than at the student level, is problematic. CONCLUSION In summary, the proposed regulation is not currently formulated to address a specific problem effectively. Secretary of Education Arne Duncan has stated publicly that he wants to ensure that the Department understands its proposal thoroughly so that it prevents any "unintended consequences." Our analysis suggests that the "unintended consequences"-cutting off access to hundreds of thousands of students who want postsecondary education-will be much more substantial than the intended consequence, which we believe to be-though we are not certain-reducing the number of students who over borrow. To start, the Department of Education has not clearly defined what the problem is that the regulation aims to address. As discussed above, some perceived problems the regulation may intend to address are not problems at all but rather a reflection of the fact that for-profit postsecondary schools serve a very different population than not-for-profit postsecondary schools. If the Department of Education wishes to address the problem that some students take on excessive debt, the proposed regulation is not well designed to do so. By applying a rule at the school or program level, many other students would be negatively affected. Our analysis suggests that 33 percent of students currently in for-profit postsecondary schooling would be denied access. Many more students would be denied access to postsecondary schooling than would be protected from excessive borrowing. Furthermore, it should not be assumed that public postsecondary institutions, particularly community colleges, would absorb these students. Given the fiscal conditions of the states, it is not obvious that community colleges will be able to increase capacity to meet the increasing demand for postsecondary schooling. Finally, because for-profit schools disproportionately serve racial and ethnic minority students and students from low-income family backgrounds, the regulation would have the effect of reducing access to higher education to groups of students that have historically had the lowest levels of access. Page6 PROPOSED DISCLOSURE ELEMENTS AS THEY RELATE TO CERTAIN EDUCATIONAL PROGRAMS Prospective students should have sufficient information made available to them at the time of the enrollment process such that they can make an informed decision regarding their enrollment. Information should include the cost of their program of study, a reasonable projection of potential earnings in their chosen field upon graduation and throughout their life of employment in that field, a reasonable estimate of the debt students typically incur to complete their program, and the options they will have in selecting plans for repaying that debt. Thjs information should be made available to the prospective student before incurring any financial obligation to the school. This disclosure would substitute for the debt to earnings ratio proposed to define the term "gainful employment" as used in provisions of Sections 1001 and 1002 ofthe HEA. Under the Higher Education Act as most recently reauthorized, prospective students and borrowers are required to be given much of this information. Among the information that schools will be required to provide are: The price of attendance, including tuition and fees, estimated costs of books and supplies, room and board, and transportation costs, and any additional costs for a program in which the student is enrolled or expresses an interest; A net price calculator; The prices for books; Detailed financial aid information; The retention rate of certificate- or degree-seeking, first-time, undergraduate students as reported to IPEDS; The completion or graduation rate of certificate- or degree-seeking, first-time, full- time, undergraduate students; including data disaggregated by gender; major racial and ethnic subgroup (as defined in IPEDS); recipients of a Federal Pell Grant; recipients of a subsidized Stafford Loan who did not receive a Pell Grant; and students who did not receive either a Pel! Grant or a subsidized Stafford Loan; The placement in employment of, and types of employment obtained by, graduates of the institution's degree or certificate programs; The types of graduate and professional education in which graduates of the institution's four-year degree programs enroll; Information published by the Department of Education for students at any time that information regarding loan availability is provided; Detailed entrance and exit counseling for student borrowers, including average anticipated monthly repayment amount, repayment plan options, and debt management strategies; and Detailed private education loan disclosures, including a student self-certification form. The additional information proposed to be disclosed here would complete the information for prospective students by providing additional disclosure on the occupations which the student may pursue based on his/her educational program, information relating to salary levels for those occupations, average student loan indebtedness of graduates of the program, and projected annual loan repayment amounts for the average level of indebtedness. Regulations pertaining to the mjsrepresentation of information would apply to these disclosures. 668.41 Reporting and disclosure of information (h) Prospective students - report on employment obtained by graduates of certain degree and certificate programs. For a program offered by the institution under 668.8(c)(3) or (d), the institution must provide a notice to prospective students, prior to the student enrolling in or entering into a financial obligation to the institution, including but not limited to the following information: (i) identification of one or more occupations for which the program helps the student prepare; (ii) annual wage and salary information reported at the 25 111 and 75 1 h percentile for the identified occupation(s) from the Department of Labor' s Occupational Information Network (O*NET) or a link to O*NET with an explanation that the prospective student can find labor market and wage and salary information on that site relating to employment in various occupations; (iii) wage and salary data for graduates from the most recently completed year for which data are available, if the institution collects such data for the purposes of this section; (iv) average federal student loan indebtedness of graduates of the institution with respect to their attendance at that institution, on a program, degree-level , or institution-wide basis; (v) average institutional loan indebtedness of graduates of a program, degree-level , or institution-wide basis, if the institution provides institutional loans to its students as defined in 668.28(a)(5)(i); (vi) the percentage of graduates who borrowed private student loans with respect to their attendance at that institution, on a program, degree-level, or institution-wide basis; and (vii) the expected annual loan repayment amounts for the average federal and institutional student loan indebtedness, on a standard 10-year repayment plan and at least one other repayment plan. [Note - we would request preamble language on several issues, including the following: 1. For a program that does not have a SOC code identified to it or salary information to a SOC code on the O*NET site, the institution could provide some alternative information. An institution could simply provide the CIP code for the program and a list of SOC Codes that are associated with that CIP Code. 2. The institution could identify several occupations but must identify the one that the largest percentage enter into, if the institution collects that information. 3. Institutions need to be able to clarify for students that the average data provided may not be accurate for their particular sUuation. 4. For pwposes of allowing institutions to provide actual salary data if they collect it, it is important not to require institutions to disclose any information they may collect, as it may not be comprehensive enough to give good consumer information.] 2 From: Kanter Martha To: Private -Duncan. Ame CC: Yuan. Georgia Date: 4/3/2010 6:00:20 PM Subject: FW: Request for Follow Up Meeting This Week to Discuss Gainful Employment (b)(5) From: Harris Miller [HarrisM@career.org] Sent: Friday, April 02, 2010 1:25PM To: Manheimer, Ann Cc: Brian Moran; Tammy Halligan; Bergeron, David; Madzelan, Dan; Kanter, Martha; Shireman, Bob; Wolff, Russell; Jenkins, Harold; Madzelan, Dan; Picoult, Francine; Finley, Steve; Yuan, Georgia; Smith, Kathleen; Arsenault, Leigh Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Ann: Thank you very much. Attached is the full research report for which I sent you and your colleagues the Executive Summary yesterday. I realize it is a holiday weekend, but I encourage those attending the meeting to read it, if at all possible. It is excellent work done by top notch scholars. I look forward to seeing you Monday. Harris From: Manheimer, Ann [ mailto:Ann.Manheimer@ed.gov] Sent: Friday, April 02, 2010 8:56AM To: Harris Miiier Cc: Brian Moran; Tammy Halligan; Bergeron, David; Madzelan, Dan; Kanter, Martha; Shireman, Bob; Wolff, Russell; Jenkins, Harold; Madzelan, Dan; Picoult, Francine; Finley, Steve; Yuan, Georgia; Smith, Kathleen; Arsenault, Leigh Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Harris- from the Office of the Under Secretary, Bob Shireman, Leigh Arsenault and I will be attending; from the Office of Postsecondary Education, Dan Madzelan and David Bergeron will be attending, and from the Office of General Counsel, Harold Jenkins, Steve Finley, Russ W ol:ff, Steve Finley, and possible, Georgia Yuan, will be attending. We look forward to hearing your presentation- Ann Manheimer, 260-1488 From: Harris Miller [mailto:HarrisM@career.org] Sent Thursday, April 01, 2010 6:04 PM To: Shireman, Bob; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy Halligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting This Week to Discuss Gainful Employment Bob, et.al.: We look forward to the meeting Monday morning at 9 AM at the Department to discuss the gainful employment issue. Attending as part of the CCA delegation will be, in addition to me, Brian Moran, CCA's Executive Vice President for Government Relations, Dr. Jonathan Guryan, University of Chicago, and Dr. Matthew Thompson of Charles River Associates, the leads on the research we will be presenting, Rebecca Campoverde from Kaplan, Anthony Guida from EDMC, and Tom Babel from Devry. If you could please let me know who will be in attendance from the Department, that would be appreciated. Attached you will find three documents. The first is the Executive Summary of the research findings. I will send you the full report tomorrow, Friday. Last minute editing on the full report was delayed by the Passover holiday. Second is the proposal CCA is putting forward as an alternative to the gainful employment proposal put forth by the Department during the negotiated rulemaking. Third is a document that summarizes the extensive tools the government already has to take actions against "bad actors" in our sector. Please let me know if you have any questions or comments. I look forward to a productive conversation Monday. Enjoy the spectacular weather. Harris From: Shireman, Bob [mailto:Bob.Shireman@ed.gov] Sent: Monday, March 29, 2010 10:48 AM To: Harris Miller; Kanter, Martha; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy HaJligan; Manheimer, Ann Subject: RE: Request for Follow Up Meeting Ths Week to Discuss Gainful Employment Work with Ann Manheimer on arranging the meeting. Please send your research and alternative prior to the meeting so we can get concrete and specific in the discussions. Thanks, -Bob From: Harris Miller [mailto:HarrisM@career.org] Sent: Monday, March 29, 2010 10:04 AM To: Kanter, Martha; Shireman, Bob; Madzelan, Dan; Bergeron, David Cc: Brian Moran; Tammy HaJligan Subject: Request for Follow Up Meeting This Week to Discuss Gainful Employment Martha/Bob/Dan/David: CCA would like to have a follow on meeting with you this week to the one Brian Moran and I had with Dan and David ten days ago to discuss a) the results of our research (which was not complete when we met) on the impact of the Department' s gainful employment proposal on students in higher education, and b) an alternative (which we discussed in general concept with Dan and David) to the Department ofEducation proposal . We can make ourselves available at almost any time starting tomorrow. Please let me know whom I should contact to arrange a meeting. Thanks in advance. Harris ***************************************************************** Harris N. Mlll er CEO/President Career College Association 1101 Connecticut Avenue, NW, Suite 900 Washington, DC 20036 harrism@career.org + 1 202 336 6754 Executive Assistant: Jackie McWilliams j ackiem@career. org + 1 202 336 6706 www. career.org [cid:image00l .jpg@OlCAD267.F04D6970] C D A ( River .l'l""\.. As.suc1arcs Prepared For: Harris N. Miller Career College Association 1101 Connecticut Ave. NW, Suite 900 Washington DC 20036 Report on Gainful Employment Prepared By: Jonathan Guryan, Ph.D., Associate Professor of Economics, University of Chicago Booth School of Business Matthew Thompson, Ph.D., Vice President Charles River Associates 1545 Raymond Diehl Road, Suite 260 Tallahassee, FL 32308 Date: April 2, 2010 Report on Gainful Employment April 2, 2010 Disclaimer This report was prepared at the request of Harris Miller and the Career College Association. It is based on data and information that were available at the time of the analyses. If additional data or information become available we may update or modify our report. Page i Report on Gainful Employment April 2 , 2010 Table of Contents 1. WHAT ARE POSSIBLE RATIONALES FOR THIS PROPOSAL? WHAT PROBLEM IS THE PROPOSED REGULATION AIMING TO SOLVE? .... .... .... .... .... .... .... .... ..... .... .... .... 1 2. ARE THE PROBLEMS AS SEVERE AS ASSUMED? .................................................... ? 2 .1. COMPARING STUDENT CHARACTERISTICS .... .... .... ..... ... .... .... .. .. .... .... .... ..... ... .... .... .. .. .... .... .... 8 2 .2. DEFAULT RATES 14 3. WHAT IS THE RATIONALE FOR SUBSIDIZING LOANS FOR HIGHER EDUCATION?16 3.1. WHAT ARE THE BENEFITS OF HIGHER EDUCATION? .. .... ..... ... .... .... ..... .... ..... ... .... .... .. .. .... .... .. 17 3.2. PRESIDENT 0BAMA RECOGNIZES THE IMPORTANCE OF EDUCATION BOTH AS AN ENGINE OF ECONOMIC GROWTH FOR THE COUNTRY AND AS A SOURCE OF ECONOMIC PROGRESS FOR INDIVIDUALS FROM ALL CORNERS OF THE U.S. SOCIAL STRUCTURE ... .. .. .... ..... ... .... .... .... .... ... 18 4. WHAT ARE THE BENEFITS OF AN ASSOCIATE DEGREE EDUCATION IN PARTICULAR? ... ..... ..... ... .... .... .... .... .... ..... .... .... .... ... ..... ..... .... .... .... .... ..... ..... ... .... .... .... ... 20 4 .1. THE PROPOSAL'S FOCUS ON ANNUAL INCOME IGNORES THE OTHER BENEFITS OF EDUCATION:21 5. WHAT EFFECTS MIGHT THE PROPOSED REGULATION HAVE? .... .. ..................... 24 5 .1. WHAT ARE THE EFFECTS OF INCREASED ACCESS TO FUNDING FOR HIGHER EDUCATION AND HOW DO THESE VARY ACROSS DIFFERENT TYPES OF STUDENTS? .. .... .... .. .. .... .... .... ..................... .. 24 5.2. HOW TO MEASURE THE 25 PERCENTILE OF EARNINGS? .... .. .. .... ........... ............ ... .. .... .... .... . 24 5.3. PRELIMINARY ANALYSIS BASED ON DATA SUBMITTED BY CCA MEMBER INSTITUTIONS .... .... ... 30 6. WHAT ALTERNATIVE REGULATIONS OR POLICIES MIGHT BE SUGGESTED TO ADDRESS THE PROBLEM AT HAND? ...... ........ ...... .................................. ........ .......... 36 6 .1. FURTHER CRITICISMS OF THE PROPOSED REGULATION ........................................................ 36 6 .2. TO DIRECTLY ADDRESS THE PROBLEM, REGULATION SHOULD FOCUS ON DISCLOSURE AND ENSURING THAT STUDENTS MAKE INFORMED DECISIONS .... .... .... .. .. .... ..... .................... ..... .... 37 7. CONCLUSION .... .... .... .... .... ............. .... .... ........ ..... .... .... .... .... .... .... ..... .... .... .... .... ......... ... 38 8. APPENDIX A ...... .... .... ..... .... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... .... . 39 Page ii Report on Gainful Employment April 2, 2010 This report addresses the definition of"gainful employment" proposed by the U.S. Department of Education as a part of negotiated rulemaking. At present the proposal would define gainful employment so that a program's students would be required to have a median debt level no greater than 8 percent of the 25th percentile of annual earnings among individuals working in occupations for which that program prepares students. The 25th percentile of earnings would be calculated from Bureau of Labor Statistics (BLS) data, and is presumably meant to be an estimate of the typical starting annual earnings for someone finishing that program. Annual loan payments would be calculated from the median debt level based on a 1 0-year repayment plan using the interest rate on unsubsidized Stafford loans. For programs that do not meet the 8 percent loan-to-income cut-off, an alternative is to have a 90 percent repayment rate for recent graduates. In this document, six basic areas are covered: 1. What are possible rationales for this proposal? What problem is the proposed regu- lation aiming to solve? 2. Are the problems as severe as assumed? 3. What is the rationale for subsidizing loans for higher education? 4. What are the benefits of an Associate degree education in particular? 5. What effects might the proposed regulation have? 6. What alternative regulations or policies might be suggested to address the problem at hand? 1. WHAT ARE POSSIBLE RATIONALES FOR THIS PROPOSAL? WHAT PROBLEM IS THE PROPOSED REGULATION AIMING TO SOLVE? Presumably, the motivation behind the proposed regulation is to protect students from taking on "too much debt". Taking on excessive debt may lead to an inability to repay the debt, resulting in default. There may be a belief that some students agree to borrow so much there is little chance they will be able to repay the loan in the future. There may also be a belief among policymakers that, regardless of whether the loans are eventually paid back, some amounts of debt are too high per se. 1 The proposal's focus on for-profit schools implies that there is a belief that the problems of excessive debt burden and high default rates are either specific to, or more severe at, for-profit schools. There has been no analysis of whether differences in debt levels or differences in default or delinquency rates across types of schools are the result of actions by the schools or due to differences in the types of students that the schools serve. 1 Further, the proposed legislation assumes that individuals do not have the ability to determine appropriate levels of personal debt without government guidance. One argument that the Department of Education may advance is that students do not have all of the necessary information to make informed decisions, and thus government guidance is necessary. Page 1 Report on Gainful Employment April 2, 2010 Later in this document, we address whether in fact it appears that default rates are higher at for-profit schools, and whether some of this difference is a result of serving students from different backgrounds. The focus on for-profit schools suggests that another possible motivation for the proposed regulation is that the Department of Education believes the cost offor-profit programs is too high. This sense that the cost to students is greater at for-profit programs is surely based almost exclusively on a comparison of tuitions. However, the full cost of schooling must also include foregone earnings if the student must cease working to attend school, and other less obvious but very real costs. Since for-profit programs tend to offer more flexibility both in terms of the timing and location of schooling, these types of costs tend to be lower. Compare the costs for a student currently earning $30,000 per year who could continue to work while completing a 2-year for-profit program, but who would have to stop working to attend a community college program because it conflicts with his work schedule. Even if the tuition at the community college were significantly less, the total cost to the student (tuition plus any foregone earnings) is likely lower at the for-profit program. It may be useful to discuss why policy makers should think of high default or debt levels as being something students should be protected from. Consider high default rates. The negative effects of loan default may include future difficulty securing loans. Without these costs, a defaulted loan is similar, from the student's standpoint, to a grant. If there were no long-term penalty from defaulting it would be in the student's interest to borrow monies he will not pay back. Thus, to the extent that the regulation's intent is to protect students, it should be made clear that it should protect students from the penalties associated with default, not from the funding stream that makes an education possible. One might imagine an alternative regulation that was aimed at reducing the number of students who strategically take out loans with no intention of repaying. But, it would seem that such a regulation would focus on the process by which students are approved for loans, and on lenders rather than schools. Next consider the concept of "too much debt". It is important to consider the purpose of the debt before deeming it excessive. As we will discuss later in this document, the standard economic analysis of higher education treats it as an investment. Since education so consistently yields high returns in the form of increased earnings, lower unemployment rates, lower crime rates and even better health and longevity, it can be a smart worthwhile investment to borrow even large amounts to be educated. The question of how much debt is too much can be answered in different ways. The Department of Education proposal focuses on the ability to make the associated loan payments relative to annual income. Another way to view the decision is to ask whether taking on the debt and getting the education increases the present value of a student's lifetime earnings. Those with more education tend to earn more per year. This is of course a benefit.2 This benefit should be weighed against the costs. A significant cost of education typically is to forego earnings while in school. The other main cost is tuition. In Table 1 below, we calculate how much debt a student can take on such that comparing all of the costs and benefits getting more education leads to an increase in lifetime earnings net of the debt costs. Before we turn to these calculations, it may be helpful to consider both the benefits of education and the 8 percent proposed debt limit together. It is widely accepted among academic economists that each 2 There are other benefits of education that will be discussed later. The following calculation is conservative in that it ignores non-income benefits of education. Page2 Report on Gainful Employment April 2, 2010 additional year of education increases earnings by some percentage. This percentage has varied from about 7 to 15 percent over the past 40 years. Recent estimates peg this number currently near 15 percent. This means each year of schooling causes a student's annual earnings to be higher by 15 percent every year that she works. In the first year after school, her earnings are 15 percent higher than they would be if she had not gone to school. It cannot make sense to have a limit on debt payments that is less than the earnings return to education. It does not make logical sense to say that she cannot afford to spend more than 8 percent of her earnings to have that 15 percent bump in pay. If the government "protects" her from making these debt payments, she loses the 15 percent annual bonus, and her expenditures are 8 percent lower. It does students no favors to decrease their earnings by more than you decrease their required expenditures. If she could not afford to make the debt payments, she certainly cannot afford not to make them. She has less discretionary income in the world without the debt payments than she does in the world with the debt payments. This argument ignores the other costs of education, namely the foregone earnings while in school. Thus, this argument does not imply that it is always a good investment to pay up to 15 percent of your income per year to finance the tuition for a year of schooling. However, it very clearly shows that it is wrong to say that someone is unable to pay more than 8 percent of her annual income to finance schooling. Thus, to the extent that the proposal is meant to protect students from taking on debt payments they cannot afford, it is misguided. Here we consider not just whether students can afford these levels of debt, but how much one should be willing to borrow to finance a 2-year program if the goal is to maximize lifetime earnings net of costs. Each row of Table 1 shows the calculation for slightly different situations. In all cases, we consider a student deciding whether to get two additional years of schooling at age 18. Consider the first row. Here we evaluate the choice of a student who would earn $30,000 per year with a High School Degree, and $34,992 per year if she spends two years earning her Associates Degree. This corresponds to an 8 percent increase in earnings for each year of schooling (i.e. an 8 percent "return to education"). This is a fairly conservative estimate that may have been appropriate 30 years ago before returns to education increased so dramatically. Column 2 denotes the rate at which the student discounts earnings and costs that will come in the future. Much of the benefits of education come far in the future so how much these are discounted are important. Column 3 shows the increase in lifetime earnings associated with the extra education, in net present value. In other words, this is how much more someone with an Associate Degree will earn over her lifetime than someone with a High School Degree, properly discounting to account for the fact that much of the benefits will come many years in the future. Column 4 shows the annual loan payments associated with the maximum debt someone could take on to cover tuition costs and still not erase the amount in column 3. Column 5 shows the ratio of that annual debt payment to annual earnings with an Associate Degree. The calculation is repeated for more appropriate 1 o and 15 percent schooling returns, and for a 3 percent discount rate. A 1 o percent return to schooling is closer to estimates of the return per year to a 2-year Page 3 Report on Gainful Employment April 2, 2010 college education (e.g. Kane and Rouse, 1995)3 which are based on the experiences of people who graduated high school in the 1970s and 1980s. Estimates of contemporaneous returns to schooling tend to be closer to 15 percent per year of education (e.g. Goldin and Katz, 2008). Table 1: How much is really too much debt? (1) (2) (3) (4) (5) (6) (7) Maximum annual debt payments Net present for 10 years Debt to Return value of such that income% Annual Debt to per year lifetime education a with max- payments if income% of school- Discount earnings good in- imum 10 paid off over if paid in ing rate difference vestment year loan 20 years 20 years 8% 5% $24,696.74 $3,135.44 9.00% $1,904.92 5.40% 10% 5% $45,783.80 $5,812.60 16.00% $3,531.42 9.70% 15% 5% $100,194.22 $12,720.42 35.00% $7,728.23 21 .30% 8% 3% $57,967.21 $6,786.99 19.40% $4,471.15 12.80% 10% 3% $88,196.71 $10,326.35 28.40% $6,802.83 18.70% 15% 3% $166,197.14 $19,458.89 53.60% $12,819.19 35.30% Note: The calculations are for an individual who would earn $30,000 per year with a high school degree and $34,992, $36,300, or $39,675 with a 2-year associate degree and an 8, 10, or 15 percent return to education per year of schooling. A number of things should be noted from the calculations: The increase in lifetime earnings associated with two additional years of education can be quite large, even for someone who would have earned $30,000 per year without that schooling. For a 10 percent return to education, using a 5 percent discount rate, the lifetime earnings benefit is more than $45,000. This number is net of the cost of foregone earnings during the two years while she is in school. 4 This calculation implies that someone who is trying to maximize her lifetime earnings should be willing to pay $45,000 for those two years of education. Paying anything less than that in tuition, the schooling will benefit her over the course of her life. 3 This paper, co-authored by current member of the President's Council of Economic Advisors (CEA) Cecilia Rouse, shows that community college and other 2-year programs yield approximately the same returns per credit hour as 4-year colleges. 4 If an individual is able to continue working while completing her two year education this benefit increases by as much as $60,000, the current cost of foregone earnings. Page 4 Report on Gainful Employment April 2, 2010 The net present value of the increase in lifetime earnings depends significantly on how future earnings streams are discounted. The more the future is discounted, the lower the benefits of education are. Using a 3 percent discount rate, the lifetime earnings benefit of a 2-year degree is almost $90,000 if the return is 1 o percent per year of schooling. The return to education matters enormously in determining how much individuals should be willing to pay for schooling. If the return is 15 percent per year, the present value increase in earnings from a 2-year program is more than $100,000 even using a 5% discount rate. The Department of Education proposal essentially almost completely discounts (i.e. ignores) all future benefits of education by focusing on the ability to pay in the years immediately following the finish of school. This is present in the choice of estimated starting salary (i.e. the 25 1 h percentile annual earnings) as the ability to pay, in the focus on repayment rates among recent graduates, and in the use of the 10-year repayment schedule to calculate loan payments. The proposed regulation is misguided in that it is not a function of the benefits of education. If the returns to education were to continue to rise, as they have for the past 30 years, students would be restricted from borrowing more to get this valuable training. Only the children of the rich (i.e. those who could afford to pay tuition without borrowing) would be able to get this valuable education. Using a 5 percent discount rate, and assuming a 10 percent return to schooling, a student who would earn $30,000 per year with a high school education would earn $45,784 more over her lifetime if she gets an Associate Degree. This calculation accounts both for the fact that she would spend two years early in her life earning nothing while she is in school, and that the higher earnings associated with education will come in the future. If she is able to work while in school then the increase in lifetime earnings is even greater. The student described above could pay close to $45,000 in tuition for the two years of schooling and still end up ahead. If she borrowed to cover all of these tuition costs, her annual loan payments would be $5,813 for the ten years she spends repaying, and in this time her loan payments would be 16% of her annual earnings (double the Department of Education limit). While it would surely be difficult to make the payments during the 1 0-year repayment period, the calculation shows that even taking on this high level of debt is a good investment for the student. Any restriction on borrowing that is more stringent than the levels shown in Table 1 will lead the student described to earn less over her lifetime. One reason the loan payments in the table may appear high, even though taking on this much debt is a good investment for the students, is that the repayment horizon is shorter than the time during which the benefits of education accrue. The proposed regulation's use of a 1 0-year repayment rate is another way in which it ignores the future benefits of education. If the student were to pay back over 20 years instead of 10, the loan payment to income ratio for the student described above would be 9. 7 percent rather than 16 percent. For the 8 percent return to education calculation, the 20-year loan payment to income ratio would be 5.4 percent rather than 9.0 percent. For a 15 percent return to education, the calculations indicate that one should be willing to pay approximately 20 percent of his income for a 20-year repayment period. The reason this increases lifetime earnings is that 15 of that 20 percent is accounted for by the earnings increase resulting from Page 5 Report on Gainful Employment April 2, 2010 the schooling. For the working years after the loan is repaid, the 15 percent benefit is enjoyed with no cost. A major part of the costs of education considered in the calculation is the foregone earnings the student gives up if she attends school full-time. Schools that allow students to work and earn money while in school are therefore less costly, even if the tuition charged is the same. The calculations above would indicate a higher debt ceiling if foregone earnings were not considered as a cost. The calculation above assumes that the difference in earnings between college and high school educated individuals is the same at all ages. If instead the earnings of college educated students start similar to those of high school educated students but grow faster, the role of discounting the future is even more important. Illustration: If the 8 percent loan limits were applied to medical school Doctors spend much of their early years earning pay that is lower than they will earn in the long run, but continuing to train on the job. Much of the earnings benefits of a medical education come when doctors are far into their career. For such occupations, restricting debt levels to an amount that can be repaid given early-career earnings would preclude borrowing for extremely valuable investments. Furthermore, the lifetime benefits of a medical degree are quite large. Thus, for many it is worth making the investment of time and large sums of money to obtain the degree. This is the case even though it is typical for doctors to leave medical school with significant debt. Here we show that if loan payments for medical school were limited to be 8 percent of the early earnings of doctors, medical education would be largely restricted to students who could pay tuition costs without much borrowing. In this case doctors would largely be drawn from wealthy families. The vast majority of racial minority students and students whose parents have less than a college education would not be allowed to become doctors. In fact more than half of the households in the U.S. do not have a net worth high enough to pay the amount of medical school tuition that would not be covered by loans. To complete the calculation, we use the median medical school tuition for non-resident programs from the Association of American Medical Colleges web site. We ignore the costs of a medical education incurred during residency years. The median four-year tuition at medical school is $168,840. If someone financed 80 percent of this, it would require borrowing $135,072. To pay this loan back over the 1 0-year horizon at the unsubsidized Stafford loan rates would require an annual loan payment of $19,054 (or $1 ,588 per month). To satisfy the proposed 8 percent criteria, someone would have to earn an annual salary of $238,173. Payscale.com indicates that the typical annual salary of a doctor with 1-4 years of experience is, in fact, $140,000. Given these calculations, the median medical school would not meet the proposed standards. We can also ask who would be able to afford medical school tuition if borrowing were only allowed up to the limit implied by the 8 percent standard. Using the $140,000 annual salary, the maximum debt that leaves annual payments no more than 8 percent of annual earnings is $79,397. Thus, to be able to attend medical school, students and their families would have to find the funds to cover more than half of the tuition costs, or $89,443. Page6 Report on Gainful Employment April 2, 2010 Table 2: Paying for Medical School Median non-resident medical school tuition, 2009-10 Total tuition, 4 years non-resident Debt required to pay 80 percent of tuition Annual loan payment with 10 year repayment Annual earnings required to satisfy 8 percent rule Median salary of Doctors with 1-4 years experience Maximum allowed debt to satisfy 8 percent rule Remaining tuition that would have to be paid without borrow- ing Source: AAMC.org, Payscale.com. (http :1/services.aamc.org/tsfreports/report_ median .cfm?yea r _of_ study=201 0) $42,210 $168,840 $135,072 $19,054 $238,173 $140,000 $79,397 $89,443 How many families in the U.S. have the ability to pay nearly $90,000 without borrowing? The Survey of Consumer Finances, sponsored by the Federal Reserve Board, indicates that in 2007, about one-third of U.S. households had total net worth less than $90,000. This means that students living in about this fraction of households would be precluded from becoming doctors. Many households who have slightly more than $90,000 in net worth hold a good deal of that wealth as housing equity, meaning that they would have to choose between owning a home and allowing their child to become a doctor. For minority students, the problem would be even worse. The median net worth of non-whites and Hispanics in 2007 was $28,200. Thus, the vast majority of non-white and Hispanic students would likely not be able to become doctors, regardless of their potential for success. 2. ARE THE PROBLEMS AS SEVERE AS ASSUMED? The Department of Education's proposal presumably aims to address a specific perceived problem. In this section we explore whether that problem is as severe as might be thought given summary measures comparing for-profit and not-for-profit schools. What is the problem that the proposal aims to address? We suspect that the Department of Education sees the following problem: (a) a significant number of students take on more debt than they can afford to repay upon entering the labor force and (b) this problem is more severe for students who attend for-profit schools. We infer the latter because the proposed regulation treats for-profit schools differently than not- for-profit schools. Here we address whether it is the case that default rates are strongly related to the for- profit status of schools. The data strongly suggest that a large portion of the difference in default rates between for-profit and not-for-profit schools is because for-profit and not-for-profit schools serve very different student populations. For-profit schools are more likely to serve low-income, minority students. Page? Report on Gainful Employment April 2, 2010 without parental support. They are more likely to serve students who are the first in their families to attend college. Because of their access to outside resources, these groups of students are more likely to default at both for-profit and not-for-profit schools. We estimate that if for-profit and not-for-profit schools served the same population of students that the default rates would be significantly closer across the types of schools. One might effectively argue that it is bad public policy to punish institutes of higher education for serving students from groups who historically have not had wide access to schooling. Furthermore. in part because the student populations are different, persistence rates at for-profit and not- for-profit schools are different. Students who complete higher education programs are more likely to find the jobs for which those programs prepare students. Some of the difference in default rates across types of schools is accounted for by the higher completion rates at not-for-profit schools (particularly 4-year programs). It would also seem to be bad policy to punish schools for the decisions by students not to complete. At the very least, such a policy punishes the students who work to complete the program by restricting access for all students, not just those who fail to complete. Here we lay out the data on which the former conclusions are based. First, consider the difference in characteristics of students by the type of school attended. Specifically, the data below come from the Beginning Postsecondary Students Longitudinal Study, 1996 cohort. This is a survey administered by the U.S. Department of Education that follows a nationally representative sample of students who entered postsecondary education for the first time in 1996. We focus on this cohort of students rather than more recent data because a follow-up survey has been done that allows for measurement of default rate by this cohort. 2.1. COMPARING STUDENT CHARACTERISTICS A series of figures shows that the demographic and socioeconomic background of students attending for- profit and not-for-profit are different in systematic ways. All comparisons are based on the fi rst institution attended, so those who begin at community college and transfer to a 4-year institution are categorized as community college students. We first examine the characteristics of students who entered postsecondary education in 1996, because these are the students for whom we can track default rates in the NCES data (BPS) . For comparison, we also show comparable figures (Appendix A) calculated from the 2008 National Postsecondary Student Aid Study (NPSAS:08). Figure 1 below shows the average age at which students begin postsecondary schooling. Beginning students at for-profit schools are on average 25 years old. Students at not-for-profit public and private programs of 2 years or less are on average 22-23 years old. In contrast, students entering 4-year not-for- profit colleges are significantly younger, less than 19 years old on average. This difference shows that the set of students entering these different programs are not the same. Though most of the differences between for-profit and not-for-profit college students have held up since 1996, this is one that has changed. While for-profit students continue to be older when they begin, the average age difference is much closer today than it was in 1996. Page 8 Report on Gainful Employment April 2, 2010 Figure 1: Average age at which students first enroll in postsecondary schooling 26.0 25.0 24.0 (I) 23.0 0) <U (I) 0) 22.0 <U Qj ~ 21.0 20.0 19.0 18.0 For-profit Private not-for- Private not-for- Publi c <=2 Publi c 4-year profit <=2 profit 4-year Age first enrolled Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Next, we tum to the average income of students and/or their parents (Figure 2) . Specifically, we consider the total income of either parents (for those who are dependents) or students (for those who are independent at the time they apply) . Students at for-profit schools have the lowest income, prior to entering college, of any group. VVhereas the average prior family or individual income of students entering for-profit schools was $22,165 (in 1996 dollars), it was 71 percent higher among public 2-year-or- less students, 154 percent higher (i.e. more than 2 %times) among public 4-year students, and 178 percent higher (i.e. close to 3 times) among private 4-year students. Page 9 Report on Gainful Employment April 2, 2010 Figure 2: Average income of parents or independent students prior to school entry $70.000 ~ $60.000 $50.000 Q) E 0 $40.000 (.) c Q) 0'1 ! $30.000 ,_ ~ <{ $20.000 $10.000 $0 For-profit Private not- Private not- Publi c <=2 Publi c 4-year for-profit <=2 f or-profit 4-year Average income. parents or independent. 1994 Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. For-profit students do not just come from families with lower average income, they are also more likely to come from families that are quite poor. Consider the percent of students whose families collected AFDC (Aid for Families with Dependent Children, the precursor to TANF, and commonly known as "welfare"). Figure 3 shows a full 16 percent of students who began at for-profit schools in 1996 came from families collecting AFDC. This was more than double the rate of students attending not-for-profit 2-year-or-less programs. At publ ic and private not-for-profit 4-year programs the corresponding rates are 2.6 and 1.6 percent. Page 10 Report on Gainful Employment April 2, 2010 Figure 3: Percent of students from families who received AFDC prior to school entry 18 16 14 _,_ 12 _,_ - 10 c - <1> 0 lii a.. 8 ~ - 6 -'- 4 _.___ 2 - '- - 0 L::_::_::_::_::_::_: 1;.;.:.:-:-:-:-.' L .I " For-profit Pri vate not-for- Privat e not-for- Publi c <=2 Publi c 4-year profit <=2 profit 4-year Percent receieved AFDC. 94-95 Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Students attending for-profit schools are also significantly more likely to be single parents at the time they begin school. A full 28.5 percent of for-profit students were single parents prior to beginning school in 1996. At not-for-profit 2-year-or-less programs, less than 12 percent were single parents upon entering. At 4-year programs single parents were extremely rare, less than 2 percent of students (Figure 4 below). One interesting thing that has changed is that single parents are more likely today to attend college than they were in 1996, but they are still significantly more likely to attend for-profit schools. Page 11 Report on Gainful Employment April 2, 2010 Figure 4: Percent of students who were single parents prior to school entry 30 ~ 25 20 c <ll 15 0 .... <ll Q_ 10 For-profit Private not-for- Private not-for- Publi c <=2 Publi c 4-yeal' profit <=2 profit 4-year Percent single parent. 1995-96 Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Students at for-profit schools are also the first in their immediate family to attend college. Figure 5 shows the fraction of students at each school type who have at least one parent with at least some college education. The figure shows that these rates are lower at for-profit schools, particularly when compared with 4-year not-for-profit schools. Page 12 Report on Gainful Employment April 2, 2010 Figure 5: Percent of students whose parents attended at least some college 80.0 70 0 For profit Not for profit r-- -- -- ,__. r-- 600 ,.- 500 - f.-- r--- c 4> 40.0 e 4> Q. r----",.- -- - r--- r-- 300 - - '----- c-
uf; Prrvate for Pnvate lor Prrune for Public less- Public 2-year Public 4-year Prrvale not-fo1- Pnvate not-for- prolit,less-thao- prol>l, 2-yeat profit. 4-year than-2-year 2-year profn 4-year 2-year Percent whose pare11ts have some college or more Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. Finally, Figure 6 shows that for-profit schools are much more likely to serve students from racial and ethnic minority groups. The fraction of students at for-profit schools who are either Black or Hispanic was 43.9, 37.2 and 51.4 percent at less than 2-year, 2-year and 4-year programs respectively. Private not-for- profit less-than-2-year programs also are likely to serve Black or Hispanic students (35.9 percent) . However, the share of students who are Black or Hispanic at all other not-for-profit school groups was less than 25 percent. Page 13 Report on Gainful Employment April 2, 2010 Figure 6: Percent of students who are Black or Hispanic 60 0 500 40.0 c: 30.0 "' 0.. 2().0 ...._.. 100 00 For profit Not for profit Pmatetor prol'lt, tess4han. 2,yea Puva!e not-for PriVate noHot Pt<Yale not-tor Pubht tess. Publie2-year Publit .t-year profit tess-tha.,. profit 2-year profil4-year than 2Yel 2-year
Notes: Calculated from the Beginning Postsecondary Students Longitudinal Survey, 1996 Cohort. 2.2. D EFAULT RATES Using the same Beginning Postsecondary Students Longitudinal Survey data, we also compared 6-year default rates of students at different types of schools. The default rate is computed as the fraction of students in the 1996 entering cohort with any student borrowing who ever default by 2001. This is calculated in the same way as Mark Kantrowitz did in his recent report. The light blue bars in Figure 7 below show the raw default rates of students starting in different types of schools. All for-profit students are considered together. Because sample sizes are small in particular groups, less-than-2-year and 2-year schools are combined. Without adjusting for the differences in student background across the different school groups, the 6-year default rate is significantly higher at for-profit schools than at not-for-profit schools. At for profit schools, almost 25 percent of the 1996 cohort borrowers defaulted on at least one loan at some point by 2001. The default rate is 17.1 percent at private not-for-profit 2-year-or-less programs, and 8.5 percent at public not-for-profit 2-year-or-less programs. The rates at not-for-profit 4-year programs are both around 6.3 percent. Page 14 Report on Gainful Employment April 2, 2010 Figure 7: 6-year default rates by type of school, controlling for student characteristics 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% For-profit Pri vate NFP 2- Pri vate NFP 4- Publi c 2-year or Publi c 4-year year or less year less Default rates Default rates. controlling for race. gender. fami ly income. persi stence. Peii/AFDC receipt. single parenthood Notes: Calculations from the Beginning Postsecondary Students Survey: 1996 cohort and 2001 follow-up. The light bars show the fraction of students beginning in each type of school in 1996 who ever defaulted by 2001 . The dark bars show the default rates after controlling for race, gender, persistence and completion, Pell grant receipt in 95-96, family AFDC receipt in 94-95, parent or own income (if dependent), and dependency status. The dark blue bars show our estimates of what the default rates would be if all schools had similar entering student bodies. To estimate this, we run a regression of individual students' default status on controls for their race/ethnicity, gender, family income, dependency status, whether they persisted or completed their program, and whether they received a Pell grant. The dark blue bars show what we estimate the default rates would be if all schools served white male students who are dependent, whose parents earn between $60-75K per year, who completed their programs and who did not receive a Pell grant. The estimates show that if all schools served similar students with similar backgrounds and who completed their programs, the differences in default rates between for-profit and not-for-profit schools would narrow considerably. Whereas the difference in 6-year default rates between for-profit and public 4-year schools is 18.3 percentage points (24.6- 6.3) without controlling for the differences in student characteristics, this difference is almost cut in half to 9.6 percentage points (12.2- 2.6) when adjustments for student characteristics are made. This measure of default also overestimates the difference because students in shorter programs have more time to default by 2001 . Furthermore, this narrowing is what Page 15 Report on Gainful Employment April 2, 2010 happens when adjustments are made for the characteristics that are observed in the BPS data. One might suspect that there are other dimensions along which for-profit and not-for-profit students are different. It is possible that if we had data on those characteristics and were able to adjust for them that the difference in default rates would narrow more. In addition to narrowing the difference in default rates between for-profrt and not-for-profit students, adjusting for student characteristics also lowers the default rate at for-profit considerably. These estimates imply that the default rate at for-profrt schools would be cut in half (from 24.6 to 12.2 percent) if for-profit schools served wealthier non-minority students, and students who were more likely to complete. 3. WHAT IS THE RATIONALE FOR SUBSIDIZING LOANS FOR HIGHER EDUCATION? The standard economic analysis of education considers the choice of an individual whether to get an additional year of schooling. 5 In this standard way of thinking, individuals weigh the costs and benefits of schooling. The costs are the earnings foregone if one attends school full time, and tuition/fees. The benefits include increased earnings in future years. Individuals choose to get more education so long as the benefits are larger than the costs. Education is an investment, meaning that the costs are paid up front and the benefits come in the future. To properly weigh the costs and benefits, one must discount benefits that will not be realized for many years. To simplify things, use the interest paid on savings accounts or the expected return on personal investments as the discount rate. Now consider the education choice of two students: one who has enough personal or family wealth to pay tuition costs out of savings, the other who must borrow to finance the tuition costs. For someone who would pay tuition costs out of savings, the decision comes down to comparing the present value of increased lifetime earnings (the benefits) to the foregone earnings while in school and the tuition (the costs) . If the benefits are greater than the costs, then the student should continue in her schooling. If the costs are larger than the benefits, she should end her schooling and begin working.6 Compare this decision with someone who must borrow to pay the tuition costs. This student must consider as costs the additional interest payments associated with the loan. Those payments must be paid in the future. If the interest rate on the loan were equal to the interest rate used for discounting (in this case the interest paid on savings) , then the decision would be the same for both students. Since the unsubsidized interest rate charged on student loans is typically higher than the interest rate paid on savings accounts, the cost of furthering education is higher for this student. 5 The standard reference is Human Capital by Gary Becker (University of Chicago), who won the Nobel Prize in Economics for this and other work. 6 Vllhile it is necessary to consider as a cost the interest she does not earn on the money she takes out of saving to pay tuition, these interest payments are discounted because they would have happened in the future. If we use the savings account interest rate as the discount rate, the discounting eliminates this from consideration. Page 16 Report on Gainful Employment April 2, 2010 In short, because borrowing interest rates are higher than savings interest rates, the cost of schooling is higher for those who must borrow to pay for higher education. Because these students almost by definition come from poorer families, this problem creates access differences that relate to wealth, socioeconomic status, and race. Subsidies for student loans are meant to narrow the difference between borrowing and saving interest rates so that the costs of education are less related to family wealth. Any restriction of access to debt financing for higher education will have the effect of decreasing access more for poor and minority students. This is completely at odds with the intent and spirit of the Higher Education Act. Notice that the economic analysis of the schooling decision does not depend on the level of earnings. Instead, it focuses on the increase in earnings resulting from the schooling. The proposal's focus on the ability of students to pay back their loans quickly leads it to focus on the level of earnings. This will have the effect of differentially punishing students with poor labor market prospects and who would gain the most from higher education. Students with poor labor market prospects would have low earnings, and likely high unemployment rates, without any higher education. Among these students, the ones who would benefit greatly from additional focused schooling may end up in occupations with low earnings. But, these earnings may be much higher than the student's personal alternative. The proposal would limit how much this student could borrow based on the low level of earnings, and not based on the large gains that would be realized from the doors opened by education. 3.1. WHAT ARE THE BENEFITS OF HIGHER EDUCATION? Education is widely recognized as a source of social mobility. Though the US is regarded as a "land of opportunity," correlations in earnings between fathers and sons are actually quite high. To understand how much social mobility there is in the U.S., consider a family of four right at the poverty threshold. Based on the best current estimates, it would on average take the descendants 5 or 6 generations before their income is within 5 percent of the national average.? What's more, studies find less social mobility among families with low net worth, suggesting that the inability to borrow restricts social mobility. In other words, restrictions on borrowing (coming from poorly functioning credit markets and high interest rates) makes being bom into wealth or poverty quite determinative of earnings in adulthood. One large reason for the effect of net worth and borrowing constraints on intergenerational mobility is likely access to schooling. As an example consider the economic progress made by African Americans during the past century. While legislative changes such as the Civil Rights Act of 1964 have led to significant progress in reducing discrimination, economic research suggest very strongly that improvements in educational opportunities for blacks have been more important. Until recently successive cohorts of blacks have obtained progressively more education, and in turn their earnings have caught up to whites. 7 Mazumder, Bhashkar, "Fortunate Sons: New Estimates of lntergenerational Mobility in the United States Using Social Security Earnings Data," Review of Economics and Statistics 2005. Page 17 Report on Gainful Employment April 2, 2010 One of the most important ways in which the labor market in the U.S. has changed in the past 30 years is that the benefits of education have increased dramatically. Those with more education have always earned more on average than those with less. But, the difference in earnings between those with and without a college education has increased sharply since 1980. In 1980, 4-year college graduates earned about 40 percent more (about 1 o percent per year of additional schooling) than comparable high school graduates. By 2005, the benefit of a college education was more than 70 percent (almost 18 percent per year of schooling) . It is more important than it has been since the 1920s to be educated, and more important than ever to get education beyond high school. The changes that have led to this dramatic increase in the monetary benefits to education have also led to very high levels of inequality. The difference in earnings and economic well-being between the rich and the poor is also as large as it has been since the early part of the 20 1 h century. And, how much education you have is significantly determinative of which side of that inequality you lie on. Those with more education have benefited from the rich getting richer in the past 30 years. Those with less education have been hurt terribly by the poor getting poorer during that same time. All of this argues strongly that is as important as it has ever been to assure that all students who will benefit have access to higher education. The social costs of restricted access are larger than they have been in almost a century. 3.2. PRESIDENT 0BAMA RECOGNIZES THE IMPORTANCE OF EDUCATION BOTH AS AN ENGINE OF ECONOMIC GROWTH FOR THE COUNTRY AND AS A SOURCE OF ECONOMIC PROGRESS FOR INDIVIDUALS FROM ALL CORNERS OF THE U.S. SOCIAL STRUCTURE. In a Washington Post column, published on July 12, 2009, President Obama called for increase in 5 million students with certificate or associate degree in the next 1 o years. Here are two quotes from what he wrote: "In an economy where jobs requiring at least an associate's degree are projected to grow twice as fast as jobs requiring no college experience, it's never been more essential to continue education and training after high school. That's why we've set a goal of leading the world in college degrees by 2020. Part of this goal will be met by helping Americans better afford a college education." Barack Obama, The Washington Post, July 12, 2009. we believe it's time to reform our community colleges so that they provide Americans of all ages a chance to team the skills and knowledge necessary to compete for the jobs of the future. Our community colleges can serve as 21st-century job training centers, working with local businesses to help workers team the skills they need to fill the jobs of the future. We can reallocate funding to help them modernize their facilities, increase the quality of online courses and ultimately meet the goal of graduating 5 million more Americans from community colleges by 2020." Barack Obama, The Washington Post, July 12, 2009. What the President calls for cannot be done without increasing the capacity of community colleges and for profit schools. Even with increased federal support, community colleges will face funding problems as states continue to deal with severe fiscal problems. By decreasing access to the specific programs the President wants to increase, the proposal will make the President's goal almost surely unattainable. The for-profit education sector will be essential in helping the President to achieve this goal. For example, consider that enrollment at for-profit colleges has grown significantly more than at non-profit Page 18 Report on Gainful Employment April 2, 2010 schools. In other words, as the demand for higher education has increased in recent years- likely as a response to the increased returns described above- the non-profit sector has not been able to meet that need. The for-profit sector has. Consider the growth rates of enrollment in public, private not-for-profit and private for-profrt colleges over the past 5, 1 o and 20 years. Overall enrollment in higher education has grown by more than 2 percent per year during the past 10 years. Capacity at neither public nor private not-for-profit colleges has grown fast enough to keep up with this increased demand. Note that some of this demand comes from natural population growth, while some comes from an increased desire to get a college education due to the high returns. Capacity growth in the not-for-profit (public or private) sectors has not matched the overall increase in demand for higher education over either the last 5, 10 or 20 years. Table 3: Five, ten and twenty year enrollment growth by type of institution, through 2007 Private Private Not-for- For- Total Public profit profit Total percent growth in enroll- ment: 20 years 39.78% 32.80% 33.60% 438.23% 10 years 25.79% 21 .10% 18.80% 225.60% 5 years 9.85% 5.80% 9.40% 99.60% Average annual growth rate: 20 years 1.70% 1.40% 1.50% 8.80% 10 years 2.30% 1.90% 1.80% 13.70% 5 years 1.90% 1.10% 1.80% 14.80% Source: Digest of Education Statistics, 2008, Table 188. During that same time, the private for-profit sector has grown to meet the needs of students not-for-profit schools cannot serve. Enrollment growth rates have been significantly higher. Though the private for- profit sector is smaller than the other two sectors, the significantly higher growth rates have ensured that overall enrollment could increase. To meet President Obama's call for 5 million more Associate degree or certificate holders from 2-year programs, capacity will have to increase in some or all of these sectors. Fiscal difficulties in the states are likely to restrict community colleges and state colleges from meeting this need, even with increased funding called for by the President. Given the historical role of for-profit schools in meeting increased demand, it is likely that these schools will be the most able to expand quickly in response to this need. Restrictions on student borrowing will curtail the for-profit sector from meeting these needs, and will make it less likely that the President's goal will be met. Page 19 Report on Gainful Employment April 2, 2010 4. WHAT ARE THE BENEFITS OF AN ASSOCIATE DEGREE EDUCATION IN PARTICULAR? The Bureau of Labor Statistics administers a survey each month called the Current Population Survey. This is the survey that is used to calculate the official unemployment rate that is released each month as a barometer of the health of the economy. In that survey, individuals are asked questions about their employment status, earnings, educational attainment and demographic information. Since 1996, individuals have also been asked about their access to health insurance. The following table presents estimates of the difference in various outcomes between those with an Associate degree and those with exactly a high school education. We look separately at "academic" and "vocational/occupational" Associate degrees. All estimates control for individuals' years of labor market experience, and for changes over time in the outcomes that affect all individuals in the same way. Positive effects on annual earnings: The way to read the table is the following. The first row shows how much more those with an Associate degree earn on an annual basis than those with a high school degree. For example, males with a Vocational/Occupational Associate degree earn 23.2 percent more each year than males with a high school degree. If the average Associate program were 2 years, this would correspond to an 11 .6 percent earnings return to each year of schooling. Table 4: The Benefits of an Associate Degree Education Benefit of Associate degree or some college, relative to a high school education for: Annual earnings Percent employed full time Percent employed Percent with employer sponsored health insurance Percent with any health insurance Males Associate: Vocational/ Associate: Occupational Academic 23.20% 3.50% 2.60% 10.10% 9.10% 27.40% 2.10% 2.50% 8.70% 9.30% Females Associate: Vocational/ Associate: Occupational Academic 27.20% 30.30% -2.00% -0.70% 0.20% 0.50% 6.40% 8.40% 5.30% 6.70% Note: Regression estimates from the Current Population Survey. The table shows the difference in various outcomes between those with an Associate degree and those with exactly a high school education. Two types of Associate degrees are considered, vocational/occupational and academic. These self-reported by the respondents to the Current Population Survey according to the guidelines described by the Bureau of Labor Statistics. Men who go on to get a vocational Associate degree earn 23.2 percent more each year than comparable high school graduates. The return to an academic Associate degree is slightly larger for men -a 27.4percent increase in annual earnings. For women, the returns are even higher. Women who get a vocational Associate degree earn 27.2 percent more than high school graduate women, and women who Page 20 Report on Gainful Employment April 2, 2010 get an academic Associate degree earn 30.3 percent more than women who stop schooling after completing high school. Positive effects on employment for men: The benefits of an Associate degree extend beyond the earnings of those who work. Men with a vocational Associate degree are 3.5 percent more likely to be employed than high school graduates. Men with an academic Associate degree are 2.1 percent more likely to be employed than high school graduates. For women, there is no corresponding effect on employment. Women with Associate degrees are actually less likely to be employed full-time than high school graduates, but equally likely to be employed. Though there is no effect on employment for women, it appears (based on the earnings effects and the health insurance effects discussed below) that those who work are in better jobs than they would be if they did not get the additional education. Positive effects on health insurance: An Associate degree education also helps to reduce the number of uninsured. There is of course great interest currently in access to health insurance. For both men and women, those with an Associate degree are significantly more likely to have health insurance. As compared with high school graduates, men with a vocational Associate degree are 10.1 percent more likely to have employer provided health insurance and 9.1 percent more likely to have health insurance of any kind. Men with an academic Associate degree are 8.7 percent more likely to have employer provided health insurance and 9.3 percent more likely to have health insurance of any kind. Women with a vocational Associate degree are 6.4 percent more likely to have employer provided health insurance and 5.3 percent more likely to have health insurance of any kind. Men with an academic Associate degree are 8.4 percent more likely to have employer provided health insurance and 6.7 percent more likely to have health insurance of any kind. 4.1. THE PROPOSAL'S FOCUS ON ANNUAL INCOME IGNORES THE OTHER BENEFITS OF EDUCATION: Academic research has shown that there are many benefits of education beyond the large increases in annual income. Reduced unemployment: The proposed regulation is based on the 25 1 h percentile of earnings among those working. But, individuals with more education are less likely to be unemployed. It is perfectly rational for a student to be willing to pay more than 8 percent of her annual income to avoid joblessness. Insulation from recessions: Recessions typically hit the least educated the most severely. Consider the current recession and the unemployment rates of people with different levels of education, in January 2008, January 2009 and January 2010, shown below. Page 21 Report on Gainful Employment April 2, 2010 Table 5: Unemployment Rates by Schooling Level Jan- Jan- Jan- 08 09 10 Less than HS 7.7% 12.4% 15.2% High School 4.6% 8.1% 10.1% Associate or Some College 3.6% 6.4% 8.5% Bachelor or more 2.1% 3.9% 4.9% Source: The Employment Situation, Bureau of Labor Statistics. First, notice that even in normal economic conditions, such as January 2008, unemployment rates are strongly related to schooling levels. In addition to earning less, those with fewer years of schooling are much more likely to experience unemployment. This is true when comparing students with a high school education to students with some college and/or an Associate degree. Second, notice that the increase in unemployment rates that has happened during the current severe recession has impacted all groups, but the less educated more than others. Those with a high school education saw their unemployment rates increase from 4.6 to 10.1 percent over the last two years, a 5.5 percentage point increase. In comparison, those with some college or an Associate degree saw their unemployment rate increase by 4.9 percentage points. It is typical that recessions are differentially burdensome on the least educated. Furthermore, the most recent employment numbers for February 201 o show that while the overall unemployment remained steady at 9.7 percent, this obscures very different experienced for more and less educated Americans. For those with less than a high school degree and high school graduates, the unemployment rate rose by 0.4 percentage points (15.2 to 15.6 percent for high school dropouts; 10.1 to 10.5 percent for high school graduates) . For those with a Bachelor's degree or more, the unemployment rate remained essentially unchanged, rising from 4.9 to 5.0 percent. The only education group for which the unemployment rate fell significantly this month was those with an Associate degree or some college. For this group, the unemployment rate fell by 0.5 percentage points, from 8.5 to 8.0 percent). Increased access to health care and health insurance: As shown above, those with more education are more likely to have both employer-provided health insurance and any health insurance at all. This relationship is partly explained by the positive effect of schooling on the likelihood of being employed, and partly explained by the effect of education on income. Those with more income are more likely to be able to afford health insurance. For this reason, and possibly because more educated people make more informed decisions regarding the management of their own health, individuals wffh more education tend to be healthier. Their mortality rates are lower, they are less likely to smoke, more likely to exercise, more likely to engage in preventative care, more likely to properly manage chronic conditions such as diabetes. Page 22 Report on Gainful Employment April 2, 2010 "In 1999, the age-adjusted mortality rate of high school dropouts ages 28-64 was more than twice as large as the mortality rate for those with some college (Lyert et al. 2001 , table 26)."8 Comparing across countries, those with higher average education levels have longer life-expectancy at birth (i.e. people live longer in countries with more educated populations) . Some argue that this relationship is just an association, that either health causes people to get more education, or that there is a third factor that causes both health and education to rise together. There are, however, policy experiments that suggest this relation may be causal -that increasing education may cause improvements in health. Various studies show that laws that require children to complete more years of schooling (increases in the compulsory schooling age) lead to improvements in health when those kids become adults.9 Educated mothers also have healthier babies: One study shows that increases in the number of colleges nearby increases the likelihood that women attend college, and in turn makes them more likely to have healthy babies. The study finds that the women were more likely to obtain prenatal care, and less likely to smoke and drink alcohol during pregnancy. They were also more likely to be married at the time they gave birth and had fewer children.10 Reduced criminality: There is evidence that obtaining more education makes it less likely that someone will engage in crime. A study by Lochner and Moretti (2004) finds that compulsory schooling laws reduce the likelihood that people become incarcerated. The effect is large for whites, and even larger for blacks. They estimate that there is an additional15-25 percent benefit to each year of education in the form of reduced crime that is not accounted for by the increased earnings that educated people enjoy. In other words if we consider the reduced cost of crime imposed on society because of education, the total benefit of education should be 15-25 percent larger than the increase in earnings that results from the additional schooling. General fulfillment: In addition to the benefits of education that are easily measurable, surely education and learning brings some direct satisfaction. To the extent that students enjoy learning new ideas and new skills, these are real benefits and they are not accounted for as a benefit of education if we just focus on monetary earnings. People buy things all the time that bring them pleasure but no monetary return. For example, consider vacations, televisions, tickets to sporting events, clothing, food. None of these purchases increase earnings, but no one would dispute that these are reasonable things to buy. To point out that the proposed regulation is misguided as a way to protect students from borrowing too much, consider the following. Would there be support for a regulation that restricted individuals from spending more than 8 percent of their annual earnings on food? This may sound ridiculous, but the logic is quite similar to the proposal's. Through its effects on schools, the proposed restriction intends to protect students from spending more than 8 percent of their annual earnings to be educated. Put this 8 Quoted in "Education and Health: Evaluating Theories and Evidence" chapter 2 in Making Americans Healthier: Social and Economic Policy as Health Policy, ed. Robert F. Schoeni, James S. House and George A. Kaplan, Russell Sage Foundation, 2008. 9 See e.g. Lleras-Muney, 2005; Oreopolous, 2003; Arendt, 2005; Spasojevic, 2003. 10 Currie and Moretti, 2003. Page 23 Report on Gainful Employment April 2, 2010 way, the declaration that this is too much to spend on education is not very different logically from a declaration that it would be too much to spend on any other good that people need or enjoy, such as food or clothing. 5. WHAT EFFECTS MIGHT THE PROPOSED REGULATION HAVE? 5.1. WHAT ARE THE EFFECTS OF INCREASED ACCESS TO FUNDING FOR HIGHER EDUCATION AND HOW DO THESE VARY ACROSS DIFFERENT TYPES OF STUDENTS? There is relatively good scientific evidence of how college costs and the ability to borrow affects access to higher education. The evidence is divided into two types: (1) estimates of the effect of reducing the price of higher education, e.g. through grants, on college attendance, and (2) estimates of the effect of increasing access to borrowing, e.g. through subsidized loans, on college attendance. While estimates of the effect of eligibility for Pell grants are mixed, various studies of other sources of grants find a significant effect of reducing the cost of college on college attendance. Studies of the G.l. Bill and the Social Security student benefit find large effects of these grants on the likelihood that those who are eligible go to college. Dynarski (2003) for example finds that an extra $1 ,000 grant (i.e. reduction in tuition) increases college attendance by 4 percentage points. There are fewer good studies of the effect of access to loans on college attendance. Reyes (1995) shows that when loan eligibility changed differentially across income groups in the early 1980's, college enrollment rates increased for the groups for whom loan eligibility increased. Dynarski (2005) finds positive but smaller effects of loan eligibility on college attendance based on a study of changes in eligibility induced by the Higher Education Amendments of 1992. A more recent experimental study may be directly relevant.11 A group of researchers simplified the FAFSA and worked with H&R Block to automatically fill out the form using information already entered from individuals' 1040 tax forms. For randomly selected households, H&R Block pre-populated the FAFSA form and offered to assist the family in filling out the form. Relative to a randomly selected comparison group, the assistance increased college enrollment significantly both for recent high school graduates and for older independent students with no college experience. There was no effect on a second treatment group who were just given information about the FAFSA but no assistance. These results show that barriers to the availability of financing restrict access to higher education. Based in part on this research, the President and Secretary of Education recently announced that the FAFSA form will be drastically simplified.12 5.2. HOW TO MEASURE THE 25TH PERCENTILE OF EARNINGS? The proposed regulation places a limit on the median debt among students at a program. This limit is based on the 25 1 h percentile of earnings in occupations for which that program prepares students. 11 Bettinger, Eric, Bridget Terry Long and Philip Oreopolous, "Increasing Postsecondary Enrollment Among Low-Income Families: A Project to Improve Access to College Information and Financial Aid" (http://gseacademic.harvard.edul-longbr/FAFSA_Project_- _Bettinger _Long_ Oreopoulos_ -_Description_1-09.pdf) 12 http://www2. ed .gov /news/pressrelea ses/2009/06/06242009 .html Page 24 Report on Gainful Employment April 2, 2010 Presumably, the 25th percentile is meant to be an estimate of the typical starting salary of graduates of the program. However, it is clear that the proposal has the potential to act as a limit on tuitions that for-profit schools will be able to charge. The extent of these limits will depend on how the 25th percentile of earnings for a given area of study (CIP code) is determined. In Appendix A of the proposed regulations, the Department of Education has provided a step-by-step method for calculating what it considers to be the 25th percentile of earnings for a particular CIP code. The Department proposes using the wage, earnings and employment data that are regularly collected by the Bureau of Labor Statistics. However, since the employment information is reported by occupation based on the Standard Occupational Classification (SOC) system, rather than area of study (CIP codes) , areas of study must be linked to one (or more) occupations. According to the Department's methodology the 25th percentile of earnings for each program (based on the 6-digit CIP code) can be calculated using the following method: First, determine all occupations based on the SOC codes available from the 0-Net crosswalk (http://online.onetcenter.org/crosswalk/CIP/) that are associated with each 6-digit CIP code. Next, for each soc code determine employment and annual 25th percentile wages using data from the Bureau of Labor Statistics (BLS) available at http://www.bls.gov/oes/current/oes_stru.htm. Finally, based on the above values calculate for each CIP code the weighted average of the annual 25th percentile wages using the total employment of each soc code as the weights. According to the Department, this weighted average represents the 25th percentile of earnings for each 6-digit CIP code. While the Department's calculations are clear and concise, they are neither simple nor correct. The Department's choice of how to calculate the 25th percentile is also far from innocuous. Below, we describe three ways in which the calculation of expected earnings can be quite sensitive to choices concerning the method. All of these choices are made either explicitly or implicitly, and all of them can have significant effects both on the earnings levels and on the ultimate impact of the proposed regulation. These examples also point out that future changes in seemingly technical inputs, such as which occupations are matched in the CIP to soc crosswalk, have the potential to have large impacts on programs and students. In calculating the earnings measure the Department makes assumptions regarding the occupations for which a graduate is likely to enter and the relative importance of each of these occupations in determining earnings. In addition, the calculated earnings measure is not the 25th percentile across the SOC codes. Modifying either the assumptions or the method for calculating earnings can have substantial impacts on whether a program meets the 25th percentile/8 percent rule. Even without explicit changes from the Department, programs may change from meeting the proposed regulation to not meeting the proposed regulation because of future changes in BLS coding or employment patterns. The correspondence between CIP codes and BLS occupation codes is important: Table 6 below shows the weighted average for the Culinary Arts/Chef Training area of study based on the 25th percentiles of the occupations that are assigned to that CIP code. According to the CIP to SOC crosswalk that is used by the Department to determine the "25th Percentile" this area of study includes four occupations: Chefs and Head Cooks; Cooks, Private Household; Cooks, Restaurant; and Cooks, All Page 25 Report on Gainful Employment April 2, 2010 Other. While Culinary Arts programs are designed to train Chefs as defined in the first occupational category, the Department's definition appears to include those individuals working as cooks at fast food restaurants and cafeterias, and short order cooks. While the majority of students who complete Culinary Arts/Chef Training programs do not work at fast food restaurants, these workers' low earnings would be used to estimate graduates' ability to afford student loan payments. Table 6: Department of Education Calculation of the 25th Percentile Weighted 25th Number Area of Study Average Percentile Employed 12.0503 Culinary Arts/Chef Training $19,278 35-1011.00 Chefs and Head Cooks $29,050 98,040 35-2013.00 Cooks, Private Household $19,030 960 35-2014.00 Cooks, Restaurant $18,230 899,620 35-2019.00 Cooks, All Other $18,390 17,340 52.0201 Business Administration/Management $62,379 11-1011 .00 Chief Executives $102,080 301 ,930 11-1021.00 General and Operations Managers $62,900 1,697,690 11-2022.00 Sales Managers $65,350 333,910 11-3011.00 Administrative Services Managers $52,240 246,930 11-3051 .00 Industrial Production Managers $64,390 154,030 11-3071 .01 Transportation Managers $59,830 96,300 11-9021.00 Construction Managers $60,650 220,550 11-9151 .00 Social and Community Service Managers $42,110 117,150 11-9199.00 Managers, All Other $64,440 365,460 13-1051 .00 Cost Estimators $42,720 218,400 13-1111.00 Management Analysts $54,890 535,850 25-1011 .00 Business Teachers, Postsecondary $46,400 69,690 51.3501 Massage Therapy/Therapeutic Massage $45,777 25-1071 .00 Health Specialties Teachers, Postsecondary $54,850 125,100 31-9011.00 Massage Therapists $23,630 51 ,250 The choice to use a weighted average of 2Sh percentiles is important: More general areas of study are mapped to many occupations. To calculate the 25th percentile of earnings among graduates of a program, the Department's method takes a weighted average of the 25 1 h percentiles in each of the assigned occupations. Taking a weighted average of 25th percentiles within occupations does not, however, give the 25th percentile of earnings among the workers in those occupations. Take, for example, the case of Business Administration/Management (shown in the table above). One of the occupations for which that area of study prepares students, according to the Department of Education, is Chief Executive. Thus, the Department of Education's method bases the Page 26 Report on Gainful Employment April 2, 2010 early career earnings of students finishing with Business Management degrees in part on the 25th percentile of earnings of Chief Executives. We suspect that a recent college graduate has a vanishingly small chance of earning a Chief Executive salary in the first few years after finishing school , though some will become Chief Executives later in their careers. An important implication of this example is that the allowable debt levels would be very sensitive to future decisions concerning which occupations match to each CIP code. Removing 'Chief Executive' from the set of occupations for which a Business Administration/Management program prepares students, for example, would significantly lower the estimated earnings, and in turn the allowable debt. As another example, consider trying to calculate the 25 1 h percentile of earnings among workers in two equally large states: a very high-wage state and a very low-wage state. To make the illustration clear, imagine the extreme situation in which the lowest-paid worker in the high wage state earns twice as much as the highest-paid worker in the low-wage state. The average of the 25th percentiles will fall somewhere in the range between the highest-paid worker from the low-wage state and the lowest-paid worker from the high-wage state. However, the 25 1 h percentile earner among all the workers in both states is someone in the middle of the pack in the low-wage state. The choice to take a weighted average of percentiles may be appropriate in some situations, and the determination depends on the way the relevant occupations are defined. Consider, for example, that a student leaving a program has a 50 percent chance of entering occupation X and a 50 percent chance of entering occupation Y. This student will remain in either of these parallel occupations for his career. In this case, the average of the 25 1 h percentiles in occupations X and Y may be an appropriate estimate of his early career earnings experience. In contrast, consider a student leaving a program who will enter the entry-level occupation A after which he will eventually progress to occupation B. In this case, the weighted average of 25th percentiles does not tell us about his experience early in his career. In some cases occupations are defined by the Bureau of Labor Statistics to correspond to a typology represented by occupations X andY, and in other cases (as illustrated by some of the examples in the table above) occupations are defined to correspond more closely to occupations A and B. The estimate of earnings does not distinguish by degree level: Furthermore, the CIP code is not specific to a level of degree, but rather just to the area of study. Therefore, an individual with an Associate's degree in Business Administration/Management will have the same CIP code as an individual with a Master' s degree in Business Administration/Management. Thus, the Department's assessment of earnings (and measure of affordable debt) will be the same for these two individuals. How to weight information from different occupations is important: Assuming the Department's goal is to generate an estimate of the early earnings of a program's graduates given that they may be prepared for multiple occupations, a weighted average of percentiles may make sense. Even when a weighted average may be appropriate, how to weight is an important question that must be addressed. The Department's current approach of using total employment in the full labor market (and not specific to either degree earners or for-profit students) is likely inappropriate in many situations. For example, the table above shows the occupations associated with Massage Page 27 Report on Gainful Employment April 2, 2010 Therapy/Therapeutic Massage. In this case the teachers of health specialties (which includes Massage Therapy and other health specialties) receives more than 70 percent of the weighted average when it likely represents a much smaller percentage of Massage Therapy graduate placements. From a mathematical point of view, the problem is that percentiles are not linear. As a result the average of percentiles within groups is not the percentile of the full population. It is therefore possible that the Department of Education's method for calculating the 25th percentile of earnings would not survive the rulemaking process. For this reason, in our calculations of impact below we present estimates that are based on an alternative method of calculating the 25th percentile among the workers in the occupations that match to an area of study. What is the 2Sh Percentile? As noted above the Department's calculated earnings measure is not the 25 1 h percentile of the occupations that are assigned to a CIP code. An arguably more appropriate measure of the 25th percentile can be obtained by sorting the individual earnings information of all individuals in occupations assigned to a given CIP code and determining the earnings at the 25th percentile of that set of workers. To do this, we first obtained a crosswalk between CIP codes and BLS occupation codes from the National Center for Education Statistics (NCES), a division of the U.S. Department of Education. We then merged this information with earnings data from the Current Population Survey (CPS) March Annual Demographic File. Each March, the CPS includes more-detailed questions about annual earnings and demographics. For each CIP code, we sorted the annual earnings of individuals in the occupations that were matched to that CIP code, and calculated the 25th percentile of annual earnings. The table below compares the difference in "25th percentiles" based on the alternative methods of selected CIP codes. In addition, for each CIP code we have computed the implied maximum debt allowed based on an 8 percent limit on annual loan payments (assuming a 1 0-year repayment schedule at 6.8 percent interest). As is clear from the table, the maximum debt can vary substantially depending on the calculation of the 25th percentile. Page 28 Report on Gainful Employment April 2, 2010 Table 7: Comparison of 25m Percentile Earnings and Maximum Debt Level f or Selected CIP Codes Full-Time Earners De artment of Education CIP 25th Maximum 25th Maximum Code CIP Description Percentile Debt Percentile Debt 10.0202 Radio & Television Broadcasting $27,000 $15,312 $27,207 $15,430 Technology/Technician $7.940 1 12.0503 Culinary Arts/Chef Training $14,000 $19,278 $10,933 14.0901 Computer Engineering, General $48,000 $27,222 1 $73,752 $41 ,826 14.0903 Computer Software Engineering $47,000 $26,655 ' $73,791 $41 ,848 (New) 14.1001 Electrical, Electronics & Communi- $45,000 $25,520 $75,437 $42,782 cations Engineering 15.1301 Drafting & Design Technolo- $35,000 $19,849 $35,266 $20,000 gy!Technician, General 15.1399 Drafting/ Design Engineering Tech- $35,000 $19,849 $35,130 $19,923 nologies/Technicians, Other (New) 31.0501 Health & Physical Education, Gen- $32,000 $18,148 ! $19,927 $11 ,301 era I 31 .0504 Sport & Fitness Administra- $32,000 $18,148 $18,989 $10,769 lion/Management 43.0203 Fire Science/Firefighting $45,000 $25,520 I $31 ,532 $17,883 47.0201 Heating, Air Conditioning, Ventilation $29,700 $16,843 $31 ,070 $17,620 & Refrigeration Maintenance Tech- nology!Technician 51 .2001 Pharmacy (PharmD, BS/BPharm) $41 ,000 $23,252 1 $80,585 $45,701 51.3501 Massage Therapy/Therapeutic Mas- $36,000 $20,416 $45,777 $25,961 sage 52.0201 Business Administra- $45,000 $25,520 l $62,379 $35,376 !ion/Management I 52.0408 General Office Occupations & Cieri- $23,000 $13,044 $23,239 $13,179 cal Services 52.1902 Fashion Merchandising $35,000 $19,849 I $36,460 $20,677 52.1904 Apparel and Accessories Marketing $35,000 $19,849 $36,460 $20,677 Operations As shown above, the particular way to calculate the 25th percentile is not innocuous. Small changes in the way one calculates this number causes large differences in the estimate of early career earnings. One concern would be that future changes in the method of calculating this number could have serious consequences. We estimate that differences in earnings levels resulting from changes in how the 25th percentile is calculated would lead to large differences in the number of students impacted by the proposed regulation. This suggests that further consideration should be given to: (a) whether the 25th percenti le concept is appropriate, and (b) whether the method of calculating the student's estimated ability to pay is overly sensitive to small changes in the future and valid from a scientific standpoint. Page 29 Report on Gainful Employment April 2, 2010 5.3. PRELIMINARY ANALYSIS BASED ON DATA SUBMITTED BY CCA MEMBER INSTITUTIONS To estimate the impact of the proposed regulation on the Title IV eligible for-profit postsecondary institutions, we collected data from Career College Association (CCA) member institutions. Specifically, we collected student/loan level data from each institution based on the population included in their 2006, 2007 and 2008 Cohort Default Rate calculation. These data include information on student loans and default status on all students entering repayment during a given cohort year for 3 years after entering repayment, and are the actual data that the institution's cohort default rate is based upon. We also received individual level demographic data from each institution including race, gender, program of study (CIP code) , OPEID, campus information, total loan amounts (both public and private) , and length of program. In all, we received data from 17 different institutions, representing approximately 450 campuses, 640,000 students and over 10,000 separate programs from institutions ranging from very small to very large. In order to determine the impact of the proposed regulation on the CCA schools for which we received data, we calculated both the 25th percentile of earnings based on the methodology used by the Department of Education, and the median debt of graduating students from each of the schools and programs with available data. In addition, we calculated the 25th percentile of earnings for each CIP code based on full-time earners in the CPS data. This alternative 25 1 h percentile of earnings calculation was done according to the method described in the previous section. The median total loan amounts (public and private) accrued by graduating students were calculated for each school, OPEID, campus, program length, and 6-digit CIP code. The Department of Education's methodology requires that students who do not take any loans (public or private) should be included in the median calculation as having accrued o loans. Since the data we have available for the CCA schools only include students who have taken some form of government loan, we needed to impute the number of students not taking any loans. Also, some schools did not provide data on the private loans taken by students so we needed to impute the value of private loans in these instances. We do not have data on students who do not take any public loans, but take private loans. We have not included any adjustment for these individuals.1 3 In order to account for students not taking any loans, we used I PEDS data to calculate the average percent of students in private, for-profit institutions that do not take any loans (approximately 20 percent). Since the population that we observe in the data are only 80 percent of the total population that should be included in the calculations we use the 37 .5th percentile of total loans amounts instead of the 50th percentile as this would impute a total of 20 percent of the total population as having o loans (since they would all be below the median). In cases where no data was available to assess the amount of private loans taken, we multiplied the value of public loans by 1.47 since the average percent of total loans that were public (based on NPSAS:2008 data from the NCES) was approximately 70 percent. 13 For most schools we do not have information on loans students took at prior postsecondary institutions. As a result, we underestimate median total debt, thus possibly underestimate the fraction of programs that would be impacted by the proposed debt limit rule. Page 30 Report on Gainful Employment April 2, 2010 Based on the 25th percentile of earnings determined above, we calculated the maximum amount of debt that could be accrued using the 8 percent rule proposed by the Department of Education (assuming a 10- year repayment schedule at 6.8percent interest). Comparing the maximum debt value with the median debt actually accrued from the students in each program, we determined the programs which would currently be impacted by the proposed regulation (i.e. the programs whose median debt was higher than the maximum allowed under the regulation's guidelines). As shown in Table 8, our analysis implies that approximately 18 percent of the programs we examined would be impacted by the 8-percent/25 1 h-percentile rule when using the Department of Education's income calculation. Using the CPS full-time earners results in nearly 25 percent of the programs being impacted. The impact is disproportionately on larger programs as nearly 34 percent of students are impacted using the Department's approach, and almost 50 percent are impacted using the CPS full-time earners. In the sample of students analyzed, approximately 29 percent of black students and 35 percent of Hispanic students would be in programs impacted by the proposed regulation. In addition, 25 percent of women are in programs that would be affected. All of these percentages are higher when the alternative measure of the 25 1 h percentile of earnings is used to evaluate programs. Table 8: Percent of CIPs Impacted by Proposed Regulation (Assuming 8 Percent Debt Ratio Using the 25th Percentile of Income) Median Loan Based on Graduates Total Percent of Percent of Percent of Percent of Number of Programs Students Females Blacks Programs Impacted Impacted Impacted Impacted Department of Education 25 111 Percentile 10,725 18.19% 33.72% 24.79% 28.91% CPS 25 111 Percentile 10,695 24.58% 49.10% 39.95% 44.91% Source: Data provided by CCA member institutions. Percent of Percent of Hispanics Asians Impacted Impacted 34.89% 44.26% 47.40% 65.14% As shown in Table 9 below, if the sample of schools and programs used in the analysis is representative of the full set of for-profit schools and programs- and we caution that not enough analysis has been done yet to ascertain whether this is a reasonable assumption- these estimates imply that each year 361 ,000 students, including 68,300 non-Hispanic black students, 78,500 Hispanic, and 179,000 women, would Page 31 Report on Gainful Employment April 2, 2010 enter for-profit postsecondary programs that would lose eligibility for participation in the federal Title IV financial aid programs.14 While some capacity may exist in other sectors of higher education to absorb these students, recent reports indicate that the most likely alternatives-community colleges-are already oversubscribed in many cases, and are facing further financial cutbacks as the states that provide much of their funding face severe financial challenges. Given recent growth rates at for-profit postsecondary institutions, we estimate that by 2020 approximately 1 million non-Hispanic black students and an additional 1 million Hispanic students are on track to attend programs that would be adversely affected, and would be denied access as a result.15 14 The annual flow of students in for-profit programs is estimated from the 12-month enrollment reported in the IPEDS. Since the IPEDS figures provide the stock of students enrolled at a given point in time we divide the number of students enrolled in a 4-year program by 4, the number of students enrolled in a 2-year program by 2, and then add those results to the number enrolled in less than 2- year programs to obtain an estimate of the flow of students Into for-profit schools. This is likely an underestimate of the flow because all students do not stay enrolled for the full length of the program and institutions are categorized base on the longest program offered (so, some students recorded in a 4-year program are enrolled in something less than four years). 15 Estimates based on the CPS full-time earners and estimates of impacted students by state are provided in the appendix. Page 32 Report on Gainful Employment April 2, 2010 Year Table 9: Estimated Number of Students Impacted by 2020 Median Loan Based on Graduates 25th Percentile Based on Department of Education Calculation Number of Total Number of African- Number of Number of Female American Hispanic Students Students Students Students Impacted Impacted Impacted Impacted Number of Asian Students Impacted Using the Department of Education's 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio 2011 361,172 179,149 68,348 78,545 2012 392,955 194,914 74, 363 85,456 2013 427,535 212,066 80,907 92,977 2014 465,158 230,728 88,027 101,159 2015 506,092 251,032 95,773 110,060 2016 550,628 273,123 104,201 119,746 2017 599,084 297,158 113,371 130,283 2018 651,803 323,307 123,347 141,748 2019 709,162 351,759 134,202 154,222 2020 771,568 382,713 146,012 167,794 Total Students Impacted 5,435,157 2,695,948 1,028,550 1,181,990 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools, that for-profit schools will cont inue to grow at 8.8% per year (the growth rate over the last five years), and the relat ive student composition does not change during this period. 15,875 17,272 18,792 20,445 22,245 24,202 26,332 28,649 31,170 33,913 238,895 Based on our estimates, the impact of the regulation would vary across types of programs. Because the limits on borrowing do not vary with the length of program, longer programs would be more severely impacted. Whereas approximately 18 percent of students in less than 2 year programs would be impacted, we estimate that approximately 40 percent of students in 2- and 4-year programs would be impacted. Table 10 below shows the percent of programs and students impacted by program length. the results based on the CPS 25 1 h percentile are also provided in Table 10 below. Page 33 Report on Gainful Employment April 2, 2010 Table 10: Percent of CIPs Impacted by Proposed Regulation (Assuming 8 Percent Debt Ratio Using the 25th Percentile of Income) Median Loan Based on Graduates Total Percent Percent Percent Percent Percent Percent Number of of of of of of of Programs Students Females Blacks Hispanics Asians Program Type Programs Impacted Impacted Impacted Impacted Impacted Impacted Department of Education 25 1 h Percentile Less than 2 Years 2,335 10.66% 18.79% 7.94% 17.06% 13.43% 18.08% 2 Year 4,493 18.52% 39.04% 27.86% 35.71% 52.76% 56.35% 4 Year 2,892 22.23% 40.93% 39.19% 34.98% 53.71% 51 .43% CPS 25 1 h Percentile Less than 2 Years 2,335 15.59% 25.88% 16.22% 24.84% 17.65% 31 .86% 2 Year 4,494 24.81% 50.03% 37.95% 49.88% 68.54% 74.62% 4 Year 2,853 28.74% 68.79% 68.47% 65.58% 76.91% 78.01% Source: Data provided by CCA member institutions. We also estimate that the impact would not be limited to a few areas of study, but would impact a wide variety of programs. Table 11 below reports the results aggregated to general CIP categories for categories for which we have data on at least 1 oo programs. For example, we estimate that nearly 14 percent of Health Professional and Related Clinical Sciences, including Nursing, programs and more than 46 percent of Engineering Related Technologies/Technicians programs would not currently satisfy the proposed debt limit rule as defined by the Department. If the alternative measure of 25 1 h percentile earnings were to be adopted, the percent of impacted programs and students substantially would be higher. Page 34 Report on Gainful Employment April 2, 2010 Table 11 : Percent of CIPs Impacted by Proposed Regulation (Assuming 8 Percent Debt Ratio Using the 25th Percentile of Income) Median Loan Based on Graduates Total Percent Percent Percent Percent Percent Percent Number of of of of of of of Programs Students Females Blacks Hispanics Asians CIP CIP Description Programs Impacted Impacted Impacted Impacted Impacted Impacted Department of Education Income Calculation 9 Communications, Journalism, & Related Fields 111 32.43% 70.89% 77.00% 68.40% 68.05% 86.67% 10 Graphic Communications 219 28.31% 51.27% 45.19% 53.47% 57.24% 55.81% 11 Computer & Information Sciences & Support 1,390 19.35% 32.80% 25.12% 35.15% 42.05% 41 .66% Services 12 Personal & Culinary Services 542 27.31% 88.82% 85.02% 80.35% 88.81% 94.00% 13 Education 192 26.04% 51 .56% 55.46% 43.28% 26.43% 30.10% 15 Engineering Related Technologies/Technicians 535 46.73% 81 .70% 66.91% 80.37% 75.63% 91.35% 22 Law, Legal Services, & Legal Studies 331 9.97% 21 .91% 22.36% 8.37% 5.28% 2.56% 42 Psychology 185 33.51% 70.71% 69.90% 75.13% 54.15% 78.81% 43 Protective Services 806 9.43% 13.97% 13.79% 11.48% 26.57% 18.02% 47 Mechanic & Repair Technology 160 39.38% 80.84% 73.46% 77.70% 77.64% 87.86% 50 Visual & Performing Arts 1,342 22.35% 56.10% 57.61% 50.60% 58.39% 63.86% 51 Health Professions & Related Clinical Sciences 2,322 13.48% 15.31% 15.57% 14.54% 7.43% 17.53% 52 Business, Management, Marketing, & Related 2,356 11.50% 9.31% 9.24% 9.83% 12.59% 13.52% Support Services CPS Full-Time Earners 9 Communications, Journalism, & Related Fields 111 31.53% 71.84% 76.45% 69.71% 71.25% 86.67% 10 Graphic Communications 219 39.27% 84.21% 84.07% 80.68% 91 .13% 91 .73% 11 Computer & Information Sciences & Support 1,390 29.57% 62.37% 57.27% 64.20% 74.15% 75.99% Services 12 Personal & Culinary Services 537 32.03% 92.81% 89.96% 88.14% 94.45% 96.90% 13 Education 192 32.29% 60.30% 55.85% 95.85% 93.21% 90.29% 15 Engineering Related Technologies/Technicians 535 48.79% 84.17% 68.27% 82.38% 78.42% 94.01% 22 Law, Legal Services, & Legal Studies 356 14.89% 28.66% 28.87% 22.11% 14.76% 7.69% 42 Psychology 185 36.22% 73.48% 72.81% 77.02% 56.45% 81 .78% 43 Protective Services 806 18.24% 39.90% 40.76% 38.17% 54.61% 70.43% 47 Mechanic & Repair Technology 160 41.88% 81 .05% 73.72% 77.85% 77.82% 88.04% 50 Visual & Performing Arts 1,342 26.01% 66.07% 68.47% 68.60% 66.59% 75.50% 51 Health Professions & Related Clinical Sciences 2,322 20.24% 26.89% 26.89% 24.38% 13.56% 38.07% 52 Business, Management, Marketing, & Related 2,298 18.41% 32.04% 30.91% 36.13% 38.00% 44.06% Support Services Source: Data provided by CCA member institutions. Page 35 Report on Gainful Employment April 2, 2010 6. WHAT ALTERNATIVE REGULATIONS OR POLICIES MIGHT BE SUGGESTED TO ADDRESS THE PROBLEM AT HAND? 6.1 . FURTHER CRITICISMS OF THE PROPOSED REGULATION Thus far this report has focused primarily on the first provision of the Department of Education's proposal, which would limit median debt to be no more than 8 percent of the 25th percentile of earnings in specified occupations. Programs that fail this test could retain gainful employment status by meeting alternative tests. Schools would be allowed to show that the graduates of the program at their school in particular earn more than the 25th percentile upon entering the workforce. This provision would seem to address some of the concerns raised above. However, to properly conduct a survey of graduates would be costly, and some of these costs would be passed on to students. Furthermore, there is no guidance as to how such a survey would need to be conducted. Would schools be required to show that the respondents were a representative sample of all graduates? How would this be determined? How large a sample would the estimated earnings need to be based on? Should the survey focus on the earnings in the appropriate occupations, as specified by the Department of Education, or would earnings in other occupations count? How would students who chose to take jobs in other higher-paying occupations be treated? How would students who chose to take jobs in other occupations because they were unable to find work in the specified occupation be treated? These and other questions would need to be answered. Many of these questions highlight that the implementation of this part of the proposal would be messy at best, and quite possibly arbitrary. Programs that failed the 8 percent test could also retain gainful employment status by showing that they maintained 90 percent repayment rates. As others have noted, this would not be based on default behavior as defined in the Cohort Default Rate calculation. Students who are not current in their payments, even though they have not yet reached the point of default, would count against a school 's clean record. Students in deferment or forbearance would also apparently count against a school's repayment rate. It is difficult to know how many programs would satisfy this standard. Most problematic, the data necessary to calculate this rate is not readily available to schools. It is therefore almost impossible to analyze whether the 90 percent standard is appropriate. Furthermore, without the data underlying this calculation, it is not possible for schools to monitor problems, or to affect the behavior that leads to low repayment rates. It is also not clear whether the Department of Education based the standard on any analysis of data. One argument described above is that it cannot be good policy to have limits on student loan payments that are less than the benefits to earnings from schooling. The argument is the following. Standard estimates of the return to education suggest that a student who completes a 2-year program earns 20 percent more per year, every year she works. If the debt payment limit were less than 20 percent, she could make the loan payments out of her 20 percent schooling bonus, and still have money left over. Page 36 Report on Gainful Employment April 2, 2010 If the Department of Education were to consider a debt limit that is approximately equal to the return to education, several additional factors would need to be considered. For example: Programs are different lengths. Longer programs have larger returns. Would the department institute different loan limitations for 1-, 2- and 4-year programs? How would the limit be set if there were variation within a program in how long students attended (or how many credits students earned)? The return to education changes over time. It has risen dramatically in the past 30 years. How would the Department of Education decide what the return is in each year? 6.2. To DIRECTLY ADDRESS THE PROBLEM, REGULATION SHOULD FOCUS ON DISCLOSURE AND ENSURING THAT STUDENTS MAKE INFORMED DECISIONS A comparison of expected returns to education with the costs of education is what students are doing when they decide whether to get a higher education, and whether to take on loans to finance that education. If the problem the policy is trying to solve is that students are not doing this well- that they are not making informed, considered decisions based on comparisons of expected benefits and costs- then the regulation should address this problem. To make this case, it may be necessary first to refocus the discussion on which problem is in need of solving. Whereas the current proposal appears to be based on the perception that students take on too much debt, we bel ieve this is misguided. As argued above, standard economic analysis clearly indicates that the amount of debt should be dictated by the benefits of the investment, not by the level of income. It may not be in the students' interest to be restricted from taking on large amounts of debt; that debt may be the key to a better future. The important thing is to make sure that students make informed and intelligent decisions about whether loans are right for them, and whether the benefits of the schooling they wish to finance are large enough to repay the debt they take on. This focus on making smart informed decisions leads directly to a policy based on provision of information, and assistance analyzing the consequences of borrowing. One way that this problem could be addressed directly is through different forms of disclosure and education: Increased scrutiny could be placed on lenders to ensure that every student who takes on a loan is made aware ofthe costs associated with the loan, the magnitude of the annual or monthly payment, and the length of the payback period. Disclosure could also include mandated information regarding typical earnings of workers in the occupation for which the student is preparing. For example, lenders could be required to show students the 25 1 h percentile or median of annual earnings in the appropriate occupation. This could be extended further so that students would be shown a mock budget based on an estimate of their earnings in the appropriate occupation, their loan payments, and a standardized set of necessary expenses. This could be done either in a standardized paper form, or an online application could be developed to allow students to enter various earnings and expense values to see how they fit into the budget. Page 37 Report on Gainful Employment April 2, 2010 7. CONCLUSION In summary, the proposed regulation is not currently formulated to address a specific problem effectively. Secretary of Education Arne Duncan has stated publicly that he wants to ensure that the Department understands its proposal thoroughly so that it prevents any "unintended consequences." Our analysis suggests that the "unintended consequences" -cutting off access to hundreds of thousands of students who want postsecondary education-will be much more substantial than the intended consequence, which we believe to be-though we are not certain-reducing the number of students who over borrow. To start, the Department of Education has not clearly defined what the problem is that the regulation aims to address. As discussed above, some perceived problems the regulation may intend to address are not problems at all but rather a reflection of the fact that for-profit postsecondary schools serve a very different population than not-for-profit postsecondary schools. If the Department of Education wishes to address the problem that some students take on excessive debt, the proposed regulation is not well designed to do so. By applying a rule at the school or program level, many other students would be negatively affected. Our analysis suggests that 33 percent of students currently in for-profit postsecondary schooling would be denied access. Many more students would be denied access to postsecondary schooling than would be protected from excessive borrowing. Furthermore, it should not be assumed that public postsecondary institutions, particularly community colleges, would absorb these students. Given the fiscal conditions of the states, it is not obvious that community colleges will be able to increase capacity to meet the increasing demand for postsecondary schooling. Finally, because for-profit schools disproportionately serve racial and ethnic minority students and students from low-income family backgrounds, the regulation would have the effect of reducing access to higher education to groups of students that have historically had the lowest levels of access. Page 38 Report on Gainful Employment April 2, 2010 8. APPENDIX A Appendix Figure 1 : Average age at which students first enroll in postsecondary schooling, 2008 23 22.5 22 21.5 Q) 21 0) ro Q) 0) 20.5 ro ..... Q) > 20 <( 19.5 19 18.5 18 For-profit Pri vat e not-for- Privat e not-for- Public <=2 Publi c 4-year profit <=2 profit 4-year Age first enroll ed Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Page 39 Report on Gainful Employment April 2, 2010 Appendix Figure 2: Average income of parents or independent students prior to school entry, 2008 90,000.00 80.000.00 70.000.00 <I> 60.000.00 E 0 (.) 50.000.00 c <I> Ol 40.000.00 ttl ... ~ <( 30.000.00 20.000.00 10.000.00 0.00 For-profit Private not- for-profit <=2 Private not- for-profit 4- year Pllblic <=2 Average income, parents or independent. 2007 Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Pllblic 4-year Page 40 Report on Gainful Employment April 2, 2010 Appendix Figure 3: Percent of students from families who received AFDC prior to school entry, 2008 18 ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16 14 12 c 10 Q) 0 ..... f 8 6 4 2 0 For-profit Pri vate not-for- Private not-for- Publi c <=2 profit <=2 profit 4-year Percent receieved Food Stamps. 2007-08 Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Publi c 4-year Page 41 Report on Gainful Employment April 2, 2010 Appendix Figure 4: Percent of students who were single parents prior to school entry, 2008 35 ~ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 25 c 20 Q) () .... Q) a. 15 10 5 0 For-profit Pri vate not-for- Private not-for- Publi c <=2 profit <=2 profit 4-year Percent single parent. 2007-08 Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Publi c 4-year Page 42 Report on Gainful Employment April 2, 201 0 Appendix Figure 5: Percent of students whose parents attended at least some college, 2008 000 For profit BOO 700 60.0 50.0 .. E .. ., .. 0. 400 300 200 0.0 r:>rrvale for-protot r:>uvate lo .. prolrl 2 yea.s or more 2yt&r Not for profit Pubhc 4-year ooMoctorate 4-)'l)at PrrYal e not-for doctorate prole 4 year Notes: Calculated from the National Postsecondary Student Aid Study, 2008. Prwa1e not-fo.-. protrt 4-yr
Ptl'l$18 not-lor pro(J1 4year doctorate Page 43 Report on Gainful Employment April 2, 201 0 Appendix Figure 6: Percent of students who are Black or Hispanic, 2008 60.0 ~ 50.0 40.0 c ~ 30.0 "' 0. 10.0 0.0 For profit Not for profit Private for- Private for- PriVate not-for- Private not-for- Private not-for- Public less- Public 2-year Public 4-year Public 4-year profitless-than profrt 2years or profrt less than proflt4Yr pro1it4-year thar)-2-year nondoctol'31e doctorate 2 - ~ a r more 4-year nondoctorale doctorate Percent Black or Hispanic Notes: Calculated from the National Postsecondary Student Aid Study, 2008 Page 44 Report on Gainful Employment April 2, 201 0 Appendix Table 1 Estimated Number of Students Impacted by 2020 Median Loan Based on Graduates 25th Percentile Based on Full-Time Earners (CPS) Number of Total Number of African- Number of Number of Number of Female American Hispanic Asian Students Students Students Students Students Year Impacted Impacted Impacted Impacted Impacted Using the 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio 2011 525,924 288,663 106,169 106,729 23,365 2012 572,206 314,065 115,511 116,121 25,421 2013 622,560 341,703 125,676 126,340 27,658 2014 677,345 371,773 136,736 137,458 30,092 2015 736,952 404,489 148,769 149,554 32,740 2016 801,803 440,084 161,860 162,715 35,621 2017 872,362 478,811 176,104 177,034 38,756 2018 949,130 520,946 191,601 192,613 42,167 2019 1,032,653 566,790 208,462 209,563 45,877 2020 1,123,527 616,667 226,807 228,004 49,914 Total Students Impacted 7,914,462 4,343,989 1,597,695 1,606,132 351 ,613 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools, that for-profit schools wi ll continue to grow at 8.8% per year (the growth rate over the last five years), and the relative student composition does not change during this period. Page 45 Report on Gainful Employment April 2, 201 0 Appendix Table 2 Estimated Annual Number of Students Impacted by State Median Loan Based on Graduates 25th Percentile Based on Department of Education Calculation Number of Total Number of African- Number of Number of Number of Female American Hispanic Asian Students Students Students Students Students State lmeacted lmeacted lmeacted lmeacted lmeacted Using the 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio AL 1,134 630 470 13 11 AR 1,204 718 297 22 19 AZ 33,998 15,928 3,377 3,160 924 CA 44,910 22,958 3,935 16,101 6,713 co 7,593 3,363 981 1,004 248 CT 5,648 2,169 870 1,015 120 DC 4,681 2,266 2,150 368 172 FL 25,202 12,307 5,601 7,738 487 GA 10,324 5,727 4,979 491 242 lA 6,684 3,705 292 117 50 IL 18,988 9,294 4,290 2,372 677 IN 4,978 2,732 1,115 195 37 KS 1,681 893 270 108 58 KY 3,292 1,865 574 41 41 LA 3,885 2,242 1,581 57 42 MA 5,765 2,893 520 742 240 MD 4,297 1,960 2,155 188 94 Ml 8,949 5,099 3,043 232 109 MN 9,406 5,038 1,309 325 365 MO 5,510 2,953 1,349 106 80 MS 1,111 667 576 7 23 NC 2,307 1,116 863 69 44 NH 1,284 760 17 55 18 NJ 9,118 4,366 1,969 2,294 430 NM 1,612 926 102 650 27 NV 2,722 1,344 411 472 265 NY 18,845 8,797 4,928 4,439 1,129 OH 11,686 6,147 3,401 291 129 OK 2,456 1,273 417 163 49 OR 2,901 1,579 107 183 148 PA 16,909 7,653 3,334 896 299 Rl 1,839 936 189 324 38 sc 1,523 878 655 46 19 TN 5,682 2,911 1,848 124 67 TX 29,176 14,832 5,846 12,457 718 UT 2,675 1,380 33 231 83 VA 7,032 3,720 2,854 328 250 WA 3,964 2,107 269 261 490 WI 2,004 1,116 707 100 46 wv 3,226 941 321 215 80 Total Students Impacted 361 ,172 179,149 68,348 78,545 15,875 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools. States with less than 1,000 students who are impacted and Puerto Rico are not reported above. Page 46 Report on Gainful Employment April 2, 201 0 Appendix Table 3 Estimated Annual Number of Students Impacted by State Median Loan Based on Graduates 25th Percentile Based on Full-Time Earners (CPS) Number of Total Number of African- Number of Number of Number of Female American Hispanic Asian Students Students Students Students Students State lmeacted lmeacted lmeacted lmeacted lmeacted Using the 25th percentile of annual earnings and 8% Debt-to-Earnings Ratio AL 1,652 1,016 730 18 17 AR 1,753 1,157 461 29 28 AZ 49,506 25,665 5,246 4,294 1,360 CA 65,396 36,992 6,113 21,879 9,881 co 11 ,056 5,419 1,525 1,364 365 CT 8,224 3,495 1,351 1,379 177 DC 6,816 3,650 3,340 500 253 FL 36,698 19,830 8,700 10,515 717 GA 15,034 9,228 7,733 667 355 HI 1,029 548 23 27 1,002 lA 9,733 5,970 454 158 74 IL 27,650 14,976 6,664 3,223 996 IN 7,249 4,402 1,732 265 54 KS 2,449 1,438 420 146 86 KY 4,794 3,005 892 56 61 LA 5,657 3,613 2,455 78 62 MA 8,395 4,662 808 1,008 353 MD 6,256 3,159 3,348 256 139 ME 1,279 924 26 13 19 Ml 13,032 8,217 4,727 315 161 MN 13,697 8,118 2,033 441 538 MO 8,024 4,759 2,095 144 117 MS 1,618 1,075 895 10 34 NC 3,359 1,798 1,341 94 64 NE 1,181 739 149 41 15 NH 1,870 1,224 26 74 26 NJ 13,277 7,036 3,058 3,117 633 NM 2,347 1,492 158 884 39 NV 3,964 2,166 638 641 391 NY 27,441 14,174 7,654 6,031 1,662 OH 17,017 9,905 5,283 395 189 OK 3,576 2,051 647 222 72 OR 4,225 2,544 166 249 218 PA 24,622 12,331 5,179 1,217 441 Rl 2,679 1,507 293 440 55 sc 2,217 1,415 1,018 62 28 TN 8,274 4,691 2,871 168 99 TX 42,485 23,899 9,081 16,926 1,057 UT 3,896 2,223 52 314 123 VA 10,239 5,994 4,434 446 369 WA 5,773 3,395 418 354 722 WI 2,918 1,798 1,098 135 68 vw 4,697 1,517 499 292 118 Total Students Impacted 525,924 288,663 106,169 106,729 23,365 Note: The number of impacted students assumes that the CCA data is representative of all for-profit schools. States with less than 1,000 students who are impacted and Puerto Rico are not reported above. Page 47 (b)(S) -----Original Message----- From: Yuan Georgia To: Jenkins. HarQld Finley, Steve Sann, Ronald CC: Wie,gner Ashley Rose, Charlie Miceli Julie Date: 2/25/2010 1:08:28 PM Subject: FW: request for meeting From: Broff, Nancy [ mailto:BroflN@DicksteinShapiro. COM] Sent Thursday, February 25, 201010:25 AM To: Rose, Charlie Cc: Yuan, Georgia; Miceli, Julie; Wiegner, Ashley Subject RE: request for meeting H.i Charlie- I am writing to renew my request for a meeting. The meeting would be with the CEOs of three higher education companies: Daniel Hamburger ofDe V ry Clark Elwood of ITT Educational Services, Inc. Andrew Clark ofBridgepoint Education They would like to meet on March 11 if you have an availability that day. The agenda would be to discuss some of the issues from the recently completed negotiated rulemaking. Thanks so much, Nancy IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. From: Rose, Charlie [mailto:Charlie.Rose@ed.gov] Sent Monday, February 15, 2010 10:52 PM To: Broff, Nancy Cc: Yuan, Georgia; Mceli, Julie; Wiegner, Ashley Subject: RE: request for meeting Nancy: Thanks. Let me check and I will follow-up with you regarding the meeting. By the way, even by Chicago standards, the DC snow is tough to deal with. Charlie -----Original Message----- From: Broff, Nancy [mailto:BroffN@DicksteinShapiro.COM] Sent: Tuesday, February 09, 2010 11:54 AM To: Rose, Charlie Subject: request for meeting Hello Charlie- I hope you are doing well in all this snow. I guess you Chicagoans have an advantage in the area of coping with real winter. I am writing to request a meeting with you for the CEO of my client, Bridgepoint Education, Inc. Andrew Clark will be in town on the morning ofFebruary 25th and would very much appreciate an opportunity to discuss some concerns arising out of the recent negotiated rulemaking sessions. Bridgepoint owns two institutions: Ashford University and University of the Rockies. I will be happy to provide some background information on both universities in advance of the meeting. Those of us in the higher education bar very much appreciated your openness to hearing from members of the community, and this is an important topic on which I think it is important for you to hear directly from a school official. In the interest of full disclosure, I want to mention that Ashford is in the midst of an OIG audit (not an investigation), but we have not yet received a draft report and would not plan to discuss that at this meeting. I hope you can make time in your schedule for this meeting. Best regards, Nancy IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 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To reply to our email administrator directly, send an email to postmaster@di cksteinshapi ro.com Dickstein Shapiro LLP http:/ /www.Di cksteinShapiro. com This e-mail message and any attached files are confidential and are intended solely for the use of the addressee(s) named above. This communication may contain material protected by attorney-client, work product, or other privileges. If you are not the intended recipient or person responsible for delivering this confidential communication to the intended recipient, you have received this communication in error, and any review, use, dissemination, forwarding, printing, copying, or other distribution of this e-mail message and any attached files is strictly prohibited. Dickstein Shapiro reserves the right to monitor any communication that is created, received, or sent on its network. If you have received this confidential communication in error, please notify the sender immediately by reply e-mail message and permanently delete the original message. To reply to our email administrator directly, send an email to postmaster@dicksteinshapiro.com Dickstein Shapiro LLP http:/ /www.DicksteinShapiro.com (b)(5) Georgia From: Fine, Stephanie Sent: Friday, March 26, 2010 7:14PM To: Yuan, Georgia Subject: Response needed (b)(5) Stephanie From: Yuan, Georgia To: Phillips, Nia CC: Jenkins. Harold Rose. Charlie Date: 3/27/2010 10:08:54 AM Subject: FW: Response needed Attachments: attach 0 attach 1 attach 2 From: Andy Rosen <arosen@kaplan.edu> To: Private- Miller 9 Anthony CC: Fine Stephanie Rebecca Campoverde Date: 3/25/2010 11:29:52 PM Subject: Thanks and next steps Tony: Thank you for making time to meet with me on Tuesday regarding gainful employment and other issues of importance to Kaplan' s students and postsecondary schools. I am encouraged that you are engaged in the important policy discussions taking place within the Department and the Administration. As I indicated, your proposal to create a small sector group to work with you and the Department on gainful employment makes a great deal of sense. I am glad to help organize such a group and suggest that our staff talk regarding the number of participants, time fiame, and specific dates on which you would be available for such a meeting. I look forward to hearing back from you regarding proposed next steps. Again, many thanks for your interest and attention. Best regards, Andy Andrew S. Rosen Chairman and CEO Kaplan, Inc. Tony, From: McKernan, John <jmckeman@edmc.edu> To: Private -Miller, Anthony CC: Guida, Anthony Rothkopf, Arthur J Date: 3/25/2010 9:02:34 PM Subject: Thank you Thank you for meeting with Arthur and the gang yesterday! I hope it was clear from our meeting that we atEDMC are supportive of the Department's goals of giving more higher education opportunities for more of our citizens. We especially appreciated your openness and candor, and we look forward to being constructive participants in our future discussions. I, in particular, believe there is a need for appropriate regulation of our industry given the amount of tax dollars supporting students in higher education. We want to make sure, however, that the proposed regulations address identified problem areas in a way that is both consistent with the authority delegated to the department and narrow enough to avoid unintended consequences which coul reduce student opportunities and access to legitimate and beneficial programs. Our SVP for Regulatory Affairs, Tony Guida, and Mark Pelesh from Corinthian will be following up with your office as we discussed. I will be monitoring the various proposals being considered and am willing to be as involved as you would like. Please feel free to include me in the discussions to the extent you feel I can be helpful. Again, thanks for your involvement. We hope this wiJl be the beginning of a very important dialogue about how best to regulate an industry that needs to be a significant provider of post secondary education services if, as the President envision millions of additional students in America are to have the educational opportunities they need and deserve. With best wishes. Jock McKernan CONFIDENTIALITY NOTICE: This email and any files transmitted with it are confidential and intended solely for the ust of the individual or entity to which they are addressed. If you are not the intended recipient, you may not review, copy or distribute this message. If you have received this email in error, please notify the sender immediately and delete the original message. Neither the sender nor the company for which he or she works accepts any liability for any damage caused by an virus transmitted by this email. From: Pelesh, Mark <M Pel esh@cci edu> To: Private- 1\.ililler. Anthony CC: jmckeman@ecimc edu 1 Massimino. Jack 1 Guida. Anthoni Rothkopf Arthur J Date: 3/25/2010 7:26:04 PM Subject: Follow-up Meeting-- Gainful Employment Thank you again for meeting with us, our colleagues from EDMC, and Arthur Rothkopf yesterday. We are anxious to follow-up on our constructive discussion regarding the gainful employment proposal under consideration at the Department. We very much want to take you up on your suggestion for a follow-up meeting in the near future to discuss other approaches to address the concerns that may have led to the development of the gainful employment proposal, as well as a more comprehensive long range approach to accountability. As we discussed, it would also be very helpful if we could get a full statement of the problems the Department is seeking to solve. This will allow us to develop better approaches to address those problems than the gainful employment proposal, which we continue to believe is deeply flawed, and to make the meeting as productive as possible. We have reviewed our calendars and suggest the following dates for the follow-up meeting: (April6, 12, 13, 14, 15, or 16). I will ask Stephanie Johnson at the Chamber to be in touch with your scheduler to make the arrangements. We look forward to continuing our dialogue. MarkPelesh Executive Vice President, Corinthian Colleges Please print From: Fine, Stephanie Sent: Friday, March 26, 2010 7:14PM To: Yuan, Georgia Subject: Response needed (b)(5) From: Yuan, Georgia To: Canada, June CC: Date: 3/29/2010 11:23:28 AM Subject: FW: Response needed Attachments: attach 0 attach 1 attach 2 From: Andy Rosen <arosen@kaplan edu> To: Private- Miller, Anthony CC: Fine, Stephanie Rebecca Campoverde Date: 3/25/2010 11 :29:52PM Subject: Thanks and next steps Tony: Thank you for making time to meet with me on Tuesday regarding gainful employment and other issues of importance to Kaplan' s students and postsecondary schools. I am encouraged that you are engaged in the important policy discussions taking place within the Department and the Administration. As I indicated, your proposal to create a small sector group to work with you and the Department on gainful employment makes a great deal of sense. I am glad to help organize such a group and suggest that our staff talk regarding the number of participants, time frame, and specific dates on which you would be available for such a meeting. I look forward to heating back from you regarding proposed next steps. Again, many thanks for your interest and attention. Best regards, Andy Andrew S. Rosen Chairman and CEO Kaplan, Inc. Tony, From: McKernan, John <jmckeman@edmc edu> To: Private- Miller Anthony CC: Guida Anthony Rothkopf, Arthur J Date: 3/25/2010 9:02:34 PM Subject: Thank you Thank you for meeting with Arthur and the gang yesterday! 1 hope it was clear from our meeting that we at EDMC are supportive of the Department's goals of giving more higher education opportunities for more of our citizens. We especially appreciated your openness and candor, and we look forward to being constructive participants in our future discussions. I, in particular, believe there is a need for appropriate regulation of our industry given the amount of tax dollars supporting students in higher education. We want to make sure, however, that the proposed regulations address identified problem areas in a way that is both consistent with the authority delegated to the department and narrow enough to avoid unintended consequences which coul reduce student opportunities and access to legitimate and beneficial programs. Our SVP for Regulatory Affairs, Tony Guida, and Mark Pelesh from Corinthian will be following up with your office as we discussed. I will be monitoring the various proposals being considered and am wiJling to be as involved as you would like. Please feel free to include me in the discussions to the extent you feel I can be helpful . Again, thanks for your involvement. We hope this will be the beginning of a very important dialogue about how best to regulate an industry that needs to be a significant provider of post secondary education services if, as the President envision millions of additional students in America are to have the educational opportunities they need and deserve. With best wishes. Jock McKernan CONFIDENTIALITY NOTICE: This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to which they are addressed. If you are not the intended recipient, you may not review, copy or distribute this message. If you have received this email in error, please notify the sender immediately and delete the original message. Neither the sender nor the company for which he or she works accepts any liability for any damage caused by an virus transmitted by this email. From: Pelesh, Mark <M Pel esh@cci edu> To: Private- 1\.ililler. Anthony CC: jmckeman@ecimc edu 1 Massimino. Jack 1 Guida. Anthoni Rothkopf Arthur J Date: 3/25/2010 7:26:04 PM Subject: Follow-up Meeting-- Gainful Employment Thank you again for meeting with us, our colleagues from EDMC, and Arthur Rothkopf yesterday. We are anxious to follow-up on our constructive discussion regarding the gainful employment proposal under consideration at the Department. We very much want to take you up on your suggestion for a follow-up meeting in the near future to discuss other approaches to address the concerns that may have led to the development of the gainful employment proposal, as well as a more comprehensive long range approach to accountability. As we discussed, it would also be very helpful if we could get a full statement of the problems the Department is seeking to solve. This will allow us to develop better approaches to address those problems than the gainful employment proposal, which we continue to believe is deeply flawed, and to make the meeting as productive as possible. We have reviewed our calendars and suggest the following dates for the follow-up meeting: (April6, 12, 13, 14, 15, or 16). I will ask Stephanie Johnson at the Chamber to be in touch with your scheduler to make the arrangements. We look forward to continuing our dialogue. MarkPelesh Executive Vice President, Corinthian Colleges From: Minor Robin To: Finley, Steve CC: Date: 4/30/2010 2:12:40 PM Subject: FW: Shireman Transcript at NASASPS You may be interested. This was Bob's testimony at NASASPS this week. -----Original Message----- From: Minor, Robin Sent: Friday, April30, 2010 2:05PM To: Shireman, Bob; Manheimer, Ann Subject: FW: Shireman Transcript atNASASPS I Nonresponsive -----Original Message----- From: LoBosco, RaJ ph Sent: Friday, April 30, 2010 11:43 AM To: Leon, Geneva; Frola, Michael; Henderson, Linda; Parrott, Douglas; Dragoo, Janet Cc: White, Carolyn; Minor, Robin Subject: Shireman Transcript at NASASPS !Nonresponsive RaJ ph A LoBosco, Area Director Federal Student Aid United States Department of Education 8930 Ward Parkway Suite 2028 Kansas City, MO. 64114-3392 816-268-0440 Direct 816-823-1402 Fax Ralph.LoBosco@ed.gov Robert Shireman Speech to NASASPS ApriJ 28, 2010 Transcript provided by the Career Education Review Michael J. Cooney, Editor mcooney@workforce-com.com . .. And I had forgotten to put the FAFSA simplification applause line into my actual remarks so I have applaud when he said it so it never fails and of course- it's not often- sometimes it's the thing I get questions about but more often its about things like two Pell awards, two programs in an award year, things more detailed like that. But thank you so much for that introduction. Two and a half or three years ago, we started to see a serious economic slide downward in this country, credit markets had seized up, the sub prime mortgage issue was a major cause of that and we stmied seeing ppllosing their jobs. We saw ppl in their jobs feeling much more insecure, much less secure about their ability to invest in higher education, their ability to buy a home w the collapse of the credit markets and the way to solve that - long term- is to invest in improving our nations economy, to invest in the kind of innovation that comes from education, the productivity increases that come from job training. Jn order to follow up on that President Obama laid out a bold goal for he country, he said that by 2002 we want to regain our place as the number one country in the world in terms of adults with post sec credentials, college degrees, certificates and other job training programs. In the recovery legislation, now about a yr and a half ago, that included an expansion of the tax credits that [x] hoping to create in the 90s, an expansion of that tax credit to $2500, making it for 4 yrs and actually covering more of the types of expenses that students and families have for higher education. Increases in Pell grants- the usual approach and what you have seen in your own states, are in an econ downtum, more ppl are poor, more ppl want to go to school , but instead of following up on that need by putting more money onto the grant and scholarship programs actually less money goes into the grant and scholarship programs be of the state budgets. Fed govt took the opposite approach really, what needs to be countercyclical spending that helps- like unemployment insurance- spending that needs to follow up on and help to address the new gaps that families are seeing - so the tax credits were part of that, the increases in Pell grants are not only meeting the new demand for Pell grant dollars but actually increasing he size of the Pell grants and proving those increases into the future with the follow up legislation passed a few weeks ago. Also restoring some certainty to the student loan program, and making sure that no one has any reason to doubt whether they will be able to get the federal student loans that they need, again with the refmms that were implemented a few weeks ago. I mentioned that when people are losing their jobs, when ppl become insecure in their jobs, they look for higher education, they look to find what kind of job training can I get, what kind of skills can I add to my repertoire, what are the skills that I have, how can I make them better so that ill keep my job, so that ifl lose my job I'll have options. And at the same t ime, while we saw this increase in demand, which is helpful and useful given what the President had to say about the need to train our population, we saw state tax revenue declining in all but a few states, we saw resulting cuts in the budgets of state colleges and universities and community colleges, resulting in a combination of very large increases in tuition in some cases and reduced enrollments, fewer seats. So increased demand - ppl wanting more education and training, and public institution either had fewer seats and charging more tuition or might not declare going to be enrolling fewer ppl but their course offerings are cut, fewer kinds of course offerings, so the result is they are not able to demand for higher education. Tuition-driven institutions didn't react that way because they're tuition-driven institutions, and the non-profit institutions have done pretty well despite significant declines in their endowments because there continued to be significant demand for higher education. The public., the non profit private colleges did well and in particular the for profit institutions have come in with investors making sure that there was capacity to be able to serve additional students, and they knew that those students would come with those federal dollars, Pell grants, student loans, tax credits and that hat would help them to not only be consumers who want higher ed but consumers who can pay for that higher education with that federal support so the for-profit industry, more than any other in this economic difficult times, has responded. I want to give you some specific numbers, we now post now on one of the [X] websites, the quarterly numbers ofPell grants by different kinds of schools s I looked at what the first 3 quarters- the total of the first 3 quarters of this award year compared to the last award year for some of the schools that I knew would be here today. So for example, Corinthian Colleges- 38% increase for first 3 quarters this year compared to last year for a total of $800M DeVry- a couple people here from DeVry?- 42% increase up to $1.78 ITT- you guys here? A 44% increase up to $623M Strayer- still here? Is that you? Well this one- 95% increase, may be something about the quarters, but up to $414M APE!- Wally here? And Russell? 94% increase up to $44M Kaplan- they here? So this total is actually all the Washington Post owned entities, 33% increase up to $909M, and again this is the first 3 quarters of the year so the totals for the year are obviously more than that Career Education Corporation- 29% increase up to $1B this first three quarters EDMC- several folks here; a 16% increase, $1.1B Capella- over there? 40% increase to $378M And I think I've just got a couple of others: Grand Canyon- 55% increase to $260M And University of phoenix- you there?- 9% increase but obviously that's on a larger base. So probably that increase is as much as a lot of others' total dollars, and that increase is $2.7b total And Bridgepoint- you guys here? - 6 l% increase, $393M I think those were all that I had numbers for, obviously I know that there's a few others here as well. So I wanted to begin just by thanking the for-profit industry for responding to the critical demands from ppl out there who need higher education. I'd like everybody to give them a hand. Now, others of us in the room have the responsibility for making sure those federal funds I just listed, for education and training, that it's all totally above board. That those significant increases in fed spending for higher education- loans, grants- are serving students and tax payers as well as they possibly can. and that is what the Triad is about- and I know I can say triad in front of this audience because I heard somebody say it earlier. I want to talk for a second about some things going on in Washington right now, and I don't mean negotiated rulemaking- I will get to that in a few minutes, but there is a wall street reform debate going on right now in Washington. What happened in that credit crisis a couple of years ago had something to do with credit rating agencies- agencies like S&P, Fitch, other agencies that were responsible for rating instruments- :financial instruments, looking at what is the quality of these things that have names that cause people's eyes to roll over- things like collateralized debt obligations, and other kinds of securitizations- so what is the quality of the loans, mortgages, are they going to be repaid, how likely are theses loans to be repaid so that an investor purchasing this, how confident can they be that when they purchase, when they invest in this particular instrument, that they will get the money back that they are expecting. The business model for these rating agencies has come under fire in these meetings in Washington, part of this has to do with the business model of the rating agencies, on the one hand, their responsibility, their job, the core of their business was to make sure they did a good job providing an honest rating tor the instrument that they were analyzing. On the other hand, they relied on the income from the companies who asked them to rate the instrument, and ill read to you from- a NYTimes- some of the emails that have been coming out recently. In 2004, well before wall street's bets on subprime mortgages became widely known, employees at Standard & Poor's credit rating agency were feeling pressure to expand the business. One employee warned in an internal email that the company would lose business if it failed to give high enough ratings to collateralized debt obligations, the investments that later emerged at the heart of the financial crisis. Quote, " we are meeting with your group this week to discuss adjusting criteria for rating CDOs of Real estate assets be of the ongoing threat of losing deals. Lose the CDO and lose the base business. A self reinforcing loop" In other words, if we don't loosen up, we don't loosen up in our assessment of these instruments, nobody is going to come have their instruments assessed by us anymore. And this created a conflict which led to instruments that should have been questioned not being questioned, and [leading] over to the financial crisis that we have been suffering from for the past couple of years. The other issue besides the business model was the complexity and fast growth of diff kinds of instruments and ill read from another of the recent articles. "Email. documents and other messages suggested that executives and analysts at ratings agencies embraced new business from Wall Street even though they recognized that they couldn't properly analyze all of the banks' products. And one of the other quotes ends with, "we were so overwhelmed." So I want to actually ask, on that issue, the complexity and growth, and I know we're feeling this with publicly traded corporations and purchases going this way and that way, and we're trying to figure out what's going on . Are there regulators in the room who feel like you DO have the analytical firepower you need to assess what is going on with the entities you regulate in higher education? Those who do feel you have the firepower you need? I don't think we feel we have the firepower we need. So the reform back on the financial instrument side of the equation, what they're really talking about now in Washington on financial reform, one analyst- an academic looking at what's going on, said it only tinkers with the workings of the ratings agency, it doesn't end the inherent conflicts of interest, those cont1icts of interest where the ppl who do the rating are paid for by those who do the ratings. This whole situation w credit agencies, credit rating agencies, is, as I see it, very similar to the way accrediting agencies work in this country. The same kind of inherent conflict of interest. Albeit accrediting agencies are nonprofit and on top of that, what would this crisis look like ifthe banks had actually been the ones running the credit agencies and were doing a peer review kind of model, which is the model we have in accreditation, where it is the regulated who are really looking at each other rather than an outside entity. So to borrow from Winston Churchill, accreditation, as a part of that triad, in terms of a way of assessing quality in higher education, is the worst form of accountability except for all of the others. What Winston Churchill actually said was, democracy is the worst form of government, except for all the others. So I am bringing up this issue of accreditation not to say that we should back away from it or change it, 1 actually don't have a better system for us for assessing quality in higher education. But it is problematic and we need to remember that as the other two pieces of the triad, as we figure out how we can do the best job possible in our responsibilities. Federal and state governments cannot rely on accreditation to insure that consumers and taxpayers are protected t the full extent that they need to be- all three legs of that three legged stool need to be working and working well. There are a number ofthings that we're doing, you've heard about some ofthem- elevating, monitoring and enforcement, we're working with the inspector general at the department of education, taking a much closer look at data than ever before to help guide our selection for program reviews and investigations when necessary by the inspector general, working with he federal trade commission to join their consumer complaint system so complaints they get and other agencies that are on their consumer sentinel, working on the issue of how we can look more at issues of misrepresentation as we do program reviews and other kinds of monitoring. A second area besides the monitoring and enforcement is improving consumer information. We have put graduation rates, retention rates and transfer rates right on the F AFSA form when students are choosing colleges, the rates are right there as a reminder to students that they should do some good shopping, look at various kinds of data that might help them to compare schools. We're also providing them with a more detailed financial aid estimate in terms of the financial aid that they can get and this is partly to make sure that people know they can get that aid wherever they go. Sometimes students think, oh I can get that $12K because the school costs $12K, and I would only get $3k at a community college that only cost $3K, not realizing hat in fact if they wanted to get more than what tuition costs at that community college so that they can focus on their studies instead of working excessive hours, that that is something that they can have available to them. And starting this summer, as a result of a regulatory process that has already completed, schools will have to begin providing placement information and where the have placement rates, they actually will need to make students aware on their websites of placement rates they have for programs that they are offering. Uh coordination and sharing, I head some of the discussion in prior sessions and I look forward to this af-temoons discussion. Within the federal government, we are working with the Fed trade commission, the veterans administration around the GI bill , the SEC because of the involvement of publicly traded institutions, states we have encouraged involvement in this group and are looking for other ways that we can help. Happy to discuss that in q&a here as well as this afternoon because we really need to become good partners if we' re going to do best by taxpayers and students. And accreditors, there are some new requirements, we're working on sharing some draft guidance related to all of the requirements for accreditors and again building that triad and all working together. In fact, I was actually on the internet looking for a three legged stool to see if [ could bring one for this, and [ noticed one of the three legged stools had a, not only the three legs, but it had this connecting piece of wood that held the three legs together, and I thought, well that would be the perfect prop, because that would demonstrate it's a strong stool if that connecting- that connector is there, making it as strong as possible. Also, may of you have heard, reviewing the rules and regulations and where appropriate revising, in the process of revising those rules. Let me take a I ittle bit of time to tell you about some of those. We started about a year ago, doing public hearings where we basically said, we want to know whether we need to in1prove program integrity, are thee things we need to be doing? Here's a list of some areas, misrepresentation- definition of credit hour, state authorization, other kinds of things, and we saw input. We did 3 public hearings, ppl were able to submit items over the internet, through email, and we got a lot of input about great schools out there, students who were having a good experience, people who attended the schools, got a job, had a great experience. We also heard from forn1er students who felt that they were misled, legal aid attorneys who had clients whose stories were cause for concern. That was followed up by- we asked for nominations for ppl to serve on committees- the way this whole process works is that we do our best to work through possible rule changes with a committee of stakeholders, recommended, nominated by interested parties, states, various institutions, student organizations, legal aid.tr 3 weeklong sessions, December, January and February went through each of 14 issues talking about, changes that might make sense. One of them, misrepresentation, clarification really against misrepresentation by schools. High school diploma- one of those things that you take to somebody and think, how hard can it be to know if a high school dimple is valid?? As you know, not that easy and many of you are at the state level so you know that the state isn't necessarily declaring who is good or bad. And the issue of the federal government declaring what is a valid HS education, for example, gets into areas where the def government isn't supposed to be declaring such things, so I think a more complicated issue than I think a lot of ppl expected. We are making - at least in NegReg session - reached some tentative agreement around the definition. I would say the most significant thing we are doing is looking at- and I think this is now a likelihood, when people apply on the F AFSA and it asks for a HS diploma, a list will actually pop up and they can enter what that high school is, the name of that high school based on some feral lists we have. It wont necessarily mean that it will be a valid high school, but it does give us and you the ability to, if for example a suspected diploma mill, we would be able to see who are, where are the students going who are using this particular high school as the place they say they get their diploma from. And if we find that its some particular colleges, that means that it might b encouraging ppl to go and use and diploma mill. So it will be a useful took for us and you as well. , and that's the most important change we'll be making there. Incentive compensation was a major issue, the issue of paid recruiters. A number of years ago, a number of safe harbors were created and there was a lot of indication that they were wider loopholes than are appropriate given the wording of the actual law that prohibits payment of actual compensation based on enrollment. So that's another one that we are working on. State authorization, I heard California mentioned and it was a surprise to me when I came to Washington and asked about California to discover that a legal interpretation of the Dept of Ed, well if the school is not not authorized, then it is authorized. So this a raised question that came up in NegReg about what is at least some minimum standard about what kind of authorization should count in terms of the state role in that Triad. Satisfactory academic progress is another area taking attendance. What] used to call R2D2, return to tile 4. and I'm not mentioning all of the issues, but the final one I will talk some about is Gainful Employment, and this is the one that's been in the news a lot. It seems that every time I speak somewhere, something thinks I said something new and calls a stock analyst who then reports it causing the stocks to go up or down or whatever, and I assure you I am not going to say anything new. If you are a stock analyst or you know a stock analyst, the answer when they ask you, What did Shireman say? You say nothing new. So the statute, the federal law requires that in order for some programs to be eligible for federal financial aid, they have to lead to gainful employment in a recognized occupation. This applies to non degree programs at any type of school and it applies to most programs at for-profit schools, really all except some BA, liberal arts programs through an exception, a recently enacted exception, that actually begins this July 1 51 but for the most part, a for-profit institution, in order to be eligible for federal financial aid, has to show that the program leads to gainful employment or prepares the student for gainful employment in a recognized occupation. So a year ago, we began asking the question, what is the definition, what should db e the definition of gainful employment in a recognized occupation. We had hoped that perhaps some schools would come forward and say, well when we start a program, here's how we determine whether or not it complies .. we didn't get that kind of information. We brought it up in NegReg and made some suggestions for discussion. We suggested, maybe there should be some relationship to the debt levels that students are taking on and the expected earnings that they may have from the occupations that you have identified that you are preparing people for. We also suggested that perhaps a loan repayment rate approach could be devised where we would be able to see that federal loans are actually being repaid at a rate that makes sense if ppl were actually gainfully employed. We looked at the provision and current regulation that currently applies to very short programs, the 70/70 mle. So 70% completion rate, 70% placement rate, and asked should something like that be part of the definition of gainful employment? And then for new programs, we suggested maybe there should be something from an employer, who employs ppl in the occupations that the program is preparing people for, that at least asserts that yes, the cuiTiculum, the program that ive seen at this school is designed in a way where it would prepare people for the jobs that I have in my particular business, so we suggested that for new programs. Now in evety other issue in negreg, we got pretty good discussion at the table, sometimes we actually got consensus from the group on what we should actually, how regulation should actually be worked out. But for some reason on the gainful employment issue, we didn't get the kind of discussion that would at least help to guide in a very constructive way the direction, and to know well, this would be okay with certain kinds of schools but wouldn't be okay with other kinds of schools. Instead the reaction from, in particular those who were representing the for-profit colleges, was you cant do this, you cant define this term, why are you doing this, and that continued even after the NegReg sessions. We continued to meet, we have gotten improved input, improved feedback. And where things stand now with whole regulatory packed, so everything I've just discussed now including the gainful employment, is that in the next few weeks there will be proposed rule published in the federal register. There will be a comment period after that proposed rule is published. That will be the appropriate time to suggest changes or express support for provisions, suggest alternatives, and then a final mle, our goal would be to publish a final rule by November I 51 For rules to take effect in general. next year from this July, they need to be published by November 1 51 So that's where we will be, that's the tin1eline for the rule going forward. I wanted to conclude my remarks before going to some Q&A and some discussion with a piece that Thomas Frank wrote in the WSJ. The title ofthe article is, "Obama and the Regulat01y Capture," and it is again, back about the financial regulation. "It was not merely stmctural problems that led certain regulators to nap through the crisis. The people who filled regulatory jobs in the past administration were asleep at the switch because they were supposed to be. It was as though they had been hired for their extraordinary powers of drowsiness. The reason for that is simple: There are powerful institutions that don't like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented." So, he follows that up with one more line here, "And it created a situation where banking regulators posed for pictures with banking lobbyists while putting a chainsaw to a pile of regulations. Smiles all around. Let the fellows at IndyMac do whatever they want." So my closing words, is, we should take the photos, we should smile, but lets not shirk our responsibility for regulating the industry. The schools will make plenty of money and students and taxpayers will be better off if we do our jobs as best as we can. Thank you very much. Host - Some time for questions and answers, and I know gainful employment will come up, but first I want to just make a comment. I think most of the states, clearly the states in the room, because the ones that aren't in the room, there might not be a cognizant agency that actually is involved in the regulation, if it's a registration with the secretary of state or what-have-you, but fortunately, there is another state within our state that someone can go get a better rate at or what have you. So I think that's clearly one thing that I was thinking about. There is an alternative on per se that the school has if they want to be serving your students, they want to be in your state. They have a set of laws, a little bit different, but 1 certainly appreciate the parallel, and I think important to add- Shireman- I was really more talking about the parallel with accrediting and it's not as much of an issue with states Host- right so you know, 1 sympathize with that, good parallel. Did the Dept, was there any discussion when gainful employment issue was being looked at, to say, can somehow the Dept tap into infom1ation at the Dept of Labor or at the prior [X]. I understand there may be some challenges there, but we're trying to measure whether or not this individual is 1, either employed or perhaps employed and had benefited because of the education or training that they had received and somehow reached their salary or what have you. Was there any discussion around that area, because it seems like there may be some ways of doing that? Shireman -Yes, one of the areas of discussion, so part of the areas we are looking at.; some of the criticism that has been out there has been about the use of averages or 25lh percentile of BLS occupational data. And the reason we suggested use of BLS was not as - it was actually as a way to reduce the work that would need to be done by whoever is coming up with the income information. So for example, it's going to be the schools having to figure out what their graduates eamed, we figured why not just have a level that's an average based on the industry that will eliminate a lot of the school's need to follow up and look at their own graduates. In other words, if it meets- if the debt I income ratio is fine given the earnings in the occupation generally, you don't need to worry about it as a school. Just look at your debt and if it's okay, flne. You only need to look more detailed if you don't, if it doesn't beat it that way, because maybe your graduates are earning something more. It was really to try to reduce the number that would have to go through a process, either using IRS data or a state data system. States like FL are in a much better position to be able to look individual programs and have this kind of information using their U[, unemployment insurance, database. So there's a lot that can be done there, and the discussion at and since negotiated rulemaking has helped us to think through those issues. Host- know there's going to be some questions ... Michael Cooney- Bob, [patt] of your presentation is, do you believe that for profit institutions are serving their students well? Shireman -1 think they have to be given their demand, given the number of people that are going to for-profit institutions, I think it's, I think they are, absolutely. All of them for all students, I think that's where our role comes in Cooney- following up on that, then your gainful employment provisions as we understand it, according to CCA would approximate 300K students from the possibilities of receiving an education. Is that an unintended consequence or are you all cognizant of that? Shireman - there isn't a proposal, and my argument with the- and ive had these conversations directly with CCA, is work with us about what the definition should be. So we can get in- what they've done is say, 8% pure labor statistics, these folks are crazy! But the reality is, thee only way to get to a rule that makes sense, and we need to have a definition, is to get down in the weeds and start working out the details. And they and others have come back with, id say some more constructive thoughts in recent weeks, and those will be considered in the proposed rule, and then they' ll be further input that I hope we' ll get in a final rule. [Ken Miller] -Mr. Shireman, im concerned about national averages. Some states are in much better shape employment-wise than others. I'm fiom Ohio, a county in Ohio that has 17% unemployment. Question - how can you adjust this rule, this definition, for those kinds of anomalies between states, and should you? Shireman -So using actual data from students as was suggested would deal with that completely. The BLS data actually is available on a state basis so that could potentially be another option. So this is where we are, we're open to suggestion and ideas about what would be the best way, or whether it should be various possibilities that a school might have an option to use. This is that input-seeking process for what would be the right kind of approach. Again, part ofthe reason we just used the national average was because, to eliminate a whole lot of work so that fewer needed to look in a more detailed way, and in some ways I suppose if we had not suggested an approach to reducing work, we wouldn't have had the BLS stuff on the table and wouldn't have the criticism, but I think it does make sense, because it was a reasonable, work-reducing item that we put on the table during negotiated rulemaking. [Tom CasseJJ(?)] -have you looked at the idea of a value added concept in the definition? Gainful to me means you've gained, improved. So if we looked at our students and where they came to us and what their earni ngs were afterwards, a measurement of change of gain as the definition? Shireman - so specific suggestions about that proposal and how to do it, we welcome that, I mean that's very useful. So in the proposed rule period, that's especially timely. Make sure, Especially from this point forward, make sure that ideas are considered, that comment period after we publish the proposed rules. That's the kind of thing that would be great to work out the details and suggest it during that comment period. [Keith Boss (?), Northwest Technical Institute) - layers of control can sometimes create layers of bureaucracy as you well know, you've got to struggle with that. There's al ready of default rate, and we're very proud of our very low default rate, was it ever considered that that 's enough control to see that students have the ability to pay offtheir student loans and why would there need to be more layers of control, more bureaucracy than that? Shireman- the discussion at the table around default rate had to do with the fact that the federal government has made sure that ppl who take out at least federal student loans aren't put in a situation where it's a choice between food on the table and paying rent and paying off your student loan. So we have things like forbearance, and if you ask for forbearance, you could make no payments at all and you're not in default, there's income based prepayment where you may be making nothing or next to nothing, but if you're on income-based prepayment, there's very low repayment or maybe nothing at all and you're not in default. So default rate doesn't measure whether or not people are actually earning any money. [Ray]- one of the problems ppl have come to wrestle with this concept is that any fommla that is derived that results in the elimination of eligibility for a program has the potential to have a school on the NE corner vs. a school n the SE corner delivering the same program at the same level of efficiency and quality, but merely because of the borrowing characteristics of their student population, one school's program could be declared ineligible while the other school's program continues ... further, as you go through this and eliminate program eligibility, the students don't go away, they seek out, in many cases, the same education, in another institution. You could end up with a deluge in the public institutions because they're not subject to the sanctions of a loss of eligibility and yet, so it's okay to continue to train that person and for them to continue to have debt and for state dollars to continue to subsidize their education at a public institution but meanwhile the resulting product is the same? Shireman- so what's your suggestion for a definition of gainful employment? [Ray]- well I don't know- I always thought it was defined in the IRS code, the Social Security admin .... Shireman- I need a citation, tell me what we can do, as the US Dept of Ed, to detennine whether a program is in or out. [Ray]- I honestly don't know Shireman- this is the problem. If you cant give me a definition, we're not making any progress. So anything- I can respond to the details of your question, things like the 90/10 rule - any time you draw a line, there will be people right on one side and people on the other side of the line that are very similarly situated. But that's what lines are about, so your suggestions about what would be, and I think asking your colleagues, your own institution, how do we decide, how do we know our programs are eligible for finical aid, would help for you to develop some suggestions for us. Host- see I knew we should have had a workshop on gainful employment.. we've all sat around trying to figure it out. .. we have some good thinkers in the room .. Russell - APEI -I have sort of a detailed question im going to pose for you. You mentioned earlier [xx] with regard to title IV funds, but those fund are not necessatily earmarked specifically for education costs, or direct education costs, and I think we all recognize the reality is that many student do in fact realize substantial amount of money for impotent, incidental spending, a new car, walking around, whatever. My question is, lets take a scenario where an individual sent to community college for a couple years borrows $35-40k, then that graduate comes to APEI system, where it will cost you $30k to get a BA degree from start to finish, we inherit $35-40K worth of debt and add it to the $30k the student incurs with us, we've got $75-80k of debt. Is that going to count against us for the purposes of calculating gainful employment? Shireman -we haven't proposed a rule yet but what we discussed a the table in negotiated rulemaking, the answer would be no. That's because we proposed using the median, and using the median means that all those outliers don't pull up the average. It's the median, schools don't generally have more than half of their students coming in with huge amounts of debt from someplace else. Now there's also the option in the rule of saying, it's only debt you incur at the institution, so in the proposed rule in the comment period will be the time to look back to a particular issue. There's debt/ income ratio in the rule, and you can provide commentary. Again this is the kind ofthing, the kind of discussion we needed a year ago and have begun to get recently and I really do appreciate because they're useful and constructive discussions to have. Russell - well the reason, ifl can just add another comment to that, I think it's important to have [other debt] considered because if you take that approach that im only accountable for my own debt- Sh.ireman- Right, so to be clear, it's just a proposed rule. Comment period, final rule. So we've gotten this kind of input, they'll be a proposed rule. If we haven't addressed this issue and it needs to be addressed further in your view, there will be another opportunity for you beyond the opportunities you've had in the last several weeks. Russell - The one thing I would like not to see happen is that for admissions staff to say we don't want to admit you because you've got debt. Shireman - understood. [NA] - can you tell me how this would apply to a public university or state college? Shireman- well what we discussed at the table, in negotiated rulemaking- and I keep repeating that because the "this"- we haven't proposed anything, we brought discussion items to the table during Negotiated rulemaking, but it would mean that for shorter tem1 certificate programs, if more than half of the completers had debt, then the median debt level of all completers, in other words not just the debt level of those who borrowed, but the median debt level of all the people who complete the program, that would be the debt level that would be compared against the expected earnings in the occupation the program is preparing people for or the set of occupations. And then the discussion earlier was about well, do you use actual earnings for people who are in the program or do you use averages or 25th percentile with BLS so there's that question about what the measures of income should be, so that would be - the concept was that as a standard. And again, at the table we also had other suggestions for an institution if they didn't meet that particular measure like graduation placement rates and loan prepayment rate. LNAJ -so are you going to be asking them to post their placement rates as well/ Shireman- well placement rates have to be posted starting this July anyway, or placement information. if you have rates, rates need to be posted. LNA ) -so if they don't do it now, if they don't have placement info now . .. Shireman - placement information was done as part of a rule done in - Congress required all schools to post placement information in the Higher Education Opportunity Act, and that goes into effect under the rule that was adopted last year so that goes into effect this July. [John Weir(?)] -from a state regulatory perspective, appreciate the Dept's effort to try to address the cost issue, and one of the things that we've found at the state level is that students don't seem to be price conscious when it comes to education. And what do you think we can do at the state level to help make students better consumers, particularly as to the cost issue? Shireman- I think we've seen some improvement in that because of the economic downturn, are seeing families chop more and really look at, does it really make sense for me to spend $30-40K a year, what about the state university ... what about other options? So I think it has improved somewhat, but more needs to be done. There will be, again because of the Higher Education Opportunity Act, starting I believe this summer, schools will now post net tuition - I cant remember if it's net tuition or net cost of attendance- anyway some net figures by income bands so people will actually be able to go and say, for someone in my fami ly income background, it's more common to pay this price rather than the other price. And starting in, I think it' s a year and a half, all colleges will have to have a net cost calculator, where a person can put in their income and other basic information and get a basic sense of what their net cost would be. So that helps to deal with some of the issues, we've provided some more tools to help people get more information and to help them also deal with reality that sometimes a college that looks really expensive based on its sticker price for a particular family, especially lower income, may not actually be that expensive. So there's some new tools coming forward. I do worry that just more information on the internet doesn't really help that much, and that figuring out who we can provide tools more directly to teachers, counselors, people at one stop job training centers. You know, our website, when people are actually applying, finding those moments, those teachable moments when people are actually thinking through these issues, so suggestions you have about the ways that we can do that, Pell programs, state programs- we're certainly interested in ideas. It's important and not easy to figure out how you teach the vast public things that aren't simple. [Julie]- I guess this is more of a comment, but im somewhat concerned about the potential for consumer confusion with the net cost calculator and different types of disclosers about tuition. I know at the state, I'm in Tennessee, we've required that our enrollment agreements contain the total cost of the program for a very long time. We now require that the tuition rate be posted on the internet, we've required disclosure of completion, referral rate, placement rates for a good while. We now do in depth audits of placement data, so if student looks at our website, it's likely the numbers that they'll see are going to be very difierent from maybe what they see on the F AFSA or some other disclosure on the federal side. So how do we address the very likely possibility of confusion, not knowing different methodologies and standards? Shireman- I think you're right, there is going to be confusion. And even me, when I :first started talking about net tuition, I couldn't remember, is it net tuition, is it net cost? What's included in the definition? And I think there will be confusion, I guess the positive side of that is, usually when you take a step and it creates those problems, it then forces us all to sit down and say, how can we improve on what we had come up with originally? Sort of like, data that's not perfect. Like, we cant post that data, it's not totally clean. But the way to get people to clean their data is, you post it. And when we started posting the student debt data that universities had reported to US News & World Report, and universities would call and say, well that's not our figure and we'd say, well that's what you reported to US News. And they'd go back, and sure enough, somebody had reported something wrong, s I think that you're right, there will be some confusion but that will probably force the issue to some degree. But id also welcome- I mean I'd love to look at what Tennessee does and take it to some of our folks and ask about what we can do, A lot of- for some reason Congress in the education space, especially the higher education space, gets very detailed in the legislation's actual statutory language, which then makes it very difficult for us in the implementation to do things differently that what they had prescribed. So we may not have a lot of flexibility in terms of our implementation but maybe there's some suggestions we could make back to Congress by pointing out to them these issues for particular states. [Ray]- there seemed to be a reluctance on the part of Dept officials as well as most people in the room during the NegReg process to talk about the troublesome aspect of schools not being able to limit student borrowing,. It seems that we have a statute, a rule that leaves the amount that students borrow entirely up to them. It's based on fom1ulas, numbers across[] program lengths are mandated by state laws in many fields of training, [licensure], all these things are out ofthe control of the institution, they cannot seem to limit the amount that students borrow except in very specific case-by-case basis, and then they subject themselves to lawsuits by students claiming they were discriminated against. Might there be any opportunity to open up and look at some of those rules so that we might be able to avoid some serious unintended consequences of a formula that could cause havoc? Shireman- student loan program and the Pell grant program are entitlements. They are entitlements for covering tuition, fees, books, supplies, room & board, and to restrict an entitlement program is a pretty big deal, and that's why it's difficult for us to do in tem1s of regulations. Now you do have the ability, if you believe someone would default on their loan, I think that's the ability that the fin aid administrators have ... you're also able to establish what you feel to be reasonable expenses including in the room & board space. But restricting loans beyond that would likely be something Congress would need to consider, and I think part of the reason Congress has had a hard t ime thinking this one through is higher education has benefitted enormously from Pell grants and student loans, Pell grants working like an entitlement program on an annual basis, and student loan programs being an entitlement program. And going down the road of starting to restrict the entitlement, I think is something to do very cautiously if we want to make sure people get the need they are eligible for. END. l(b)(S) From: Bergeron, David Sent: Friday, April 30, 2010 2:37PM To: Kanter, Martha Subject: FW: Tony Miller briefing From: Weko, Tom Sent: Friday, April 30, 2010 2:35 PM To: Bergeron, David Cc: Miller, Elise; Hunt-White, Tracy Subject: Tony Miller briefing (b)(5) From: Kanter Martha To.: Yuan. Georgia CC: Date: 4/30/2010 2:49:24PM Subject: FW: Tony MiiJer briefing (b)(5) (b)(S) (b)(5) (b)(S) 1 The "New Majority" of Undergraduates: 2 Students in Community Colleges and 3 For-Profit Institutions 4 Introduction 5 Depictions of postsecondaty education in the news, films, and oth- 6 er media often focus on undergraduates who study at traditional 7 4-year public universities and nonprofit colleges (Swidey 2009; 8 Russo 2006; U.S. Department of Education 2002). Yet even two 9 decades ago these students accounted for just 55 percent of stu- l 0 dents enrolled in U.S. postsecondaty education (Choy and Gifford 1990). 1 Now a majority of undergraduates in U.S. postsecondaty education attend community colleges and for-profit institutions. These two sectors together enrolled 54 percent of the approximate- ly 21 million undergraduates who attended U.S. postsecondary institutions in 2007-08. Some 44 percent of undergraduates at- l6 tended community colleges, the single largest sector of U.S. postse- condary education, and another 10 percent attended for-profit institutions (figure 1). While the for-profit sector accounts for a relatively small percentage of undergraduates, its enrollment is growing at a rapid pace relative to other postsecondaty sectors (Horn and Li 2009; Wilson 2010). Who are the undergraduate students served by community colleges and for-profit institutions, and how do they compare to students who are enrolled at traditional 4-year institutions? Drawing on data from a nationally representative sample of undergraduates enrolled L Based on fall enrollment in the 1986-87 National Postsecondary Stu- dent Aid Study (NPSAS:87). THE "NEW MAJORITY" OF UNDERGRADUATES: STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 in U.S. postseconda1y institutions, this Statistics in Brief27 enrolled in bachelor's degree programs, while 43 percent 2 addresses the following questions. 28 were pursuing associate's degrees, and the remaining stu- 29 dents were either in certificate programs or not in a de- 3 How do students enrolled in for-profit institutions and 30 gree program (table 1).2 The average 2007-08 tuition 4 community colleges differ from each other and from 31 and fees for full-time, full-year students was $11,900, 5 those enrolled in traditional4-year institutions in terms 32 and for all students, $10,200 (Wei forthcoming). 6 of: 7 8 9 10 11 12 13 33 Community colleges: Also known as public 2-year institu- 1) demographic and socioeconomic characreristics?34 tions, community colleges offer associate's degrees in 2) indicators of high school academic preparation 35 occupational and academic fields, as well as occupational and being the first in their family to attend col- 36 certificates. Unlike for-profit institutions, which offer lege? 37 primarily occupational programs, community colleges 38 offer a variety of progran1s with different goals. These 3) enrollment patterns and major fields of study? 39 include academic transfer to 4-year institutions, voca- 4) the extent to which they combine work and study? 40 tionalltechnical education, continuing education, and 41 developmental education (Cohen and Brawer 2003). 14 The three groups of postsecondary institutions comparcJ2 Conu11w1ity colleges, therefore, serve a range of students, 15 in this Brief are briefly defined below. 43 from those needing basic remedial courses to very high 44 achieving students meeting lower-division bachelor's 16 For-profit institutions: A recent report by the U.S. Gov- 45 degree requirements before transferring to a selective 4- 17 ernment Accountability Office defined propriety institu-46 year college or university (Provasnik and Planty 2008). 18 tions as "Institutions that are privately-owned whose net47 The average 2007-08 tuition and fees for full-time, full- 19 earnings can benefit a shareholder or individual; that is, 48 year students was $2,400, and for all students, $1,200 20 for-profit institutions." (U.S. GovernmentAccountabili-49 (WeiforthcominiJ. 21 ty Office 2009). Among undergraduates enrolled in for- 22 profit institutions in 2007-08, about half attended insti-50 23 tutions authorized to award 4-year (bachelor) degrees, 27 24 percent attended 2-year institutions, and 22 percent at- 25 tended less-than-2-year institutions (figure 2). Half of 26 those in for-profit 4-year institutions were 2 At community colleges, 79 percent of undergraduates were in associate's degree programs, 7 percent in cerrillcate programs, and 11 percent were not in a degree program. In traditional 4- year institutions, 93 percent of lmdergraduates were enrolled in bachelor's degree programs. THE "NEW MAJORITY" OF UNDERGRADUATES: I I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 3 1 Public and private nonprofit 4-year institutions: Public 28 2 and private nonprofit institutions serve as the main 29 3 comparison group in this analysis. Consistent with pre- 30 4 vious research, they are referred to as "traditional4-year 31 5 institutions" (Tierney and Hentschke 2007). Together, 32 6 students in these two sectors accounted for 46 percent of 33 7 all undergraduates in 2007-08-32 percent attending 34 8 public 4-year colleges and universities, and 14 percent 35 9 attending private nonprofit 4-year institutions (figure 1) 36 ic), and income (larger proportion oflow- income students). 3 Community college students also differ from traditional 4-year college stu- dents on most of these characteristics, but to a lesser extent. 4 The part-time status of the majority of commu- nity coll ege students sets them apart from their peers in for-profit and traditional 4-year institu- tions, the majority of whom attend full time. 10 The average 2007-08 tuition and fees for full-time, full- 11 year students in 4-year public institutions was $5,700 37 12 and $6,300 and for all students, $4,100 and $6,300, at 38 Health care fields are the most common fields of study among students in for-profit institutions, and arean1ong the most common fields for community college students. 13 non-doctorate- and doctorate-granting institutions, re- 39 14 spectively. Tuition and fees in private nonprofit institu- 40 15 tions totaled $20, 800 and $25,800 for full-time, full- 41 Regardless of where undergraduates enroll, a majority work while enrolled. 16 year students and $15,200 and $20,700 for all students, 42 17 at non-doctorate- and doctorate-granting institutions, 18 respectively (Wei forthcoming). 19 20 UNDERGRADUATE AWARDS CONFERRED Table 2 shows the distribution of undergraduate awards for the institution comparison groups (shaded) presented in this report. These comple- tions data are reported by all institutions that partic- ipate in Title IV student aid programs. Based on these data, community colleges awarded 46 per- cent of all certificates and 69 percent of associate's degrees in 2007. For-profit institutions awarded 42 percent of all certificates and 16 percent of asso- ciate's degrees. For-profit 4-year institutions awarded about 5 percent of bachelor's degrees and traditional 4-year colleges and universities awarded the remaining 95 percent. 21 Key findings 43 Demographic and Socioeconomic 44 Characteristics 5 Many demographic characteristics, including gender, 6 race/ethnicity, family status, income and age distinguish 7 students enrolled in for-profit institutions and commu- 8 nity colleges from those enrolled in traditional 4-ycar 9 colleges. Students in the for-profit sector, for example, 0 were the most likely to be female, Black or Hispanic, to 1 have children or other dependents, and to be single with 2 dependents in 2007-08 (figure 3). Women constituted a 3 majority of undergraduates in all three sectors, but com- 4 prised 69 percent of students in for-profit institutions. fn 5 contrast, 57 percent of community college students and 6 55 percent of traditional4-year institution students were 7 women. 22 Students enrolled in for-profit institutions differ 3 All comparisons of estimates were tested for statistical signi- ficance using the Student's !-statistic, and all differences cited are statistically significant at the p < .05 level. No adjustments for mltltiple comparisons were made. The standard errors for the estimates can be found at http://nces.ed.goy/das/library/rs:ports.asp. 23 from those enrolled in traditional 4-year institu- 24 tions across a wide range of demographic and 25 socioeconomic characteristics, including gender 26 (larger proportion of women), age (older), 27 race/ethnicity (nearly half are Black or Hispan- 4 Determined by a Student' s t-srarisric that rests the signillc- ance of the difference of differences. THE "NEW MAJORITY" OF UNDERGRADUATES: STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 Nearly half of the students in for-profit institutions were35 students were 31 percent for dependent students and 22 2 Black (25 percent) or Hispanic (21 percent). In commu-36 percent for independent students. 3 nity colleges, the percentages of Black (14 percent) and 4 Hispanic students (15 percent) were lower than those in 37 The income status of community college students rela- 5 for-profit institutions but higher than those in tradition-38 tive to their peers in traditional 4-year institutions dif- 6 al4-year institutions (1 1 and 12 percent, respectively, 39 fered for dependent and independent students. A larger 7 were Black or Hispanic). 40 percentage of dependent community college students 4 1 were from low-income families (31 vs. 20 percent), while 8 Community college students also fel l between for-profit 42 a smaller percentage of independent students earned low 9 and traditional 4-year institutions in terms of their like- 43 incomes (22 vs. 28 percent) . 10 lihood of having dependents and being single with de- 11 pendents. Some 32 percent of communi ty college 44 The average age of students enrolled at conummity col- 12 students had children or other dependents, versus 49 anJ5 leges and for-profit institutions was older than the aver- 13 14 percent in for-profit and traditional 4-year institu- 14 15 tions, respectively. The same pattern was found for the percentage of undergraduates who were single with de- 16 pendents (16 vs. 31 and 7 percent) . 46 age age of students at traditional 4-year institutions (28 47 vs. 24) (figure 5) . Although the average age of students 48 in both for-profit institutions and communi ty coll eges 49 was 28, the distri bution of students by age group in each 50 type of institution differed (figure 5) . Undergraduates 17 When income is considered for postsecondaty students, 51 enroll ed in for-profit institutions were least likely to be 18 family income is reported for students considered finan- 52 traditional-aged students-23 or younger. 19 cially dependent on their parents, and student (and 20 spousal) income is reported for chose considered finan- 53 2 1 cially independent. Dependency status is based largely 54 22 on age: all students 24 or older are considered indepen- 55 23 dent. Married students and students who are parents are 6 24 also considered independent. Reflecting these characte- 5 25 ristics, just over three-quarters (76 percent) of students 57 26 in for-profit institutions were independent (figure 4). I n ~ ~ 27 contrast, 57 percent of community college students and 60 28 32 percent of students at traditional4-year institutions 61 29 were independent. 62 30 Students in the for-profit sector were the most likely to 31 32 63 64 be low income; roughly half (51 percent) of dependent students had low family incomes, and roughJy one-third 65 33 of independent students earned low incomes (32 per- 66 Indicators of High School Academic Preparation and First in Family to Attend College Students in for-profit institutions appeared to be the least academically prepared based on indicators of high school completion and academic preparation available in the data. Indicators include high school completion sta- tus (standard diploma), average grades, and the number of years of mathematics taken. As illustrated in figure 6, compared with their peers in community colleges and traditional 4-year institutions, students in for-profit in- stitutions were the most likely co have enrolled in postse- condaty education without a standard hi gh school diploma (19 percent, vs. 14 percent and 7 percent, re- 34 cent) .s Comparable percentages for conununity college 67 spectively, of community college and traditional4-year 5 Low income is defmed as a parent (dependent wldergra- duates) or student (including spouse's income, for indepen- dent wldergraduates) income that is at or below the 25th percentile of the income distribution for each group. In 2006 (the year used for 2007-08 financial ajd applications) the in- come levels were at or below $36,000 for dependent students and at or below $11,000 for independent students. THE "NEW MAJORITY" OF UNDERGRADUATES: I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 5 1 college students) . 6 They were also least likely to report 30 in for-profit institutions attended full time for the full 2 earning grades ofB or higher (54 vs. 6 1 and 81 percent),31 year and 33 percent attended full time for part of the 3 or completing 4 or more years of high school mathemat-32 year. A higher percentage of undergraduates attended 4 ics (48 vs. 54 and 76 percent) ? At the same time, about 33 full time, full year in traditional4-year institutions (59 5 half of for-profi t students were the first in their famil y to34 percent) than in for-profit institutions. 6 enroll in postsecondary education, as measured by the 7 level of education achieved by either parent (figure 6). 35 Not ali students attend classes on campuses, but instead 8 SpecificaHy, among for-profi t students, 51 percent were 36 participate in distance education. Students in communi- 9 from families in which neither parent had an education 37 ty coll eges and for-profit institutions di d so more often 10 beyond high school, compared with 39 and 25 percent, 38 chan their peers at traditional4-year colleges. About one- 11 respectively, of community coll ege and tradi tional 4-yea 1 39 quarter of community college students and about one- 12 college students. 40 fifth of students in for-profi t institutions reported taking 41 distance education courses during the 2007-08 academic 13 Enrollment Patterns and Major Fields of 14 Study 42 year (figure 8) . In contrast, 17 percent of students at tra- 43 di tional 4-year institutions reported the same. In addi- 44 cion, a larger percentage offor-proflt enrollees (12 15 The part-time enrollment patterns of conumrnity collegC45 percent) than those at commttnity colleges (3 percent) 16 students distinguish them from their peers in both for- 46 reported that their entire program was offered through 17 profi t and traditiona14-year institutions (figure 7) . Se- 47 distance education. 18 venty percent attended part time, while the same percen- 19 cage of students in traditional 4-year and for-profit 4 8 With respect to fields of study, community college stu- 20 institutions attended full time. 49 dents sought both academic and occupational prepara- 50 cion (figure 9) . For example, 7 percent of community 2 1 22 23 While part-time attendance offers a flexibility often 5 1 college students and 22 percent of students in traditional needed by studenrs attending community colleges (Co- 52 4-year institutions majored in humanities and social wen and Brower 2003) , it is also associated with lower 53 sciences, compared with 2 percent of students in for- 24 rates of degree completion relative to full-time atten- 25 dance (e.g., Berkner, He, and Cataldi 2002). 54 profit institutions. Another 20 percent at community 55 coll eges and 6 percent at tradi tional 4-year institutions 56 majored in general studies and other fields, compared 26 Looking at attendance patterns over the year, in 57 27 2007-08, some 38 percent of community college stu- 58 28 dents attended part time for part of the year and 32 per- 59 29 cent for the full year. 8 By contrast, 37 percent of with less chan 1 percent at for-profit institutions. Com- munity coll ege students majoring in humanities, social sciences, and general studies are largely those who seek to transfer to a 4-year college (Berkner, Horn, and Chrne 6 1 2000). 6 These students may have dropped out of high school, ob- tained aGED or high school equivalency certificate, been 62 Health care fields accounted for one-third of undergra- home schooled, or attended a foreign high school. 63 duace majors in for-profit institutions and about one- 7 Data on high school academic preparation (GPA and courses) is available only for students younger than 30, which 64 fifth (21 percent) in community coll eges. In conuast, 9 accowued for 77 percent of alltmdergraduares (figure 5). 65 percent of students in traditional 4-year institutions ma- 8 A full year is defined as 9 or more months. Those attending 66 jored in health care fields. l n addition to health care part year may have completed a program of study or left with-67 fields, students in for-profit institutions were the most out completing, either temporari ly or permanently. 68 likely to major in fields that are grouped under the head- I I THE "NEW MAJORITY" OF UNDERGRADUATES: 6 STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 ing "other applied" (26 vs. 16 and 14 percent at com- 16 2 munity coll eges and tradi t ional 17 3 4-year institutions, respectively). These fields include 18 4 criminal justice, communications, and design and ap- 19 5 plied arts, among others. 20 1 HEALTH MAJORS AT COMMUNITY COLLEGES AND 2 FORPROFIT LESS THAN4YEAR INSTITUTIONS 3 4 Although health care fields were among the most 5 common majors at less-than-2-year and 2-year for- profit institutions and community colleges, the mix 6 of health majors at each institution type varied. Figure 10 shows the percentage of health majors 7 at community colleges and 2-year and less-than-2- 8 year for-profit institutions in five fields of study. To- 9 gether, these fields account for about 43 and 46 0 percent of majors at less than-2-year and 2-year for profit institutions, respectively, and 20 percent 1 at community colleges. A higher percentage of stu- 2 dents majoring in health care fields majored in 3 nursing at community colleges (59 percent) than at less-than-2-year (12 percent) and 2-year (1 0 per- 4 cent) for-profit institutions. By contrast, higher per- centages of students at for-profit i nstitutions 5 majored in health and medical administrative ser- 6 vices (21 and 29 percent for less-than-2-year and 2-year institutions, respectively, vs. 5 percent at 7 community colleges) and allied health and medical 8 assisting services (21 and 27 percent for less-than- 9 2-year and 2-year institutions, respectively, vs. 4 0 percent at community colleges) . 1 6 2 7 Combining Work and Study 43 44 8 More than two-thirds of students attending for-profit 9 institutions below the bachelor's degree level and about 45 10 one-half of community college students indicated that 4 6 11 th fi 11 b 47 . .e1r pnmaty reason or enro mg was to acqUire JO re- 12 lated skills or credentials (figure 11). Many of these stu- 13 dents work while attending classes. l n fact, regardless of 14 where undergraduates enroll , a large majority of students 15 work while enrolled (figure 12). Community college students were the most likely to work while enrolled (81 percent) and to work full time (41 percent of all community college students). Howev- er, even though a smaller percentage of students in for- profit institutions attended part time (figure 7), nearly three-quarters (73 percent) worked whil e enrolled and 39 percent of all for-profit students worked full time (figure 12). Students in traditional 4-year institutions were the least likely to work while enrolled, yet 69 per- cent did so. When working students were asked if they considered employment or going to school as their primaty activity, a majority reported the latter. 9 This was the case for stu- dents enrolled in all three institution types. About 60 percent of students in both community colleges and for- profit institutions reported that their primaty role was as a student, as did 79 percent of students in 4-year institu- tions. Find Out More See Related NCES Products More detailed information on 2007-08 undergraduates enroll ed in U.S. postsecondary institutions can be found in Web Tables produced by NCES using the NPSAS:08 data. These web Tables are a comprehensive source of information on undergraduate students during the 2007- 08 academic year. Included are estimates of de- mographics, enrollment, and employment characteris- tics. In addition, Web Tables documenting how students pay for their undergraduate education are also avail able. Web Tables-Profile of Undergraduate Students in U.S Postse- condmy Institutions: 2007-08 (NCES 2010-205). [link will be added] 9 Students who worked while enrolled were asked the foliow- tng question: "Would you say you were primarily a student working to meer expenses or an employee who decided ro enroll in school. " 1 Web Tables-Student Financing of Undergraduate Education: 2 2007-08 (NCES 2010-162). [link wil l be added] 3 Readers may also be interested in the following NCES 4 prod ucts related to the topic of this Statistics in Brief: 5 Changes in Awards Below the Bachelors Degree (NCES 201 0- 6 167). 1 OL2Ql QlGZ.pdf THE "NEW MAJORITY" OF UNDERGRADUATES: I I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 7 33 34 35 36 37 38 39 pondents. Estimates were weighted to adj ust for the un- equal probabili ty of selection into the sample and for non response. For an overview of the survey methodolo- gy, see appendix B of the report 2007-08 National Post- secondary Student Aid Study (NPSAS:08): Student FinanciaL Aid Estimates for 2007- 08: First Look (http://nces.ed.gov /pubs2009/2009166.pdf). 7 The Price of Undergraduate Education: 2007-08 (NCES 201 0- 8 175). [link to be added] 40 T he fi ndings presented here are purely descri ptive in nature. Al l estimates presented in this Statistics in Brief were produced using the Data Analysis System (DAS), a web-based software application that enables users to gen- 9 Student hnancing of Undergraduate Education: 2007-08 10 (N CES 2009-175). [li11 k to be added] 4 1 42 43 1 1 Undergraduate Financial Aid Estimates by Type oflmtitution in 44 erate tables for most of the postsecondary surveys con- 12 2007-08 (NCES 2009-201). 13 http:Unces.ed.gQvlpubs2Q09/2Q092Ql .pdf 14 2007-08 National Postsecondary Student Aid Study 15 (NPSAS:08): Student Finan,ial Aid Estimates: First Look 16 (NCES 2009-166). 17 http://nces.ed.gov/pubs2009/2009166.pdf 4 5 ducted by the National Center for Education Statistics 46 (NCES). T he DAS also contains a detailed description 47 of how each variable was created and incl udes the word- 4 8 ing of questions for variables coming d irectly from the 49 interview. With the DAS, users can repli cate or expand 50 upon the figures and tables presented in this report. For 18 Run Your Own Analysis 51 a description of al l available options, users should access 19 Direct access to the data used in this Statistics in Brief is 52 the DAS website. If users are new to the DAS, the DAS 20 avail able through NCES' s DataLab site 53 User Help Center provides online tutorials on how to 2 1 (http://nces.ed.gov/datalab/). 54 use al l functions of the DAS. The DAS is available at 22 Technical Notes 55 http://nces.ed.gov/DAS. 23 The data in this report come from the National Postse- 56 Variables Used in This Statistics in Brief 4 d d Ps S) dm d 57 Information on al l the variables used in this report can 2 condary Student Ai Stu y (N A a inistere over 25 the 2007- 08 year. T he NPSAS target population in- 58 be obtained from the NPSAS:08 DAS. Users can search 26 II d I 59 the DAS for the label or variable nan1es specified below. dudes all eligibl e students enro e in T it eN institu- 27 tions in the United States at any time between July 1, 60 T he foll owing variables included in chis Brief had a 28 2007 and June 30, 2008. 10 The sampli ng design for col- 6 1 response race ofless than 85 percent: 29 lecting data consisted of two stages. T he fi rst stage in- 62 ATTEND MR, DEPANY, DISTED UC, 30 volved selecting eligible institutions from which students63 DISTALL, H CYSMATH, H SGPA, JOBENR, 31 would then be sampled in the second stage. Approx- 64 ]OBRO LE, PAREDUC, PCT DEP, PCTlNDEP. 32 imately 114,000 undergraduate students were study res- 10 Title IV institutions are those eligible to participate in the federal fmancial aid programs incl uded in Title IV of the Higher Ed ucation Act. These programs include the Pel ! Grant, federal student loans, work-st udy, and other federal aid. I I THE "NEW MAJORITY" OF UNDERGRADUATES: 8 STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 Age (AGE) 40 Choy, S. (200 1). Stur.knts Whose Parmts Did Not Go To Col- 2 Main reasons for attending institution (AITENDMR) 3 Attendance pattern (ATfNSTKD 4 Has dependents (DEPANY) 41 42 43 lege: PostucoruM.ry A cuss, Pnsistmu, and Attainmmt (NCES 2001-126). Narlonal Center for Education Statis- tics, U.S. Department of Education. Washington, DC. 5 Dependency status (DEPEND) 44 Cohen, A.M., and Brawer, F.B. (2003). The Ammcan Com- 6 Distance education: took courses in 2007-08 7 (DISTEDUC) 45 munity College {tlth ed.). San Francisco: Jossey-Bass. 8 Distance education: entire program (DIST ALL) 9 Gender (GENDER) 46 47 48 49 Horn, L. and Li, X. Changes in Awards Below the Bachelor's Degree (NCES 2010-167). National Center for Educa- tion Statistics, Insti tute of Ed ucation Sciences, U.S. De- partment of Education. Washington, DC. 10 High school math courses planned/taken J 1 (HCYSMATH) 50 Russo, A. (2006). Traditional College Students Not So Tradi- 12 High school degree type (HSDEG) 51 tiona!. This Week in Education: Alexander Russo's WeekLy 13 High school grade point average (HSGPA) 14 Work intensity whi le enrolled QOBENR) 52 Roundup of the Best Education News and Analysis. Re- 53 trieved December 16, 2009, from 15 Primary role as student or employee QOBROLE) 16 NPSAS institution level (LEVEL) 54 55 17 Field of study/major (detailed CIP codes) (MAJORS4Y)56 18 Field of study: undergraduate (10 categories) 5? 19 (MAJORS4) ; ~ 20 Parent education (PAREOUC) 60 h up://tb jsweeki ned ucarion .blogspor.com/2006/02/ uad jrion a l-eo llegs:-sruden rs-no t -so. b tm I. Swidey, N. (2009). The Four-Year College Myrh. The Boston Globe Sunday Magazine. Retrieved November 25, 2009, from hnp://www.boston.com/bostonglobs:lmagazine/artkks/2 009/05/31/tbs: four year college myth/. 21 Tncomc percentile for dependent students (PCTDEP) 22 23 24 Income percentile for independent students (PCTTNDEP) 61 Tierney, W. and Henrschke, G. {2007). New Players, Differmt 62 Game: Understanding the Rise ofFor-Profit Colleges and 63 Universities. Baltimore, MD: The j ohns Hopkins Univer- Race/ethnicity (RACE) 64 sity Press. 25 I nstitution sector (SECTOR9) 26 Single parent (SJNGLPAR) 65 U.S. Governrnenr Accountability Office (GAO). {2009). Pro- 27 Undergraduate degree (UGDEG) 66 67 68 69 28 References 29 13erkner, L., Horn, L., and McCiw1e, M. (2000). Descriptive 70 30 Summnry of 1995-96 Beginning PostsecoruM.ry Students: 7I 31 Thm Yean Later (NCES 2000-154). NationaJ Center fol 2 32 Education Statistics, U.S. Department of Education. 73 33 Washington, DC. 74 34 35 36 37 38 39 Bradburn, E., Berger, R., Li, X., Peter, K., and Rooney, K. 75 (2003). A Descriptive Summary of1999-2000 Bachelor's 76 Degm Recipients 1 Year Later (NCES 2003-165). Nation77 al Center for Education Statistics, lnstlrute of Education 78 Sciences, U.S. Department of Education. Washington, DC. prietary SdJools: Stronger Department of Education Over- sight Needed to HeLp Ensure OnLy Eligible Students Receive FederaL Student Aid (GA0-09-600). Washington, DC: Aurbor. Wilson, R. (20 I 0). "for-Proflr Colleges Change Higher Edu- cation's Landscape. Chronicle of Higher Education Febru- ary 7, 20 I 0. Retrieved February 16, 2010 from hnp://chronjcls:.com/arrjcls:/For-Profit-Colls:gs:s- Changs:/640 12/. Wei, C. (forthcoming) Web Tabks: Student Financing of Unrkr- graduate Education {NCES 201 0-162). National Cemer for Education Statistics, U.S. Department of Education. Washington, DC. 1 www.ed.gov ies.ed.gov Figure 1. WHERE UNDERGRADUATES ARE ENROLLED: Percentage distribution of undergraduates, by type of institution: 2007-08 Private nonprofit 4-year Community colleges 44% 54% 1 Other includes public less-than-2-year and private nonprofit less- than-4-year institutions. 2 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/dasl librarv/ reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 2. FOR-PROFIT INSTITUTIONS ARE AT ALL LEVELS: Percentage distribution of undergraduates who attended for-profit institutions, by level of institution: 2007-08 4-year NOTE: Estimates include students enrolled in Title IV eligible post secondary institutions in the 50 states. DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:lfnces.ed.gov/das/library/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 3. GENDER, FAMILY STATUS, AND RACE/ETHNCITY: Percentage of undergraduates with selected student characteristics, by type of institution: 2007-{)8 Percent 100 80 60 40 20 For-profit' Community colleges Public and private nonprofit 4-year 0 0 69 57 Female 20 Percentage of undergraduates by selected characteristics 55 For-profit' 49 Percentage of undergraduates with children or dependents Community colleges 16 7 Percentage of undergraduates who were single with dependents C Public and private nonprofit 4-year Percentage distribution of undergraduates by race/ethnicity 40 60 80 Percent White OBiack CHispanic Asian Other or two or more races 1 Includes 4-, 2-, and less-than-2-year institutions. 100 NOTE: Black includes African American, Hispanic includes Latino, and Asian includes Pacific Islander. Other includes American Indian and Alaska Native, and respondents having origins in a race/ethnicity not listed. Estimates include students enrolled in Tille IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:/fnces.ed.gov/das!library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-Q8 National Postsecondary Student Aid Study (NPSAS:08). Figure 4. Percent 100 l 80 J 60 I 40 I 1 20 I 1 0 LOW-INCOME STATUS: Percentage of undergraduates who were independent and percentage in the low-income groups among dependent and independent students, by type of institution: 2007-08 76 Independent undergraduates For-profit' 51 Low-income dependent undergraduates' Community colleges 32 28 Low-income independent undergraduates 2 oPublic and private nonprofit 4-year 1 Low-income dependent undergraduates had family incomes of approximately $36.000 or less in 2006 (the year used for 2007-08 financial aid calculations), which was at or below the 25th percentile of the income distribution for all dependent undergraduates. 2 Low-income independent undergraduates had personal (including spouse's income) incomes of approximately $11,000 or less in 2006 (the year used for 2007-08 financial aid calculations), which was at or below the 25th percentile of the income distribution for all independent undergraduates. 3 Includes 4-, 2-. and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http:/fnces.ed.gov/das/librarv/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 5. AGE DISTRIBUTION: Average age and percentage distribution of undergraduates by age and type of institution: 2007-08 Percent 100 .. 80 G 60 40 36 20 0 All For- undergraduates profit' Average age 26 28 1 Includes 4-, 2 , and less-than-2-year institutions. 30 Community colleges 28 40 or older 45 0 24-29 Public and private nonprofit 4-year 24 20-23 19 or younger NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:/lnces.ed.qov/ dasllibrarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study ( NPSAS:08). Figure 6. STUDENTS' ACADEMIC BACKGROUND AND WHETHER FIRST IN FAMILY TO ATTEND COLLEGE: Percentage of undergraduates who did not graduate from high school with a regular high school diploma, who reported having a high school GPA of 8 or better, who reported taking 4 or more years of mathematics in high school, and who were the first in their family to attend college, by type of institution: 2007-08 Percent 100 80 60 40 20 0 Students without a regular high school diploma' For-profit' 81 61 54 Students with an average high school GPA equivalent to grade B or better Community colleges 76 48 54 Took 4 years or more of mathematics in high school 2 51 First in family to attend college (neither parent attended postsecondary education) 0 Public and private nonprofit 4-year 1 Undergraduates who did not have a regular high school diploma may have attended a foreign high school, been home schooled, or may have earned a high school completion certificate, graduation equivalency diploma, or other equivalency, or have no high school degree or certificate. 2 Data on academic preparation in high school are available only for undergraduates younger than 30, who account for 77 percent of all undergraduates. 3 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nces.ed .govfdas/libraryfreports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007--08 National Postsecondary Student Aid Study (NPSAS:08). Figure 7. FULL- AND PART-TIME ATTENDANCE: Percentage distribution of undergraduates by attendance status and by type of i nstitution attended: 2007-08 Percent 100 80 ~ a Part-time! part-year 60 12 aPart-time/ 33 full-year 14 40 Full-time/ part-year 20 11 a Full-time/ full-year 0 All undergraduates For-profit' Community Public and private colleges nonprofit 4-year 1 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08) . Figure 8. DISTANCE EDUCATION: Percentage of all undergraduates who took a distance education course in 2007-08 and percentage of all undergraduates who attended programs entirely taught through distance education, by institution type: 2007-08 Percent 100 80 60 40 20 0 L 21 24 17 Took a distance education course in 2007-08 For-profit' Community colleges 1 Includes 4-, 2-, and less-than-2-year institutions. 12 3 2 Percent of undergraduates in programs entirely taught through distance education ClPublic and private nonprofit 4-year NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/ library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08) . Figure 9. MAJOR FIELDS OF STUDY: Percentage distribution of undergraduates by major field of study and type of institution: 2007-08 Percent 100 80 60 40 33 20 22 20 li:n 70 6 9 6 2 ..2.__o # - _ c:J Health care fields Other applied' Business STEM 2 Humanities and Education General studies social sciences and other' For-profit 4 Community colleges a Public and private nonprofit 4-year # Rounds to zero. 1 Includes personal and consumer services, manufacturing, construction. repair, and transportation, military technology and protective services, architecture, communications, public administration and human services, design and applied arts, law and legal studies, and theology and religious vocations. 2 Science, technology, engineering and math. 3 other includes basic skills, citizenship activities, leisure and recreational activities, personal awareness and self improvement, high school/ secondary diplomas and certificate programs, interpersonal and social skills. 4 Includes 4-. 2-, and less-than-2-year institutions. NOTE: Excludes undergraduates who were not in a degree program or who had not declared a major field of study. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 10. MOST COMMON HEALTH CARE FIELDS: Percentage distribution of health majors at community colleges and for-profit subbaccalaureate institutions by type of institution: 2007-08 Percent 100 80 60 40 20 ! 0 ' 57 40 11 10 10 10 14 5 26 m:;., 22 __ _ Nursing Health professions and related clinical sciences :.J For-profit less-than-2-year Health and medical administrative services li!l For-profit 2-year Allied health and medical assisting services Other health care fields' Community colleges 1 Other health care fields include allied health diagnostic, intervention, and treatment fields, pharmacy and pharmaceutical sciences, and health aides, among others. NOTE: Health care fields accounted for 43 percent of majors at for-profit less-than-2-year institutions, 46 percent at for-profit 2-year institutions, and 20 percent of majors at community colleges. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nces.ed.gov/das/librarv/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007--Q8 National Postsecondary Student Aid Study (NPSAS:08). Figure 11. MAIN REASON FOR ENROLLI NG: Percentage distribution of undergraduates who attended community colleges and 2-year or less-than-2-year for-profit institutions, by their main reason for enrolling and type of institution: 2007-08 Percent 100 80 60 40 20 0 82 51 Acquire job-related skills or credentials t Not applicable. 12 12 t Complete associate's degree n For-profit less-than-2-year 1 From the institution in which they were primarily enrolled. 13 Solely for personal interest o For-profit 2-year 25 Prepare to transfer Community colleges 5 Earn course credits at a different institution' NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.govfdasllibrary/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-QS National Postsecondary Student Aid Study (NPSAS:08). Figure 12. COMBINING WORK AND STUDY: Percent age of all undergraduates who worked and worked full time whil e enrolled and f or those who worked, reported their main role as being a student, by type of institution: 2007-08 Percent 100 80 60 40 20 0 81 73 69 Among all undergraduates, worked while enrolled For-profit 39 41 Among all undergraduates, worked full time while enrolled 79 58 60 Of those who worked, primary role as a student' Community colleges o Public and private nonprofit 4-year 1 Undergraduates who worked while enrolled were asked whether they regarded their primary role as a student or as an employee. 2 1ncludes 4-. 2-. and less-than-2-year institutions. NOTE: Excludes work-study and assistantships. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are avai.lable at http://nces.ed.gov/ das/librarv/reports.asp . SOURCE: U.S. Department of Education. National Center for Education Statistics, 2007--QS National Postsecondary Student Aid Study (NPSAS:08) . Table 1. DEGREE OR CERTIFICATE PROGRAM: Percentage distribution of undergraduates attending community colleges, for-profit, and traditional 4-year institutions by program type: 2007-08 Associate' s Bachelor's No degree or Program type Certificate degree degree certificate program Public and private nonprofit 4-year 0.6 4.2 93.1 Community college 6.9 78.9 3.0 1 For-profit 34.4 38.2 25.8 Less-than-2-year 98.4 t t 2-year 35.7 61.8 0.5 4-year 5.6 42.6 50.4 t Not applicable. 1 Students who attended a community college and reported that they were working on a bachelor's degree may have attended a community college that offers bachelor's degrees or planned to transfer to a 4-year institution. 2.1 11.2 1.6 L6 L9 1.4 NOTE: Detail may not sum to totals because of rounding. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http:/lnces.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). Table 2. UNDERGRADUATE AWARDS CONFERRED in Title IV institutions, by type of institution: 2007 Institution type Total Type of institution Total awards 100.0 Traditional 4-year colleges and universities 53.6 Public 4-year or above 35.6 Private nonprofit 4-year and above 18.0 Public 2-year (community colleges) 28.2 Public less-than-2cyear 1 .0 Private nonprofit 2-year 0.5 Private nonprofit less-than-2-year 0.3 Private for-profit 16.4 4-year or above 4.8 2-year 5.5 Less-than-2-year 6.1 t Not applicable. NOTE: Detail may not sum to totals because of rounding. Percentage distribution of undergraduate awards conferred in 2007 Associate's Ceritifcates degree 100.0 100.0 5.1 14.2 2.9 9.2 2.2 5.0 46.2 69.1 4.3 t 1.1 0.8 1.3 t 41 .9 15.8 2.1 7.8 14.6 8.0 25.2 t Bachelor's degree 100.0 95.4 63.7 31 .7 t t t t 4.6 4.6 t t SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (I PEDS), "Completions Survey" and "Institutional Characteristics Survey," 2007. Table A. Number of for-profit Title IV institutions, by level: United States, academic year 2004-05 to 2008-09. -08 Total institutions, all controls 6383 6,441 6,536 6,551 Total for-profit institutions
1!l.6% o.4% SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (!PEDS), Fall 2004to Fall 2008, Institutional Characteristics Component Table B. Fall Enrollment by institution control : United States, Fall
Private For Profit Private Nonprofit Public Total SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System, Institutional Characteristics and Fall Enrollment Surveys: 2004 2008. 2008 6n,851 1,188,881 1,380,355 1, 797,563 3,137, 108 3,299,094 3,440,559 3,543,455 3,684,n3 11,891,450 12,883,071 13,081,358 15,701,409 17,710,798 19,574,395 Percent Change
7.1% 7.7% 10. 5% Table C. Percent of Fall Enrollment by institution control: United States, Fall 2004
Private For Profit Private Nonprofit Public SOURCE: Integrated Postsecondary Education Data System, Institutional Characteristics and FaiJ 8nrollment Surveys: 2004 2008.
4.8%
75.7%
5.0% 19.4% 75.6%
6.7% 19.4% 73.9% Percent Change 7.6% 87% 19.5% 18.8% 8% 73.0% n.o% 3% Table D. Number and percentage distribution of awards conferred at for-profit Title IV institutions, by level: United States, academic year 2003-04 to 2007-08. 2003-04 2004-05 2005-06 2006-07 2007-08 Change Total All institutions2 2,998,114 3,085,464 3,165,016 3,232,300 3,314,978 10.6% For-profit institutions Number of awards2 356,128 382,146 405,542 425,377 444,307 24.8% Percent of all awards2 11.9% 12.4% 12.8% 13.2% 13.4% 12.8% 4-year institutions} All institutions2 2,213,225 2,293,350 2,371,219 2,443,619 2,521,319 13.9% For-profit institutions Number of awards2 111,586 134,081 161, 160 182,445 202,410 81.4% Percent of all awards2 5.0% 5.8% 6.8% 7.5% 8.0% 59.2% 2-year institutionsl All institutions2 542,177 557,172 564,964 563,875 571,964 5.5% For-profit institutions Number of awards2 55,080 55,259 57,461 59,381 58,415 6.1% Percent of all awards2 10.2% 9.9% 10.2% 10.5% 10.2% 0.5% Less-than 2-year institutions3 All institutions4 242,712 234,942 228,833 224,806 221,695 -8.7% For-profit institutions Number of awards4 189,462 192,806 186,921 183,551 183,482 -3.2% Percent of all awards4 7R1% 82.1% 81.7% 81.6% 82.8% 6.0% 1 Includes degree-granting institutions only 2 Excluding certificates 3 Includes all institutions, both degree and non-degree granting 4 Includes all awards, including both degrees and certificates SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (!PEDS), Fall 2003 to Fall 2008, Completions component. 1 The Expansion of Private Loans in 2 Postsecondary Education 3 Government officials and higher education associations are con- 4 cerned that, out of confusion or ignorance, some postsecondaty 5 students may not cake full advantage of federal loan programs and 6 turn instead to more costly private loans (e.g., Federal Trade 7 Commission 2008; King 2007). Others argue that federal loan lim- 8 its don't meet some students' education financing needs and that 9 such students, therefore, seek additional funds through private 10 loans (McSwain, Price, and Cunningham 2006). Most students borrow money for postsecondary education through federal loan programs, which have eligibility requirements and bor- rowing limits. Students can also obtain private loans from banks and other lending institutions. Private (or "alternative") loans are not guaranteed by the government and can be relatively expensive, as they generally have higher fees and interest rates than federal student loans. Private education loans are estimated to have reached a peak of about $22 billion in 2007- 08 (College Board 2009). That same year, many lenders increased their direct marketing to students, highlighting a quick and easy application and approval process for private loans; some of these lenders were accused of deceptive mar- keting practices (U.S. Senate Committee 2007). According to the U.S. Department of Education (2008), "[p]rivate loans and credit cards are consumer loans and are vety expensive ways of financing your education." Since 2007-08, however, the volume of private loans for postse- condaty education is thought to have declined substantially due to a shortage of capital and higher underwriting standards by lenders (Student Lending Analytics 2009a, 2009b). Recent data released by I 2 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 the College Board (2009) are consistent with this expla- 2 nation. 3 This Statistics in Brief examines how the use of private 4 education loans changed between 2003-04 and 2007- 5 08 by addressing the following study questions: 6 1. How did undergraduate borrowing from private 7 sources change between 2003-04 and 2007-08? 8 2. Who obtained private loans? 9 3. To what extent did undergraduates combine 10 private and public loans? 11 4. Did undergraduates borrow the maximum 12 amount from federal Stafford loans before turn- 13 ing to private loans? 14 5. How did private borrowing change among 15 graduate and professional students? 16 Key Findings 17 The percentage of undergraduates obtaining private 18 loans nearly tripled, from 5 to 14 percent. 19 Undergraduates at for-profit institutions had the 20 21 22 23 24 25 highest rate of borrowing from private sources-42 percent took out private loans in 2007- 08. Dependent undergraduates from middle-income families borrowed from private sources at higher rates than did students from low- or high-income families. 26 About one-half of full-time, full-year undergraduates 27 who obtained a private loan had borrowed the max- 28 imum federal (Stafford) loan amount. 29 30 MAJOR TYPES OF HIGHER EDUCATION LOANS Private loans. Private loans are education loans, not guaranteed by the federal government, from commercial lenders, credit unions, or other non- profit entities. Their terms are determined by the lender. Private loans carry a market interest rate, usually variable and based on credit history, and they generally have higher fees and interest rates than federal student loans.(See question on p. 8) Stafford loans. These student loans have fixed interest rates and various repayment benefits and are guaranteed by the federal government. They have eligibility requirements and limits on amounts. There are two types of federal Stafford Loans: sub- sidized and unsubsidized. Subsidized Stafford loans are awarded based on financial need, and the federal government pays interest on the loan until the student begins repayment and during au- thorized periods of deferment thereafter. Unsubsi- dized Stafford loans are not need based; students are charged interest for the duration of the loan, although it can be capitalized. Parent PLUS loans. These federally guaranteed loans are available only to the parents of depen- dent students. The interest rate in 2007- 08 was fixed at ei ther 7.9 or 8.5 percent. Borrowers cannot have a negative credit history, and the amount is limited to the cost of attendance minus other finan- cial aid. The loans carry the benefits and protec- tions of all federal loans. Graduate PLUS loans. These are federally guar- anteed loans for graduate and professional stu- dents that became available in 2006. The terms are the same as for Parent PLUS loans, with the same interest rates, restrictions, and benefits. THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 3 1 Detailed Findings 28 tutions was $5,500 in 2007-08; at private nonprofit 4- 2 How did undergraduate borrowing from private 29 year institutions, it was $17,800; and at for-profit insti- 3 sources change between 2003-Q4 and 2007-QS? 30 tutions, it was $10,200. Further, the for-profit sector is 3 1 more likely to enroll low-income students. The median 4 T he rate of undergraduate private loan borrowing in- 32 income for dependent students' parents at public 4-year 5 creased from 5 to 14 percent between 2003-04 and 33 institutions was $75,700 in 2007-08. 4 At for-profit in- 6 2007- 08 (figure 1). 1 But the amount borrowed held 34 stitutions, the corresponding median income was 7 steady after adj usting for inflation: the average private 35 $35,700. 8 loan in 2003-04 was $6,600 and $6,500 in 2007-08. 2 36 I n general, the higher the tuition, the higher the rate of 9 Stafford loan borrowing among undergraduates also in- 37 private borrowing. For example, the highest rates of bor- 1 0 creased from 32 percent to 35 percent, and the average 38 rowing (30- 32 percent) occurred among students whose 11 Stafford loan amount rose from $4,900 to $5,000. 39 tuition was more than $10,000 per year (figure 3) . In 12 The rate of any borrowing rose from 34 percent in 13 2003- 04 to 39 percent in 2007- 08. 3 T he average loan 14 amount from all sources, including Parent PLUS loans, 15 increased from $6,900 to $8, 100. 40 comparison, 22 percent of students paying $5,000 to 41 $9,999 in tuition took out private loans, as did 14 per- 42 cent of those paying $3,000 to $4,999 and 9 percent or 43 less of those paying under $3,000 in tuition. 16 Who obtained private loans? 44 Dependent undergraduates from middle-income fami li es 45 attending full-time full-year borrowed from private 17 In 2007-08, private loan borrowing varied by type of 46 sources at higher rates than students from low- or high- 18 . . . . . I 1 d d d d 4 7 tnstttuuon, tuttton eve , stu ent epen ency status, an 19 family income. T he rate of private borrowing was high- 4 8 20 est at for-profit institutions, where the rate about
2 1 from 13 percent to 42 percent, from 2003-04 to 2007- 50 22 08 (figure 2). Private borrowing at private nonprofit 4- 51 23 year institutions was also high and about doubled, from 52 24 11 percent to 25 percent. 53 income famil ies. One-fifth of studenrs in the two mid- dle-income groups took out private loans, compared with 15-16 percent of students in the low- and high- income groups (figure 4). Looking at aU borrowing, in- cluding Parent PLUS loans, dependent students from high-income fan1Uies borrowed at the lowest rate (40 percent). 54 Among independent students, upper middle- and high- 25 T he higher rate of borrowing among students at private 55 income students took out private loans relatively more 26 institutions reflects to some extent the higher tuition at 56 often than low-income students. One-fifth of low- 27 these institutions. Average tuition at public 4-year insti- 57 income independent undergraduates took out private 58 loans, compared with 27- 28 percent of those in the up- 1 All comparisons of estimates were rested for statistical signi- 5 9 per middle- and high-income groups. ftcance usi ng the Student's t-statistic, and all differences cited are statistically significant at the p < .05 level. No adj ustments for multiple comparisons were made. The standard errors for the estimates can be found at http://nces.ed.gov/das/li brary/reporrs.asp. 2 All dollar amounts for 2003-04 have been adj usted for infla- tion to 2007 doll ars using the Consumer Price Index. 3 Includes Parent PLUS loans as well as Stafford, Perkins, and private loans. 4 Independent students are age 24 or older and students under 24 who are married, have dependents, are veterans, or are an orphan or ward of the courts. Other undergraduates under age 24 are considered to be dependent. Income for dependent students is the income of their parents. For independent stu- dents, income includes a spouse' s income if the st udent is mar- ried. I 4 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 To what extent did undergraduates combine pri- 2 vate and public loans? 37 Did undergraduates borrow the maximum amount 38 from federal Stafford loans before turning to pri- 39 vate loans? 3 Most undergraduates who borrowed did so through a 4 federally guaranteed loan program. Some 63 percent of 40 5 undergraduates who borrowed obtained loans from pubA 1 6 lie, 5 mostly federal, sources exclusively, and another 27 42 7 percent borrowed from both public and private sources 43 8 (figme 5) . The remaining 9 percent borrowed only from44 9 private sources. Students borrowed from public and pri- 45 10 vate sources at different rates, however, depending on 46 In 2007- 08, one-half of full-time, full-year undergra- duates exhausted their annual Stafford loan eligibility before taking out private loans (figure 6). Independent private loan borrowers exhausted Stafford el igibility at a lower rate than did dependent borrowers. Policymakers are concerned that some students seek pri- vate loans because they are unaware of the advantages of 11 the types of institutions attended. 47 federal loan programs. They are also concerned that 48 some students may not borrow the maximum Stafford 12 Undergraduates in public 2-year institutions took out 49 loan amount before turning to private loans (U.S. De- 13 exclusively private loans at higher rates than those in oth- 50 partment of Education 2008). Applying for federal aid is 14 er types of institutions. At community colleges, 21 per- 51 necessaty to obtain federal loans. Consequently, it is use- 15 cent of borrowers took out only private loans, compared 52 ful to examine whether students did apply for federal aid 16 with 9 percent among students in all institutions. This 53 when comparing public and private borrowing. 6 17 higher rate of private borrowing, however, occurred with- 18 in the context of lower rates of borrowing overall. In 54 Among full-time, full-year undergraduates who took out 19 2007-08, some 13 percent of all community college stu-55 private loans, some 19 percent did not obtain a Stafford 20 dents borrowed from any SOLtrce, representing the lowest56 loan, and about half these students (10 percent of all 21 rate among students in all types of institutions (Wei et al57 private borrowers) did not apply for financial aid. 7 22 2009a, table 13). Some policy analysts believe that many53 Another 31 percent took out Stafford loans, but appear 23 community colleges do not encourage borrowing federal 59 to have borrowed less than the ma:ximwn amount. s The 24 loans (Cochrane, Shireman, and Sivashankaran 2008). 60 remaining 50 percent had taken out the maximum 25 The largest proportion of borrowers who took out pri- 26 vate loans either exclusively or in combination with pub- 27 lie loans (42 percent) was found among those enrolled at 28 for-profit institutions (figure 2), and those enrolled at 29 institutions with programs of 2 or more years had the 30 highest percentage who took out both private and public 31 loans (figure 5). Among those enrolled at for-profit insti- 32 tutions with programs taking 2 or more years to com- 33 plete, 45 percent of undergraduate borrowers took out 34 both private and public loans, while the overall percen- 35 cage of undergraduates who cook out both types of loans 36 at all institutions was 27 percent. 5 "Public loans" includes Stafford loans, other federal loans (e.g., Perkins and PLUS), state, and institutional loans. 6 Foreign students and those attending part time or part yea.r were excluded from this part of the analysis because they either are ineligible for federal loans or qualifY for very little. Other reasons that students cannot borrow from federal loan pro- grams couJd not be identifled from the NPSAS data. 7 Some may have taken out other loans, such as Perkins, state, or institutional loans, but those are comparatively rare. 8 The maximum Stafford amomu is limited for those attend- ing part time or for less than a fttll year, so this analysis of maximizing Stafford loans was limited to fuJI-time, full-year students. There are other restrictions on Stafford borrowing based on program or budget that were not taken into account. Because of these restrictions, some borrowers who appear to be borrowing below the maximum amount are in fact borrowing at their maximum. Therefore, our estimates of the percentage of borrowers who are borrowing at less than the maximum couJd be overstated. THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 5 I 1 amount allowed under the Stafford loan program. These24 points, 9 compared with an increase of9 percentage 2 students sought more money than was available from 25 points among undergraduates (figure 1 ). 3 federal programs to pay for their education expenses. 26 Graduate students differed significantly in borrowing 4 Undergraduate students have different annual Stafford 27 rates depending on the degree program in which they 5 loan limits based upon both. dependency status and class28 were enrolled (figure 7). Master's degree students' rate of 6 level. For example, for first-year undergraduates, the lim-29 total borrowing increased from 38 percent to 44 percent 7 its were $3,500 for dependent students and $7,500 for 30 over this period. The rate of private borrowing among 8 independent students. In 2007- 08, about one-third (35 31 master's degree students doubled between 2003- 04 and 9 percent) offull-time, full-year independent undergra- 32 2007-08 (from 6 percent to 12 percent), while their rate 10 duates who took out private loans also borrowed the 33 of Stafford borrowing increased from 36 percent to 39 11 maximum Stafford loan amount, compared with. 56 per-34 percent. 12 cent of dependent undergraduates who took out the 13 maximum Stafford loan amount (figure 6) . 35 Among doctoral students, changes in private, Stafford, 14 Annual Undergraduate Stafford Loan Limits (for loans taken out between July 1, 2007 and June 30, 2008) 36 or total borrowing were not evident. Between 5 and 7 7 percent took out private loans in both 2003- 04 and 8 2007-08. 9 Students in first-professional programs had the highest f0 rate of private borrowing, but the proportion with pri- Dependent Independent Academic year student student i 1 vate loans declined over time, while borrowing from fed- ------''----------------- i2 eral sources increased. 10 In both years, students in frrst- First year $3,500 $7,500 . Second year 4,500 8,500 !3 professional programs borrowed from all sources at high- Third and remaining years 5,500 10,500 i4 er rates than students in other degree progran1s. In NOTE: Aside from dependency status and year in school, the i5 2003-04, about one-fourth (23 percent) of students in amount a student can borrow under the Stafford loan program can be further reduced depending on the cost of attendance, the student's expected family contribution, attendance status, whether the program is less than a year long, and how much other financial aid is received. SOURCE: U.S. Department of Education. (2007). 2007-oB Federal Student Aid Handbook. Retrieved April 23, 2010, from http://ifap.ed.gov/ifaplbyAwardYear.jsp?tyoe-fsahandbook&awa i6 first-professional programs took out private loans, com- i7 pared with 5 to 6 percent of master's and doctoral stu- iS dents. By 2007-08, however, the rate of private i9 borrowing among first-professional students had ;o dropped to 16 percent, while their rate of Stafford bor- _::rd;:v::ea;:r;:=2::00=: 7 - ::2:;00:;8::,. _______________ , ; 1 rowing increased from 69 to 76 percent and one-fourth 15 How did private borrowing change among gradu- 52 (25 percent) took out Graduate PLUS loans. 16 ate and first-professional students? 53 54 17 ln 2006, graduate students became eligible for the feder- 55 18 al Graduate PLUS loan program. This gave graduate 56 19 students another source ofloans from a government- 20 guaranteed progran1 with competitive, ftxed-interest 21 22 23 rates, eliminating some of the need for private loans. Between 2003- 04 and 2007- 08, the rate at which grad- uate students took out private loans rose 4 percentage Between 2003- 04 and 2007- 08, after adjusting for in- flation, overall average loan amounts for all graduate and first-professional students increased from $17,700 to $18,500, largely due to the newly established Graduate 9 NPSA$:04 and NPSA$:08 Data Analysis System; data not shown in figures or tables. 1 First professional programs include dentistry, medicine, optometry, osteopathic medicine, pharmacy, podiatric medi- cine, veterinaty medicine, chiropractic, law, and theology. I 6 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 PLUS loans. The average private loan amount for gradu-37 2 ate students decreased from $ l 0.500 to $8,400, and the 38 3 average Stafford loan amount decreased from $16, 100 to 39 Technical Notes Dara in this report come from the National Postsecon- dary Student Aid Study (NPSAS) administered for the 4 $15,600. 40 years 2003-04 and 2007-08. Conducted every 4 years, 5 Find Out More 4 1 NPSAS is based on a nationally representative sample of 42 al l students enroll ed in Title N -eligible institutions in 6 More detailed information on 2007-08 undergraduates 43 the United States between J uly 1 and J une 30 of a given 7 and graduate students enrolled in U.S. postsecondaty 44 academic year. The sampling design for coll ecting data 8 institutions can be found in Web Tables produced by 45 consists of two stages. The first stage involved selecting 9 the National Center for Education Statistics (NC.ES) 46 eligible institutions from which students would then be 10 using the 2007- 08 National Postsecondaty Student Aid 47 sampled in the second stage. In 2007- 08, approximately 11 Study (NPSAS:08) data. These Web Tables are a com- 48 114,000 undergraduate students were study respondents. 12 prehensive source of information on students during the49 Estimates were weighted to adjust for the unequal prob- 13 2007- 08 academic year. Included are estimates of de- 50 abili ty of selection into the sample and for nonresponse. 14 mographi cs, enroll ment, and employment characteris- 15 tics. Web Tables docw 11 enting how students pay for 51 NCES Statistical Standard 4-4-1 states that "[a]ny survey 16 their undergraduate education are also available. 52 stage of data collection wim a unit or item response rate 53 less than 85 percent must be evaluated for the potential 17 Web Tables-Profile of Undergraduate Students in US. Postse- 54 magnitude of nonresponse bias before the data or any 18 condary !mtitutiom: 2007-08 (NCES 20 I 0-205). [link 55 analysis using me data may be released" (U.S. Depart- 19 will be added) 56 ment of Education 2003). The only variable included in 20 Web Tables-Student Financing of Undergraduate Education: 57 this Bri ef that has a response rate of less than 85 percent 2 1 2007-08 (NCES 2010-162) . [link will be added) 58 is TOTLOAN. 22 Web Tables-Profile of Students in Graduate andFirst- 23 Professional Education: 2007-08 (NCES 20 10-177). [link59 For an overview of the survey memodology and a discus- 24 wil l be added] 60 sion of nonresponse bias, see appendix B of the report 6 1 2007- 08 National Postsecondary Student Aid Study 25 Readers may also be interested in the following NCES 26 products related to me topic of mis Statistics in Brief 62 63 27 2007-08 National Postsecondary Student Aid Study 28 (NPSAS:08): Student Finandal Aid Estimates: First Look 64 29 (NCES 2009-166). 30 hrrp:l/nces.ed .gov/pubs2009/2009l66.pdf 3 1 Undergraduate Financial Aid Estimates by Type of Imtitution in 32 2007-08 (NCES 2009-201). 33 34 35 36 h ttp:l/nces.ed.g,ov/pubs2009/2009201.pdf Federal Loam in 2007-08: Undergraduate Cumulative Debt and Students Who Bonow at the Maximum (NCES 2010- 151). [link to be added) (NPSAS:OB): Student Financial Aid Estimates for 2007-08: First Look (http:/ / nces.ed. gov/pubs2009/2009166.pdt). THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 References 39 40 41 2 The College Board. (2009). Trends in Student Aid. Table l. 3 4 5 Retrieved October 28, 2009, from http://www.rrends-collegeboard.com/student aid/pdf/ 2009 Trends Smdent Ald.pdf. 42 43 44 6 Cochrane, D. F., Shireman, R., and Sivashankaran, S. (2008, 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 1 22 April). Denied: Community College Students Lack Access to 45 A/fordable Loam. The Project on Smdent Debt. Retrieved46 September 9, 2009, from 47 48 http://ticas.org/ flies/pub/ denied .pdf. Federal Trade Commission. (2008, June). Student Loam: 49 50 Avoiding Deceptive Offers. FTC Facts for Consumers. 51 Federal Trade Commission and U.S. Department of Edu- cation. Retrieved September 9, 2009, from h rrp://sruden taid.ed.gov/smden ts/auach menrs/ siteresources/loa nsA voidDecep. pdf. King, J.. (2007). Who Borrows Private Loam? ACE Issue 52 53 54 55 56 Brief. Washington, DC: American Council on Education. Retrieved October 28, 2008, fiom 57 http://www.acenet.edu/AJ\If/Template.cfm?Section-Searc58 h&seqion-issue briefs&templare-/CM/ContenrDisplay.59 cfm&ConrenrFileiD- 3445. 60 6 1 23 McSwain, C., Price, D., and Cwutingham, A. (2006). The 62 24 Future of Private Loam: Who Is Bonowing, and Why? 25 Washington, DC: lnstitute for Higher Education Policy. 63 64 26 Student Lending Analytics. (2009a, July 23). The Incredible 65 27 Shrinking Private Student Loan Mmket: Outlook for 2009"'66 28 10. Slog. Retrieved September 9, 2009, from 67 29 h up://studen tlendi nganalytic.qypepad.com/studen t lend68 30 ing analytics/2009/07/the-i ncredible-shrinking-private- 69 31 loan-market.html. 70 32 Student Lending Analytics. (2009b, August 17). Bank Lending 33 Standards May Remain Tight Through Second Half of 34 2010. Blog. Retrieved September 9, 2009, from 3 5 http://srudenrlendinganalytics. typepad.corn/smdent lend 36 ing analytics/2009/08/bank-lending-standards-may- 37 remain-tight-through-second-half-of-20 l O.htrnl. 38 U.S. Department of Education, Federal Student Aid, St udents Charmel. (2008). Your Federal Student Loans: Learn the Basics and Manage Your Debt. Washington, DC: Author. U.S. Department of Education, National Center for Educa- tion Statistics. (2003). NCES StatisticaL Standards (NCES 2003-601). Washington, DC. U.S. Senate Committee on Banking, Housing and Urban Af- fairs. (2007, J tme 6). Hearing on "Paying for College: The Role of Private Student Lending." Washi ngton, DC. Retrieved November l, 2009, from h rtp://banki ng.senate.gov/ pub! ic/i ndex .cfm?Fuseaction- Hearings.Hearing&Hearing ID-8c46al82-alff-4bc5- af53-e0982b49527f. Wei, C. C. (forthcoming). What is the Real Price of College? Sticker, Net, and Out-of-Pocket Prices in 2007-08 (NCES 2010-175). National Center for Education Statis- tics, Institute of Education Sciences, U.S. Department of Education. Washington, DC. Wei, C.C., Berkner, L. , He, S., ar1d Lew, S. (2009a). Web- Tables: Undergraduate Financial Aid Estimates by Type of Institution in 2007-08 (NCES 2009-201). National Cen- ter for Education Statistics, Institute of Education Sciences, U.S. Deparunenr of Education. Washington, DC. Wei, C. C., Berkner, L., He, S., Lew. S., Cominole, M., and Siegel, P. (2009b). 2007-08 NationaL Postsecondmy Stu- dent Aid Study (NPSAS:08): Student Financial Aid Esti- mates for 2007-08 (flrst Look) (NCES 2009-166). National Center for Education Statistics, Institute of Education Sciences, U.S. Department of education. Washington, DC. I 8 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 Run Your Own Analysis in Datalab 38 "During the 2007-2008 school year, did you take out 39 2 Direct access to the data used in this Statistics in Brief is 40 3 available through the NCES DataLab any private or alternative loans from a financial institu- tion? Some examples of commonly used private loans include: 41 4 (http://nces.ed.gov/datalab/). You can generate your own 5 tables using one of three programs: PowerS tats, Quick- 42 Sallie Mae Signature Student Loan 6 Stats, or the Data Analysis System (DAS). 43 CitiAssist Undergraduate and Graduate Loan 7 All estimates presented in this Brief were produced using44 Chase Education One Private Student Loan 8 the DAS, a web-based software application that enables 45 Nellie Mae EXCEL Loan 9 users to generate tables for most of the postsecondary 46 Access Group Loans 10 surveys conducted by NCES. These figures were gener- 11 ated using the DAS, which contains a detailed descrip- 47 (Keep in mind that many lenders that offer private loans 12 tion of how each variable was created and includes the 48 might also offer federal Stafford, Graduate/Professional 13 wording of questions for variables coming directly from 49 PLUS loans, and Parent PLUS loans. For this question 14 the interview. 50 we want to know about private or alternative loans on- 51 ly.)" 15 You can replicate or expand upon the figures and tables 16 presented in this report by using DataLab. All variables 52 Package of private and nonprivate loans (PRJVPACK): 17 used to generate the figures and ta.bles in this Brief can 18 be found in the NPSAS:04 and NPSAS:08 DAS. More 19 information and descriptions of each variable can be 20 found at http://nces.ed.gov/DAS. 21 The variables used in this report are as follows: 53 Indicates the loan package by whether the loan received 54 was private (alternative) or not during the 2007- 08 aca- 55 demic year. For students with any loan (TOTLOAN2 > 56 0), indicates whether a borrower had only private oral- 57 ternative loans (PRIVLOAN), only nonprivate loans 58 consisting of federal loans (TFEDLN2, including 59 PLUS), state loans (STLNAMT), or institutional loans 60 (INLNAMT), or both private and nonprivate. 22 Private (alternative) loans (PRJVLOAN): Indicates the 23 amount of private or alternative loans received by stu- 24 dents for the 2003- 04 and 2007- 08 academic years. 61 Stafford total maximum (STAFCT3): Classifies the total 25 These are education loans from commercial lenders that 62 Stafford Joan amount received in 2007-08 26 are not guaJanteed by the federal government and that 63 (STAFFAMT) into categories based on the maximum 27 cany market interest rates based on credit scores. Exam- 64 Joan limits for subsidized and unsubsidized Stafford 28 pies of such loans are the Sallie Mae Signature Student 65 29 30 loans combined and includes a category for those who didn't apply for federal aid. The normal maximum loan an1ounts in 2007-08 for undergraduates were deter- Loan, CitiAssist Loan, or Chase Education One Private 66 Student Loan. Private loans differ from Stafford, Parent 67 31 PLUS, Perkins, and Graduate PLUS loans, which are 32 33 68 mined by the student's undergraduate class level and guaranteed by the federal government; private loans, 69 dependency status. This variable does not take into ac- however, can be offered by the same lenders or by states 70 count further borrowing limits that might be imposed, 34 or other nonprofit institutions. Institutions do notal- 71 e.g., Stafford loan amounts cannot exceed a borrower's 35 ways have information on students' private or price of attendance, and subsidized Stafford loans cannot 36 loans, so this information came primarily from student 73 exceed a borrower's need amount. 37 interviews, in which students were asked the following: 1 Other Variables 2 Attendance pattern (A ITNST AT) 3 Citizenship status (CITIZEN2) 4 NPSAS institution control (CONTROL) 5 Dependency status (DEPEND) 6 Parents' income (DEPlNC) 7 Independent student's income (INDEPINC) 8 Applied for federal aid (FEDAPP) 9 Graduate PLUS loan total (GPLUSAMT) 10 Graduate degree program (GRADDEG) 11 Total federal Parent PLUS loans (PLUSAMT) 12 Type of institution (AID SECT) 13 Institution sector (SECI'OR4) 14 Federal subsidized loans (except PLUS) (SUBLOAN) 15 Total student loans from all sources (TOTLOAN) 16 Institution tuition and fees (TUITION2) 17 THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 9 I www.ed.gov ies.ed.gov Figure 1. Percentage of undergraduates who borrowed, by type of loan: 2003-04 and 2007-08 Percent 100 80 60 40 32 35 20 14 5 0 Private Stafford 2003-04 2007-08 34 39 All loans Average undergraduate loan amounts, by type of loan: 2003--04 and 2007-QS 2003--04 2007-QS Private loans $6,600 $6,500 Stafford loans 4,900 5,000 All loans including PLUS 6,900 8,100 NOTE: Amounts for 2003-04 have been adjusted for inflation using the Consumer Price Index for urban households (CPI U). Arrounts are averages for those who received the specified type of aid. NOTE: Private loans are education loans from commercial lenders which are not guaranteed by t he federal government and carry market interest rates. SOURCE: U.S. Department of Education, Nationa.l Center for Education Statistics, 2003-04 and 2007-08 National Postsecondary Student Aid Studies (NPSAS:04 and NPSAS:OS) . Figure 2. Percentage of undergraduates who took out private loans, by institution type: 2003-04 and 2007-08 Percent 100 80 60 40 20 0 Public 2-year 14 Public 4-year 2003-04 25 11 Private nonprofit 4-year 2007-08 42 13 For-profit Average tuition and fees paid by undergraduates, by institution type: 2007-QS (includes full-time and part-time students) Public 2-year Public 4-year Private nonprofit 4-year For-profit $1,200 5,500 17,800 10,200 Median income, by institution type: 2007-QB Dependent lndepen- students dent parents students' Public 2-year $54,200 $29,400 Public 4-year 75,700 22,000 Private nonprom 4-year 84,500 30,300 For-profit 35,700 19,500 1 Independent students are age 24 or older and 1udents under 24 who are married, have dependents, are veterans, or are an orphan or ward of the oourts. Other undergraduates under age 24 are considered to be dependent. Income for dependent students is the inoome of their parents. For independent students. income includes a spouse's income if the student is married. NOTE: Private loans are education loans from commercial lenders which are not guaranteed by t he federal government and carry market interest rates. Students who attended more than one inst itution or any type of institution not listed in the figure were not included due to the small number of cases. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2003-04 and 2007-08 National Postsecondary Student Aid St udies (NPSAS:04 and NPSAS:08). Figure 3. Percentage of undergraduates who took out private loans, by tuition amount: 2007-os $15,000 or more $10,000-$14,999 $5,000-$9,999 $3,000-$4,999 14 $1 ,500-$2,999 $1 ,499 or less 0 20 32 30 22 40 60 Percent 80 NOTE: Private loans are education loans from commercial lenders which 100 are not guaranteed by the federal government and carry market interest rates. SOURCE: U.S. Department of Education. National Center for Education Statistics, 2007- 08 National Postsecondary Student Aid St udy (NPSAS:08). Figure 4. Percentage of fulltime, full-year undergraduates who took out private loans and any loans including Parent PLUS, by dependency status and family income level: 2007-QS Percent 100 80 60 54 56 61 66 69 52 40 40 27 28 21 20 0 60 Low-income Lower middle- income Upper High-income middle- Low-income Lower middle- income Upper High-income middle- income income Dependent Independent Private loans All borrowing including PLUS NOTE: Family income categories were based upon the annual income distribution for 2006, from the lowest to the highest quartile ranges. Among dependent students, low-income was less than $36,100: lower middle-income was $36.100-$66,600: upper middle-income was $66,600-$104,600: and high-income was $104,600 or more. Among independent students, low-income was less than $11 ,000; lower middle- income was $11,000-$26,000; upper middle-income was $26,000- $48,400; and high-income was $48,400 or more. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-()8 National Postsecondary Student Aid Study (NPSAS:08). Figure 5. Percentage distribution of undergraduate borrowers, by borrowing package and institution type: 2007-QS Percent 100 ..
2 Exclusively 80 20 private 27 35 45 loans 60 Both programs 40 Exclusively 20 public loans 0 Total Public Public Private For-profit For-profit 2-year 4-year nonprofit less-than- 2 years 4-year 2-year or more NOTE: Public loans includes Stafford loans, other federal loans (e.g., Perkins and PLUS), state, and institutional loans. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. Total estimates also include those attending public less-than2-year institutions, those attending private nonprofit less-than-4-year institutions, and those attending more than one institution but t hese are not shown separately. Detail may not sum t o totals because of rounding. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-QS National Postsecondary St udent Aid Study (NPSAS:OS). Figure 6. Percentage distribution of full-time, full-year undergraduates who took out private loans, by status of Stafford borrowing, status of federal aid application, and dependency status: 2007-QB Percent 100 80 60 40 20 0 Total Dependent Independent ~ M a x i m u m Stafford DLessthan maximum Applied, no Stafford Did not apply for aid NOTE: In this analysis, full-lime undergraduates excludes foreign students and unclassified undergraduates. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. Maximum Stafford is a loan in the amount of the annual limit for Stafford loans based on dependency status and class level. Some restrictions on Stafford borrowing were not taken into account when computing a student's Stafford borrowing limit. Because of these restrictions, some borrowers who appear to be borrowing below the maximum amount are in fact borrowing at their maximum. Therefore, estimates of the percentage of borrowers who are borrowing at less than the maximum may be overstated. Detail may not sum to totals because of rounding. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 7. Percentage of graduate students who took out private, Stafford, Graduate PLUS, and all loans, by type of degree program: 2003-04 and 2007-08 Private loans Stafford loans Graduate PLUS loans Total loans L6 ~ 1 2 I 3 38 44 p,,. .. '""' ~ 5 7 Stafford loans ~ 2 6 2 9 Graduate PLUS loans Total loans Private loans Stafford loans Graduate PLUS loans Total loans 0 20 28 32 40 Percent 69 60 Average loan amounts received by graduate students, by type of loan: 2003--{)4 and 2007-{)8 Private loans Stafford loans Graduate PLUS loans Total loans 2003-Q4 2007--{)8 $10,500 16,100 17,700 $8.400 15,600 15,500 18,500 NOTE: Amounts for 2003-04 have been adjusted for inflation using the Consumer Price Index for urban households (CPI-U). Amounts are averages for those who received the specified type of aid. 2003-04 2007-08 76 75 79 80 100 1 First-professional programs include dentistry, medicine, optometry, osteopat hic medicine, pharmacy, podiatric medicine, veterinary medicine, chiropractic, law, and theology. NOTE: Private loans are education loans f rom commercial tenders which are not guaranteed by the federal government and carry market interest rates. Graduate PLUS loans were not available in 2003-Q4. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2003-Q4 and 2007-QS National Postsecondary Student Aid Studies (NPSAS:04 and NPSA$:08). U.S. DEPARTMENT OF EDUCATION APRIL 2010 What Is the Price of College? Sticker, Net, and Out -of-Pocket Prices in 2007-08 AUTHOR Christina Chang Wei MPR Associates, Inc. PROJECT OFFICER Tracy Hunt-White National Center for Education Statistics Students and parents see college attendance as a principal avenue to middle-class life, and, given the rising price of postsecondary education, they are apprehensive about their ability t o af- f ord it. 1 In a recent survey of college freshmen, about two-thirds (66 percent) reported having concerns about being able to fi nance their education. 2 Many U. S. policymakers and researchers share their concern, and are exploring ways to make college more affordable. 3 Legislators have required colleges and universities t o pro- vide more extensive information about tuition and prices, and in the 2008 Higher Education Opportunity Act mandated a host of price-related measures, including institutional disclosure of net prices charged to students, the reporting of net price data to the U.S. Department of Edu- cation, and the creation and disclosure of "tuition watch lists." 4 This Statistics in Brief shows the amounts U.S. undergraduates pay on average for postsecondary education, wi th and wi th- out financial aid. Drawing upon data from the National Postsecondary Student Aid Study, a nationally representative survey of all postsecondary students, included in this report are the average prices for pub- lic 2-year, public 4-year, private nonprofit 4-year, and for-profit institutions. 1 A recent public opinion poll showed that increasing numbers of Americans view college as a necessity for success (lmmerwahr et al. 2009). The College Board (2009) reports that the published, or stick er, price of college has increased more rapidly than the price of other goods and services over the past three decades. See also Marchand (2010), which reported on these findings. 1 The Higher Education Research Institute at the University of Cali fornia, Los Angeles, has conducted a survey of freshmen each year since 1973 (Pryor et al. 2009). See also recent media anent ion to the issue (Lewin 2009). 3 Both governmental and nongovernmental study commissions have convened to address this. See, for example, The College Board (2008) and Harvey et al. (1998). 4 Public Law 110315, title I, Sec. 132. August 14, 2008. Higher Edu cation Opportunity Act .
1es NATIONAL CENTER FOR . . EDUCATION STATISTICS STUDY QUESTIONS What are the average prices paid by full-time undergraduate students and how do these prices vary by the type of insti- tution attended? Most of the figures in this Brief display data only for full-time undergraduates 5 who attended one institution. These students comprised about one-third (35 percent) of all undergraduates in 2007-08. 6 Of all full-time undergra- duates, 18 percent were enrolled in public 2-year institutions, 43 percent attended public 4-year institutions, 21 percent were at private nonprofit 4- year institutions, and 8 percent were enrolled in for-profit institutions (table 1). 7 Focusing on full-time students who attended only one institution allows for comparisons in tuition, price of atten- dance, and financial aid. Those attend- ing full time generally have higher overall expenses than do all students. They also generally qualify for federal aid and other assistance not available to many part-time students (table 2). 5 "full time" status is defined as having been enrolled full time in one postsecondary institution for 9 months or more during the academic year. 6 National Postsecondary Student Aid Study (NPSAS:OS) Data Analysis System. 1 The remaining students were enrolled in other types of insti tutions or in more than one institution during the academic year. What factors are re- lated to variations in average sticker and net prices among those attending these institutions? KEY FINDINGS There is a wide range of prices for postsecondary education. Students enrolled at public 2-year institutions had the lowest average sticker price ($12,600) while those at private nonprofit 4-year institutions had the highest {$35,500). 8 Those at public 4-year institutions had an average sticker price of $18,900, and those at for-profit institutions had an aver- age sticker price of $28,600. After all financial aid is received, {in- cluding grants, loans, and work- study), the average out-of-pocket net price ranged from $9,100 at public 2-year institutions to $10,300 at public 4-year institutions, $16,000 at for-profit institutions, and $16,600 at private nonprofit 4-year institutions. 3 All comparisons of estimates were tested for statistical signi ficance using the Student's t-statistic, and all differences cited are statistically significant at the p < .OS level. No adjustments for multiple comparisons were made. The standard errors for the estimates c a n ~ found at http://nces.ed.gov/dasf librarv/reoorts.asp. 2 How do the net prices paid by under- graduates vary by family income? Lower sticker prices often mean a lower need-or eligibility-for fi- nancial aid. Those attending private institutions had the highest tuition but they also received the most fi- nancial aid. Undergraduates at pri- vate nonprofit 4-year institutions received the greatest amount of in- stitutional grant aid while those at for-profit institutions had the largest proportion of borrowers. Among low-income undergra- duates enrolled full time, those at- tending for-profit institutions had the highest average net price after grants and average out-of-pocket net price. 1 What are the average prices paid by full-time undergraduate students and how do these prices vary by the type of institution attended? This Brief discusses three different measures of the price of an undergra- duate education: the sticker price, the net price after grants, and the out-of- pocket net price. The Sticker Price The sticker price is the total price of an undergraduate education including tuition 9 and all other nontuition and living expenses such as books, sup- plies, and housing. The sticker price va- ried widely by the type of institution attended in 2007-08, rangi ng from an average of $12,600 among undergra- duates enrolled full time at public 2- year institutions, to $18,900 at public 4- year institutions, $28,600 at for-prof it institutions, and $35,500 at private nonprofit 4-year institutions (figure 1 ). 9 1n this report, the term "tuition includes both tuition and fees. Sometimes institutions treat tuition and fees as a single charge, and sometimes as separate charges. Tuition is defined as the price ofinstruction and fees as the price of other services provided by the school. The tuition amounts shown here in elude those charged to outof-state and out-of-district students enrolled in public 4-year and public 1-year institutions, respec- tively. FIGURE 1. THE PRICE OF AN UNDERGRADUATE EDUCATION for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Public 2-year Public 4-year For-profit Type of institution Private nonprofit 4-year Average sticker w Average net price ~ A v e r a g e out-of- price after grants pocket net price NOTE: The "sticker price" is the total price of attendance which includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneous, or personal, expenses. The "net price is the price that must be paid after receiving grants. The "out-of-pocket net price subtracts from the sticker price all forms of financial aid, including grants, student loans, Parent PLUS loans, work-study, employer aid, job training benefits, veterans benefits, and any other finan cia I aid received. Both the net price after grants and the out-of-pocket net price are calculated for all full-time, full-year students, regardless of whether or not they received any financial ald. "Full-time, full-year' is defined as having been enrolled in one postsecondary institution for 9 months or more full time. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at hnpl/nces.ed.gov/das/library/reports.asp. SOURCE: U5. Department of Education, National Center for Education Statistics, 1007-08 National Postsecondary Student Aid Study (NPSAS:08). 3 For some institutions (private nonprofit known in financial aid parlance as the supporting families (Wei forthcoming), 4-year institutions in particular), the "student budget." Student budgets which raises their nontuition expenses tuition is a large component of the vary according to students' attendance as compared with students who have sticker price. In 2007-08, average tui- and dependency status, family respon- no family responsibilities. tion was $2,400 at public 2-year institu- sibilities, and residence (e.g., living at tions, $7,100 at public 4-year home with parents, in an on-campus Students attending public 2-year insti- institutions, $11,900 at for-profit insti- dormitory, or in off-campus housing). tutions-mostly community colleges- tutions, and $23,400 at private non- profit 4-year institutions {figure 2). In 2007-08, students enrolled full time in for-profit institutions had the high- Nontuition expenses, which include est average nontuition expenses had the lowest nontuition expenses. A larger proportion lived at home with their parents, which reduces costs for room and board, as compared with students at for-profit institutions (many of whom are supporting themselves or their own families) and those at 4-year institutions (where a larger proportion lived on campus or in off-campus hous- ing) (Wei forthcoming). books and supplies, housing and ($16,700), when compared with those meals, transportation, and personal at other types of institutions {where {or miscellaneous) expenses, also can average nontuition expenses ranged vary by institution type. College or uni- from $10,200 to $12,1 00). Many stu- versity financial aid officers usually de- dents at for-profit institutions are fi- velop an estimate of the sticker price, nancially independent and are In-state vs. out-of-state tuition At most public 4-year institutions, tuition charges are generally higher for out-of-state students than for in-state residents, reflecting the state subsidies public institutions receive. In 2007- 08, the average in-state tuition was $6,200 and the average out-of-state tuition was $15,1 00 for full-time undergraduates enrolled in public 4-year institutions.* NPSAS:OS Data Analysis System (data not shown). FIGURE 2. TUITION AND NONTUITION EXPENSES for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Public 2-year Public 4ycar For profit Type of institution Private nonprofit 4-year tJ Average nontuition expenses Average tuition NOTE:"full-time, full year is defined as havlng been enrolled in one postsecondary institution for 9 months or more full time. "Tuition" includes all tuition and fees. Non tuition expenses" include books, supplies, housing, meals, transporta tion, and miscellaneous 01 pe1>onal expenses. Estimates include students enrolled in Title IV eligible postsecondary institu- tions in the 50 states, DC, and Puerto Rico. Standard error tables are available at htto://nces.ed.gov/das/librarv/reoorts.aso. SOURCE: U 5. Department of Education, National (enter for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). 4 The Net Price After Grants those at public 4-year institutions, Policymakers and researchers generally grant aid to full-time undergraduates subtract grants from the sticker price lowered the average sticker price of when discussing the net price of at- $18,900 to an average net price after tending a postsecondary institution. grants of $15,200. For example, Congress recently re- quired institutions to make public both For those at private institutions (both the sticker price and the average net for-profit and nonprofit), the average price of attendance, calculated as the net price after grants was about total price of attendance minus all $25,700. For those attending for-profit grants received. In this Brief, two measures of net price are discussed: the "net price after grants" and the "out-of-pocket net price," which is the price after all financial aid (i ncluding loans, which must be repaid} is t aken into account. 10 Grant aid helped to lower the average st icker price among full-time under- graduates at public 2-year institutions from $12,600 to an average net price after grants of $10,600 (figure 1 ). For 10 Both net price and out of-pocket net price averages are cal- culated for all students, regardless of whether they received any financial aid. This method of calculating net price averages for all students differs from that used to calculate average aid amounts in this report (see table 2). Average aid amounts are calculated only for students receiving a particular type of aid. Those not receiving a specific type of aid (i.e., zero values) are not included in the average for that aid. The average grant therefore, will be greater than the difference between the sticker price and the net price after grants. institutions, the difference between the average sticker price and the net price af ter grants was about $2,800. At private nonprofit 4-year instituti ons, however, that difference was $10,000. The Out-of-Pocket Net Price The "out-of-pocket net price," defined as the sticker price less all fi nancial aid received, takes into account all forms of financial aid, including grants, loans, work-study, and other aid (as well as Parent PLUS loans). The out-of-pocket net price represents the amount t hat must be paid immediately to enroll in a postsecondary institution f or that aca- demic year.'' Because the out-of- pocket net price subtracts loans from the sticker price, it measures the net price only in the short t erm. Loans off- set immediate costs to students and their families, but they must be repaid overtime. Full-time undergraduates enroll ed at public 2-year institutions had the low- est average out-of-pocket net price ($9,100}, reflecting the already lower sticker price at these institutions (figure 1}. Those at public 4-year instituti ons had a slightly higher average out-of- pocket net price ($1 0,300}. Students at private institutions had the highest av- erage out-of-pocket net prices ($16,000 at for-profit institutions and $16,600 at private nonprofit 4-year institutions). 11 Since 1998, the federal government has also provided postse- condary students and their families with various federal tax benefits. These are not included in the definition of financial aid and are not used in the calculation of net price in this study. 2 What factors are related to variations in average sticker and net prices among those attending these institutions? Prices vary by institution type for sev- eral reasons. Institutions charge differ- ent levels of tuition (based on whether they are public or private and the amount of state and local subsidies re- ceived); the demographic characteris- tics of students (and thus their nontuition expenses and eligibility for federal and state grant aid) vary by type of institution; and institutional policies for awarding institutional aid differ. As noted previously, the amount of tui- tion charged by institutions is a prima- ry factor in the total price of attendance, but students also incur dif- ferent nontuition expenses depending on their family responsibilities and liv- ing arrangements. Average net prices are further affected by differences in the proportion of aid recipients at each type of institution. For example, the number of students eligible for federal Pell Grants or state- funded grant aid at a particular school will affect the average net price after grants, as will a school's policies for awarding grants from institutional funds. The out-of-pocket net price fur- ther depends on the level of borrowing among students and their parents and other types of aid received, such as work-study. Public 2-Year Institutions Full-time students attending public 2- year institutions had the lowest aver- age sticker price ($12,600), net price af- ter grants ($1 0,600), and out-of-pocket net price ($9, 1 00) among all undergra- duates (figure 1 ). Because students at public 2-year insti- tutions had a lower average sticker price initially, their average net prices also were lower-even though they had the smallest proportions of grant recipients (56 percent) and students who borrowed (23 percent took out a student loan) (table 2). 6 Public 4-Year Institutions Tuition at public 4-year institutions was higher than at public 2-year institu- tions, but not as high as at the private institutions (figure 2). Students at these institutions also have slightly higher nontuition expenses than those at public 2-year institutions, with a larger proportion living on campus or away from home {see Wei forthcoming). Among those enrolled full time at pub- lic 4-year institutions, 60 percent re- ceived grant aid, about one-half (53 percent) took out student loans, and 10 percent received work-study support (table 2). Grant aid helped to lower the net price after grants to an average of $15,200, and the addition of loans, work-study, and other aid resulted in an average out-of-pocket net price of $10,300 (figure 1 ). This compares to an average out-of-pocket net price of $9,100 at public 2-year institutions-a difference of $1,200 in the average out- of-pocket net price, even though the difference in the average sticker price was $6,300. For-Profit Institutions For-profit institutions are privately owned and operated and the profits they generate benefit individual own- ers and shareholders. The programs can range from less than 1 year to 4- year bachelor's and graduate degrees. Most undergraduates enrolled in less- than-4-year for-profit institutions are pursuing certificates or associate's de- grees in occupational training pro- grams (Staklis forthcoming). Undergraduates at for-profit institu- tions also tend to be older, financially independent, and have family respon- sibilities. This increases their nontuition expenses and hence, their average sticker price. More undergraduates at for-profit institutions received federal grants (62 percent) than did students in any other type of institution in our analysis (figure 3). However, a smaller percentage of for-profit students re- ceived state, institutional, or private grants than students in other sectors. On average, these students had a net price after grants of $25,80Q-not measurably different than that of pri- vate nonprofit 4-year institutions, and higher than that of public institutions (figure 1 ). FIGURE 3. SOURCES OF GRANT AID for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Percent 100 80 60 40 20 0 Public 2year Public 4-year 62 For-profit Type of institution 67 Private nonprofit 4-year Federal grants ~ s t a t e grant s Institutional grants n Private source grants NOTE: "Grants" include S<holarships and tuition waivers. full-time, full-year" is defined as having been enrolled in one postsecondary institution for 9 months or more full time. Estimates indude students enrolled in Title IV eligible postsecon- dary institutions ln the 50 states, DC, and Puerto Rico. Standard error tables are available at hnpJ/nces.ed.gov/dasllibrarv/reports.asp. SOURCE: U.S. Oepartment of Education, National Center for Education Statistics, 2007- 08 National Postsecondary Student Aid Study (NPSAS:OS). 7 Student loans were critical to reducing Private Nonprofit 4-Year Institutions next highest sticker price: for-profit in- the average out-of-pocket net price for Even though they had the highest av- stitutions ($25,800 and $16,000, re- al I undergraduates, but particularly for erage sticker price ($35,500) of the four spectively) (figure 1 ). those at for-profit institutions. For- profit institutions had the largest pro- portion of full-time undergraduates with at least one loan in thei r financial aid package: 9 out of 10 (92 percent) received an aid package containi ng a loan (table 2 and figure 4}, compared to 65 percent of those at private non- profit 4-year institutions, 53 percent at public 4-year institutions, and 23 per- cent at public 2-year institutions. The high level of student borrowing at for- profit institutions resulted in an aver- age out-of-pocket net price of $16,000 (figure 1 ). FIGURE 4. TYPE OF AID PACKAGE major sectors, financial aid recipients at private nonprofit 4-year institutions al- so received the largest average amount of total aid ($21, 100), when compared with those at for-profit institutions ($13, 1 00), public 4-year institutions ($11 ,000}, and public 2-year institutions ($5,400) (table 2). In fact, aid received by undergraduates at private nonprofit 4-year institutions resulted in an average net price of $25,500 and an average out-of-pocket net price of $16,600, both of which were not measurably different from undergraduates at schools with the for full-time, full-year undergraduates, by aid package received and type of institution attended: 2007- 08 Percent 100 80 60 40 20 0 Percent distribution receiving aid 16 Public 2ycar Public 4-year For-profit Type of institution Private nonprofit 4-year Aid package Grants, work- study, or other aid, with loans Loans only ;::: Grants, work- study, or other aid, without loans No aid received NOTE: "Grants" include scholarships and tuition waivers. "Loans" include federal, state, ins1itutional, or private student loans, excludiog Parent PLUS loans. "Othe(' aid includes job training, veterans benefits, employer aid, and Parent PLUS loans. "Full-time, full-year" is defined as having been enrolled In one postse<ondary institution for 9 months or more full time. Estimates include stlldents enrolled in Title IV eligible postsecondary institutions in the 50 states, OC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/ librarv/reports.asp. SOURCE: U.S. Department of EduCiltion, National Center for Education Statistics, 2007-08 National Postsecondary Stlldent Aid Study (NPSAS:08). 8 The receipt of institutional grants, in particular, was critical in lowering the price for those attending private non- profit 4-year colleges and universities. About two-thirds (67 percent) of stu- dents in private nonprofit +year schools received institutional grants or tuition waivers, a larger proportion than at any other type of institution (30 percent at public 4-year institutions, 17 percent at public 2-year institutions, and 7 percent at for-profit institutions) (f igure 3). The average institutional grant received by those attending pri- vate nonprofit 4-year institutions was $10,400, 12 which helped reduce the av- erage sticker price to an average net price after grants of $25,500 (figure 1 ). Work-study was also an important source of aid to those at private non- profit 4-year institutions. Nearly one- third (31 percent) of all full-time un- dergraduates at private nonprofit 4- year institutions received work-study aid, the highest percentage among all full-time undergraduates (between 2 and 10 percent of undergraduates at other types of institutions received work-study aid) (table 2). With the aid of student loans, work-study, and other types of support, full-time undergra- duates at private nonprofit 4-year insti- tutions had an average out-of-pocket net price of $16,600-not measurably different from those attending for- profit institutions ($16,000) (figure 1 ). 12 NPSAS:OS Data Analysis System (data not shown). 3 How do the net prices paid by undergraduates vary by family income? Figure 5 shows the average net price after grants among dependent under- graduates by their family income and type of institution attended. Among low-income and low middle-income dependent students, those with the highest average net price after grants were enrolled at for-profit institutions. In contrast, among high middle- income and high-income students, the average net price af ter grants for those at for-profit institutions was not mea- surably different from those at private nonprofit 4-year institutions. FIGURE 5. NET PRICE AFTER GRANTS BY INCOME for full-time, full-year dependent undergraduates, by family income category and type of institution attended: 2007-08 Price $40,000 30,000 20,000 10,000 0 Low income Average net price after grants Low middle-income High middle-income Highincome Public 2year D Public 4-year Forprofit 0 Private nonprofit 4year NOTE: The "net price after grants" Is the price of attending a postsecondary institution after all grants have been received. This amount is calculated by subtracting total grant aid from the sticker price. The sticker price is the total price of atten- dance and includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneous, or per- sonal, expenses. Grant aid includes grants, scholarships, tuition waivers, and other gift aid that does not need to be repaid. The net price after grants is calculated for all students, regardless of whether or notthey received any grant aid. Family income categories were based upon parents' annual income in 2006. Dollar cutoffs are based on the distribution among all dependent undergraduates: "low-income" was the lowest 25th percentile (less than $36, 100); "low middle-income"was the 26tll to 50th percentile ($36, 100-$66,600); "High middle-income was the 51st to 75th percentile ($66,60Q- $104,6001; and "High-income" was the highest 25th percentile ($104,600 or more). ' Full-time, full-yea(' is defined as having been enrolled in one postsecondary institution for9 months or more full time. Estimates Include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nct>5.ed.gov/dasllibrarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics. 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). 9 The average out-of-pocket net price, on the other hand, shows a slightly dif- ferent pattern (figure 6). After borrow- ing, low-income and low middle- income undergraduates enrolled at for- prof it institutions continued to have the highest average out-of-pocket net price, when compared with those at other institutions. However, among those with incomes above t he median (i.e., high middle-income and high- income students), the average out-of- pocket net price was highest for those enrolled at private nonprofit 4-year in- stitutions. FIGURE 6. OUT -OF-POCKET NET PRICE BY INCOME for full-time, full-year dependent undergraduates, by family il)come: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Low income Average out-of-pocket net price Low middle-income High middle-income Highincome Public 2year 0 Public 4year For-profit IJ Private nonprofit 4-year NOTE: The "out-of-pocket net price is the price of attending a post5econdaryinstitution after all aid has been received. This amount is calculated by subtracting total financial aid from the sticker price. The sticker price is the total price of at tendance and includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneoos, or personal, expenses. Financial aid includes grants, student loans, Parent PLUS loans, work-study, employer aid, job training benefi\5, veterans benefits, and any other type of aid.lhe ootof-pocket net price is calculated for all students, regardless of whether or not they received any aid. Family income categories were based upon parents' annual income in 2006. Dollar cutoffs are based on the distribution among all dependent undergraduates: "low-income was the lowest 25th percentile (less than $3-6,100); "low middle-income was the 26th to 50th percentile ($36, 106-$66,600); "High middle-income" was the 51st to 75th peJcentile ($66,600-$104,600); and''Higlrincome was the highest 25th percentile ($104,600 or more). "Full-time, full-year" is defined as having been enrolled in one postsecondary instirution for 9 months or more full time. Estimates include studen\5 enrolled in Trtle IV eligible postsecondary institutions in the 50 states, OC, and Puerto Rico. Standard error tables are available at htto:l/nm.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Post5econdary Student Aid Study (NPSAS:OS). 10 SUPPLEMENTAL TABLES TABLE 1. UNDERGRADUATE ENROLLMENT, TUITION, AND STICKER PRICE for all undergraduates and full-time, full-year undergraduates, by type of institution attended: 2007- 08 All undergraduates Full-time, Percent Average Percent Average distribution Average sticker distribution Average sticker enrolled tuition' price' enrolled tuition' price 1 Total 100.0 $5,800 $14,000 100.0 $10,300 $22,400 Type of institution Public 2-year 40.0 1,200 7,000 17.8 2,400 12,600 Public 4-year 29.2 5,500 15,200 42.7 7,100 18,900 Private nonprofit 4-year 13.0 17,800 28,200 20.6 23,400 35,500 For-profit 9.0 10,200 20,600 8.5 11,900 28,600 Other, or more than one institution 8.8 4,800 12,300 10.5 7,000 18,000 TABLE 2. FINANCIAL AID for all undergraduates and full-time, full-year undergraduates, by type of institution attended: 2007- 08 1 Average tuition and average sticker price estimates are shown for those attending one lnstiwtlon only. NOTE: "full-time, full-year is defined as having been enrolled in a postsecondary institution for 9 months or more full time. "Tuition includes all tllition and fees. "Stkker price" is thetotal price of attendance which includes tllition and fees, books and supplies, housing, meals, transportation, and other miscella- neous, or personal, expenses. Estimates include stu- dents enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. De- tail may not sum to totals because of rounding. Stan dard error tables are available at
SOURCE: U.S. Department of Education, National Cen- ter for Education Statistics, 2007- 08 National Postse condary Student Ai d Study (NPSAS:OS). Any grants Any loans Any work-study Any aid NOTE:"Grants" include scholarships Average Average Average Average and tuition waiver;. "Loans" Include Percent amount Percent amount Percent amount Percent amount federal, state, institutional, or private student loans, excluding Parent PLUS loans. rota!" aid includes grants, All undergraduates 51.7 $4,900 38.5 $7,100 7.4 $2,400 65.6 $9,100 loans, job training, veterans benefits, employer aid, and Parent PLUS loans. "All undergraduates" include those Type of institution attending more than one institution. "Full-time, full-yea(' is defined as Public 2-year 39.6 2,200 13.2 4,100 3.3 3,000 47.6 3,400 having been enrolled in one postse- Public4-year 52.9 5,200 46.2 6,600 7.7 2,500 71.3 9.400 condary institution for 9 months or more full time. Average aid amounts Private nonprofit 4-year 73.6 10,200 58.9 9,100 23.2 2,100 84.7 17,400 are calculated only for students re- For-profit 70.4 3,200 91.6 8,100 2.0 3,500 96.3 10,800 ceiving a particular type of aid. Those not receiving a specific type of aid (i.e., zero values) are not included in Full-time, full-year 65.3 7,200 53.1 8,000 13.7 2,300 80.1 12,900 theaverageforthat aid. Estimates include students enrolled in mle IV eligible pnstsecondary institutions in Type of institution the 50 states, DC, and Puerto Rico. Standard error tables are available at Public 2-year 55.7 3.700 22.5 4,900 6.9 2,600 65.7 5,400 Public4-year 60.4 6,100 52.7 7,100 10.5 2,400 78.3 11,000
SOURCE: U.S. Oepartmem ofEducation, Private nonprofit 4-year 81.2 12,300 65.0 9,800 31.5 2,100 89.4 21,100 National Ceoter for fducation Statistics, For-profit 71.9 4,000 91.6 9,600 2.0 3,600 96.7 13,100 2007-08 National Postsecondary Stu dent Aid Study (NPSAS:08). 1l FIND OUT MORE For questions about content, ordering additional copies of this Statistics in Brief, or to view this report online, go to: http://nces.ed.gov/insert-url/ More detailed information on the price of undergra- duate education and undergraduate financing can be found in Web Tables produced by the National Center for Education Statistics (NCES) using the 2007-08 Na- tional Postsecondary Student Aid Study (NPSAS:08) data. These Web Tables are a comprehensive source of information on financial aid awarded to undergra- duate students during the 2007-08 academic year. In- cluded are estimates of tuition, price of attendance, and financial aid. Additional information on the de- mographic characteristics of 2007- 08 undergraduates can be found in a second set of Web Tables. Web Tables-Student Financing of Undergraduate Edu- cation: 2007-08 (NCES 2010-162). (link will be added) Web Tables-Profile of Undergraduate Students in U.S. Postsecondary Institutions: 2007- 08 (NCES 2010-205). (link will be added) Readers may also be interested in the following NCES products related to the topic of this Statistics in Brief: 2007-08 National Postsecondary Student Aid Study (NPSAS:08): Student Financial Aid Estimates: First Look (NCES 2009-166). http://nces.ed.gov /pu bs2009 /2009166.pdf Undergraduate Financial Aid Estimates by Type of Insti- tution in 2007-08 (NCES 2009-201). http://nces.ed.gov/pubs2009/2009201.pdf -------------------------------------- 12 -------------------------------------- TECHNICAL NOTES Survey Methodology The statistics provided in this Statistics in Brief are based on data collected through the 2007- 08 National Postse- condary Student Aid Study (NPSAS:08). NPSAS:08 is the seventh administration of NPSAS, which has been conducted every 3 to 4 years since 1986-87. The NPSAS:08 target population includes all eligible students enrolled in Title IV institutions in the United States at any time between July 1, 2007 and June 30, 2008, representing about 21 million undergraduates and 3 million graduate students enrolled in over 6,000 institu- tions. The institution sampling frame for NPSAS:08 was constructed from the 2004-05 and 2005-061nstitutional Characteristics, Fall Enrollment, and Completions files of the Integrated Postsecondary Education Data System (IPEDS). The sampling design consisted of first selecting eligible institutions, from which students were sampled in the second stage. Institutions were se- lected with probabilities proportional to a composite measure of size based on expected enrollment. Approximate- ly 1,700 institutions participated in the study, yielding an unweighted re- sponse rate of 89 percent. Approx- imately 114,000 undergraduates and 14,000 graduate students were study respondents, yielding an unweighted response rate of 96 percent. Estimates were weighted to adjust for the un- equal probability of selection into the sample and for nonresponse. NPSAS covers broad topics concerning student enrollment in postsecondary education and how students, and their families, finance their education. Res- pondents provided data through in- struments administered over the Internet, by telephone, or in person. In addition to respondent-provided data, data on respondents were collected from other relevant databases, includ- ing U.S. Department of Education records on student loan and grant pro- grams and student financial aid appli- cations. VARIABLES USED Two broad categories of error occur in estimates generated from surveys: sampling and nonsampling errors. Sampling errors occur when observa- tions are based on samples rather than on entire populations. Nonsampling errors can be attributed to several sources: incomplete information about all respondents (e.g., some students or institutions refused to participate, or students participated but answered only certain items); differences among respondents in question interpretation; inability or unwillingness to give cor- All estimates presented in this Statistics in Brief were produced using the Data Analysis System (DAS). See "Run Your Own Analysis" for more informa- tion on the DAS and other web-based software applications that enable us- ers to generate tables for most of the postsecondary surveys conducted by NCES. The program files that generated the statistics presented here can be found at [insert-uri-here}. The variables used in these analyses include the following: Label Attendance status Family income for dependent students Federal grants Institutional grants Net price after grants Non-tuition expenses Out-of-pocket net price Private grants State grants Sticker price Total financial aid Total grants Total student loans Tuition Type of aid package Type of institution Work-study Name ATINSTAT PGDEP TFEDGRT INGRTAMT NETCST3 BUDNONAJ NETCSTl PRIVAID STGTAMT BUDGETAJ TOT AID TOTGRT TOTLOAN TUITION2 AIDTYPE SEGOR4 TOTWKST -------------------------------------- 13 -------------------------------------- rect information; mistakes in recording or coding data; and other errors of col- lecting, processing, sampling, and im- puting missing data. For more information on NPSA$:08 me- thodology, see 2007-08 National Post- secondary Student Aid Study (NPSAS:08) Full-scale Methodology Report (NCES 201 0-1 88) (forthcoming). Item Response Rates NCES Statistical Standard 4-4-1 states that " [a)ny survey stage of data collec- tion with a unit or item response rate less than 85 percent must be evaluated for the potential magnitude of nonres- ponse bias before the data or any anal- REFERENCES The College Board (2009). Trends in College Pricing 2009. Retrieved on February 11,2010, from http://www.trends-col legeboard. com/college pricing/pdf/ 2009 Trends College Pricing.pdf. The College Board (2008). Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid: TheRe- port from the Rethinking Student Aid Study Group. Retrieved on January 15, 201 0, from .!:!.llQ.;LL professionals.collegeboard.com/ profdownload/rethinking-stu-aid- fulfilling-commitment- recom mendations.pdf. Harvey, J., Williams, R.M., Kirshstein, RJ., O'Malley, A.S., and Wellman, J.V. ( 1998). Straight Talk About College Costs and Prices. Report of the National Commission on the Cost of Higher Edu- cation. Phoenix, AZ: Oryx Press. ysis using the data may be released" (U.S. Department of Education 2003). Several derived variables used in this report were comprised of variables that had response rates of less than 85 per- cent before imputation. EMPLYAM1 and EMPL YAM2 (measures of employer aid received, and components of TOTGRT) had response rates of 79 per- cent and 80 percent, respectively. Non- response bias analyses showed that for EMPL YAM 1, there was statistically sig- nificant bias on 87 percent of the cha- racteristics analyzed, and for EMPLYAM2, there was significant bias on 76 percent of all characteristics. PRIVLOAN (private loans received, and lmmerwahr, J., Johnson, J., Gasbarra, P., Ott, A., and Rochkind, J. (2009). Squeeze Play 2009: The Public's Views on College Costs Today. New York and San Jose, CA: Public Agenda and The National Center for Public Policy and Higher Education. Lewin, T. (2009, October 20). College Costs Keep Rising, Report Says. The New York Times. Marchand, A. (201 0, January 21 ). Cost of College Is a Big Worry of Freshmen in National Survey. The Chronicle of High- er Education. Pryor, J.H., Hurtado, S., DeAngelo, L., Pa- lucki Blake, l., and Tran, S. (2009). The American Freshman: National Norms Fall2009. Los Angeles: Higher Educa- tion Research Instit ute, University of California, Los Angeles. a component ofTOTLOAN) had a re- sponse rate of 67 percent. The nonres- ponse bias analysis for this variable showed that respondent s and nonres- pondents were significantly different on 80 percent of all analyzed characte- ristics. PCTDEP had a response rate of 56 percent, and the non response bias analysis also showed significant bias on 80 percent of all characteristics. For more detailed information on nonres- ponse bias analysis and an overview of the survey methodology, see 2007-08 National Postsecondary Student Aid Study (NPSAS:08) Full-scale Methodology Report (NCES 201 0-188) (forthcoming). Staklis, S. (forthcoming). Web Tables- Profile of Undergraduate Students: 2007-08 (NCES 2010-205). National Center for Education Statistics, Insti- tute of Education Sciences, U.S. De- partment of Education. Washington, DC. U.S. Department of Education, National Center for Education Statistics. (2003). NCES Statistical Standards (NCES 2003- 601 ). Washington, DC. Wei, C. (forthcoming). Web Tables- Student Financing of Undergraduate Education: 2007- 08 (NCES 201 0-162). National Center for Education Statis- tics, Institute of Education Sciences, U.S. Department of Education. Wash- ington, DC. -------------------------------------- 14 -------------------------------------- RUN YOUR OWN ANALYSIS WITH DATALAB You can replicate or expand upon the figures and tables in this report, or even create your own. Data lab has several different tools that allow you to customize and generate output from a variety of different survey datasets. Visit Data Lab at: QuickS tats Create a simple table quickly View )'O'Jr cutp-..rt as a chart or table Choose from many data sets each with about one hundred Y!lriables Select from postsecondary surmes Cover artwork iStockphoto.<Om!centauria. http:/ /nces.ed.gov/datalab/ Dotolab PowerS tats Produee- complex tables Run linear and logistic
Choose from many data sets each with thousands of variabl&s library Search existing tables and figures to find to your questions Vistt NCES Tables sod Figures Comr119 soon Thousands of pubhshed tables using Po,verStats and OuickStats Help Need Ccntact John Vuicka MPR Assoc.iatas Inc. d3tala!rhelp@mpnrte com Aurora D'Amico. NCES Au.ora gcw Need access to restncted data? Learn more on The Restnctedll se Data Procedures Manual -------------------------------------- 15 -------------------------------------- www.ed.gov ies.ed.gov Please print From: Kanter, Martha Sent: Friday, April 30, 2010 2:49PM To: Yuan, Georgia Subject: FW: Tony Miller briefing [(b)(S) From: Bergeron, David Sent: Friday, April 30, 2010 2:37PM To: Kanter, Martha Subject: FW: Tony Miller briefing From: Weko, Tom Sent: Friday, April 30, 2010 2:35PM To: Bergeron, David Cc: Miller, Elise; Hunt-White, Tracy Subject: Tony Mill er briefing (b)(5) From: Yuan Georgia To: Canada, June CC: Date: 4/30/2010 3: 11 :22 PM Subject: FW: Tony Mmerbriefing (b)(S) e n (b)(5) (b){5) (b)(5) 1 The "New Majority" of Undergraduates: 2 Students in Community Colleges and 3 For-Profit Institutions 4 Introduction 5 Depictions of postsecondaty education in the news, films, and oth- 6 er media often focus on undergraduates who study at traditional 7 4-year public universities and nonprofit colleges (Swidey 2009; 8 Russo 2006; U.S. Department of Education 2002). Yet even two 9 decades ago these students accounted for just 55 percent of stu- l 0 dents enrolled in U.S. postsecondaty education (Choy and Gifford 1990). 1 Now a majority of undergraduates in U.S. postsecondaty education attend community colleges and for-profit institutions. These two sectors together enrolled 54 percent of the approximate- ly 21 million undergraduates who attended U.S. postsecondary institutions in 2007-08. Some 44 percent of undergraduates at- l6 tended community colleges, the single largest sector of U.S. postse- condary education, and another 10 percent attended for-profit institutions (figure 1). While the for-profit sector accounts for a relatively small percentage of undergraduates, its enrollment is growing at a rapid pace relative to other postsecondaty sectors (Horn and Li 2009; Wilson 2010). Who are the undergraduate students served by community colleges and for-profit institutions, and how do they compare to students who are enrolled at traditional 4-year institutions? Drawing on data from a nationally representative sample of undergraduates enrolled L Based on fall enrollment in the 1986-87 National Postsecondary Stu- dent Aid Study (NPSAS:87). THE "NEW MAJORITY" OF UNDERGRADUATES: STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 in U.S. postseconda1y institutions, this Statistics in Brief27 enrolled in bachelor's degree programs, while 43 percent 2 addresses the following questions. 28 were pursuing associate's degrees, and the remaining stu- 29 dents were either in certificate programs or not in a de- 3 How do students enrolled in for-profit institutions and 30 gree program (table 1).2 The average 2007-08 tuition 4 community colleges differ from each other and from 31 and fees for full-time, full-year students was $11,900, 5 those enrolled in traditional4-year institutions in terms 32 and for all students, $10,200 (Wei forthcoming). 6 of: 7 8 9 10 11 12 13 33 Community colleges: Also known as public 2-year institu- 1) demographic and socioeconomic characreristics?34 tions, community colleges offer associate's degrees in 2) indicators of high school academic preparation 35 occupational and academic fields, as well as occupational and being the first in their family to attend col- 36 certificates. Unlike for-profit institutions, which offer lege? 37 primarily occupational programs, community colleges 38 offer a variety of progran1s with different goals. These 3) enrollment patterns and major fields of study? 39 include academic transfer to 4-year institutions, voca- 4) the extent to which they combine work and study? 40 tionalltechnical education, continuing education, and 41 developmental education (Cohen and Brawer 2003). 14 The three groups of postsecondary institutions comparcJ2 Conu11w1ity colleges, therefore, serve a range of students, 15 in this Brief are briefly defined below. 43 from those needing basic remedial courses to very high 44 achieving students meeting lower-division bachelor's 16 For-profit institutions: A recent report by the U.S. Gov- 45 degree requirements before transferring to a selective 4- 17 ernment Accountability Office defined propriety institu-46 year college or university (Provasnik and Planty 2008). 18 tions as "Institutions that are privately-owned whose net47 The average 2007-08 tuition and fees for full-time, full- 19 earnings can benefit a shareholder or individual; that is, 48 year students was $2,400, and for all students, $1,200 20 for-profit institutions." (U.S. GovernmentAccountabili-49 (WeiforthcominiJ. 21 ty Office 2009). Among undergraduates enrolled in for- 22 profit institutions in 2007-08, about half attended insti-50 23 tutions authorized to award 4-year (bachelor) degrees, 27 24 percent attended 2-year institutions, and 22 percent at- 25 tended less-than-2-year institutions (figure 2). Half of 26 those in for-profit 4-year institutions were 2 At community colleges, 79 percent of undergraduates were in associate's degree programs, 7 percent in cerrillcate programs, and 11 percent were not in a degree program. In traditional 4- year institutions, 93 percent of lmdergraduates were enrolled in bachelor's degree programs. THE "NEW MAJORITY" OF UNDERGRADUATES: I I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 3 1 Public and private nonprofit 4-year institutions: Public 28 2 and private nonprofit institutions serve as the main 29 3 comparison group in this analysis. Consistent with pre- 30 4 vious research, they are referred to as "traditional4-year 31 5 institutions" (Tierney and Hentschke 2007). Together, 32 6 students in these two sectors accounted for 46 percent of 33 7 all undergraduates in 2007-08-32 percent attending 34 8 public 4-year colleges and universities, and 14 percent 35 9 attending private nonprofit 4-year institutions (figure 1) 36 ic), and income (larger proportion oflow- income students). 3 Community college students also differ from traditional 4-year college stu- dents on most of these characteristics, but to a lesser extent. 4 The part-time status of the majority of commu- nity coll ege students sets them apart from their peers in for-profit and traditional 4-year institu- tions, the majority of whom attend full time. 10 The average 2007-08 tuition and fees for full-time, full- 11 year students in 4-year public institutions was $5,700 37 12 and $6,300 and for all students, $4,100 and $6,300, at 38 Health care fields are the most common fields of study among students in for-profit institutions, and arean1ong the most common fields for community college students. 13 non-doctorate- and doctorate-granting institutions, re- 39 14 spectively. Tuition and fees in private nonprofit institu- 40 15 tions totaled $20, 800 and $25,800 for full-time, full- 41 Regardless of where undergraduates enroll, a majority work while enrolled. 16 year students and $15,200 and $20,700 for all students, 42 17 at non-doctorate- and doctorate-granting institutions, 18 respectively (Wei forthcoming). 19 20 UNDERGRADUATE AWARDS CONFERRED Table 2 shows the distribution of undergraduate awards for the institution comparison groups (shaded) presented in this report. These comple- tions data are reported by all institutions that partic- ipate in Title IV student aid programs. Based on these data, community colleges awarded 46 per- cent of all certificates and 69 percent of associate's degrees in 2007. For-profit institutions awarded 42 percent of all certificates and 16 percent of asso- ciate's degrees. For-profit 4-year institutions awarded about 5 percent of bachelor's degrees and traditional 4-year colleges and universities awarded the remaining 95 percent. 21 Key findings 43 Demographic and Socioeconomic 44 Characteristics 5 Many demographic characteristics, including gender, 6 race/ethnicity, family status, income and age distinguish 7 students enrolled in for-profit institutions and commu- 8 nity colleges from those enrolled in traditional 4-ycar 9 colleges. Students in the for-profit sector, for example, 0 were the most likely to be female, Black or Hispanic, to 1 have children or other dependents, and to be single with 2 dependents in 2007-08 (figure 3). Women constituted a 3 majority of undergraduates in all three sectors, but com- 4 prised 69 percent of students in for-profit institutions. fn 5 contrast, 57 percent of community college students and 6 55 percent of traditional4-year institution students were 7 women. 22 Students enrolled in for-profit institutions differ 3 All comparisons of estimates were tested for statistical signi- ficance using the Student's !-statistic, and all differences cited are statistically significant at the p < .05 level. No adjustments for mltltiple comparisons were made. The standard errors for the estimates can be found at http://nces.ed.goy/das/library/rs:ports.asp. 23 from those enrolled in traditional 4-year institu- 24 tions across a wide range of demographic and 25 socioeconomic characteristics, including gender 26 (larger proportion of women), age (older), 27 race/ethnicity (nearly half are Black or Hispan- 4 Determined by a Student' s t-srarisric that rests the signillc- ance of the difference of differences. THE "NEW MAJORITY" OF UNDERGRADUATES: STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 Nearly half of the students in for-profit institutions were35 students were 31 percent for dependent students and 22 2 Black (25 percent) or Hispanic (21 percent). In commu-36 percent for independent students. 3 nity colleges, the percentages of Black (14 percent) and 4 Hispanic students (15 percent) were lower than those in 37 The income status of community college students rela- 5 for-profit institutions but higher than those in tradition-38 tive to their peers in traditional 4-year institutions dif- 6 al4-year institutions (1 1 and 12 percent, respectively, 39 fered for dependent and independent students. A larger 7 were Black or Hispanic). 40 percentage of dependent community college students 4 1 were from low-income families (31 vs. 20 percent), while 8 Community college students also fel l between for-profit 42 a smaller percentage of independent students earned low 9 and traditional 4-year institutions in terms of their like- 43 incomes (22 vs. 28 percent) . 10 lihood of having dependents and being single with de- 11 pendents. Some 32 percent of communi ty college 44 The average age of students enrolled at conummity col- 12 students had children or other dependents, versus 49 anJ5 leges and for-profit institutions was older than the aver- 13 14 percent in for-profit and traditional 4-year institu- 14 15 tions, respectively. The same pattern was found for the percentage of undergraduates who were single with de- 16 pendents (16 vs. 31 and 7 percent) . 46 age age of students at traditional 4-year institutions (28 47 vs. 24) (figure 5) . Although the average age of students 48 in both for-profit institutions and communi ty coll eges 49 was 28, the distri bution of students by age group in each 50 type of institution differed (figure 5) . Undergraduates 17 When income is considered for postsecondaty students, 51 enroll ed in for-profit institutions were least likely to be 18 family income is reported for students considered finan- 52 traditional-aged students-23 or younger. 19 cially dependent on their parents, and student (and 20 spousal) income is reported for chose considered finan- 53 2 1 cially independent. Dependency status is based largely 54 22 on age: all students 24 or older are considered indepen- 55 23 dent. Married students and students who are parents are 6 24 also considered independent. Reflecting these characte- 5 25 ristics, just over three-quarters (76 percent) of students 57 26 in for-profit institutions were independent (figure 4). I n ~ ~ 27 contrast, 57 percent of community college students and 60 28 32 percent of students at traditional4-year institutions 61 29 were independent. 62 30 Students in the for-profit sector were the most likely to 31 32 63 64 be low income; roughly half (51 percent) of dependent students had low family incomes, and roughJy one-third 65 33 of independent students earned low incomes (32 per- 66 Indicators of High School Academic Preparation and First in Family to Attend College Students in for-profit institutions appeared to be the least academically prepared based on indicators of high school completion and academic preparation available in the data. Indicators include high school completion sta- tus (standard diploma), average grades, and the number of years of mathematics taken. As illustrated in figure 6, compared with their peers in community colleges and traditional 4-year institutions, students in for-profit in- stitutions were the most likely co have enrolled in postse- condaty education without a standard hi gh school diploma (19 percent, vs. 14 percent and 7 percent, re- 34 cent) .s Comparable percentages for conununity college 67 spectively, of community college and traditional4-year 5 Low income is defmed as a parent (dependent wldergra- duates) or student (including spouse's income, for indepen- dent wldergraduates) income that is at or below the 25th percentile of the income distribution for each group. In 2006 (the year used for 2007-08 financial ajd applications) the in- come levels were at or below $36,000 for dependent students and at or below $11,000 for independent students. THE "NEW MAJORITY" OF UNDERGRADUATES: I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 5 1 college students) . 6 They were also least likely to report 30 in for-profit institutions attended full time for the full 2 earning grades ofB or higher (54 vs. 6 1 and 81 percent),31 year and 33 percent attended full time for part of the 3 or completing 4 or more years of high school mathemat-32 year. A higher percentage of undergraduates attended 4 ics (48 vs. 54 and 76 percent) ? At the same time, about 33 full time, full year in traditional4-year institutions (59 5 half of for-profi t students were the first in their famil y to34 percent) than in for-profit institutions. 6 enroll in postsecondary education, as measured by the 7 level of education achieved by either parent (figure 6). 35 Not ali students attend classes on campuses, but instead 8 SpecificaHy, among for-profi t students, 51 percent were 36 participate in distance education. Students in communi- 9 from families in which neither parent had an education 37 ty coll eges and for-profit institutions di d so more often 10 beyond high school, compared with 39 and 25 percent, 38 chan their peers at traditional4-year colleges. About one- 11 respectively, of community coll ege and tradi tional 4-yea 1 39 quarter of community college students and about one- 12 college students. 40 fifth of students in for-profi t institutions reported taking 41 distance education courses during the 2007-08 academic 13 Enrollment Patterns and Major Fields of 14 Study 42 year (figure 8) . In contrast, 17 percent of students at tra- 43 di tional 4-year institutions reported the same. In addi- 44 cion, a larger percentage offor-proflt enrollees (12 15 The part-time enrollment patterns of conumrnity collegC45 percent) than those at commttnity colleges (3 percent) 16 students distinguish them from their peers in both for- 46 reported that their entire program was offered through 17 profi t and traditiona14-year institutions (figure 7) . Se- 47 distance education. 18 venty percent attended part time, while the same percen- 19 cage of students in traditional 4-year and for-profit 4 8 With respect to fields of study, community college stu- 20 institutions attended full time. 49 dents sought both academic and occupational prepara- 50 cion (figure 9) . For example, 7 percent of community 2 1 22 23 While part-time attendance offers a flexibility often 5 1 college students and 22 percent of students in traditional needed by studenrs attending community colleges (Co- 52 4-year institutions majored in humanities and social wen and Brower 2003) , it is also associated with lower 53 sciences, compared with 2 percent of students in for- 24 rates of degree completion relative to full-time atten- 25 dance (e.g., Berkner, He, and Cataldi 2002). 54 profit institutions. Another 20 percent at community 55 coll eges and 6 percent at tradi tional 4-year institutions 56 majored in general studies and other fields, compared 26 Looking at attendance patterns over the year, in 57 27 2007-08, some 38 percent of community college stu- 58 28 dents attended part time for part of the year and 32 per- 59 29 cent for the full year. 8 By contrast, 37 percent of with less chan 1 percent at for-profit institutions. Com- munity coll ege students majoring in humanities, social sciences, and general studies are largely those who seek to transfer to a 4-year college (Berkner, Horn, and Chrne 6 1 2000). 6 These students may have dropped out of high school, ob- tained aGED or high school equivalency certificate, been 62 Health care fields accounted for one-third of undergra- home schooled, or attended a foreign high school. 63 duace majors in for-profit institutions and about one- 7 Data on high school academic preparation (GPA and courses) is available only for students younger than 30, which 64 fifth (21 percent) in community coll eges. In conuast, 9 accowued for 77 percent of alltmdergraduares (figure 5). 65 percent of students in traditional 4-year institutions ma- 8 A full year is defined as 9 or more months. Those attending 66 jored in health care fields. l n addition to health care part year may have completed a program of study or left with-67 fields, students in for-profit institutions were the most out completing, either temporari ly or permanently. 68 likely to major in fields that are grouped under the head- I I THE "NEW MAJORITY" OF UNDERGRADUATES: 6 STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 ing "other applied" (26 vs. 16 and 14 percent at com- 16 2 munity coll eges and tradi t ional 17 3 4-year institutions, respectively). These fields include 18 4 criminal justice, communications, and design and ap- 19 5 plied arts, among others. 20 1 HEALTH MAJORS AT COMMUNITY COLLEGES AND 2 FORPROFIT LESS THAN4YEAR INSTITUTIONS 3 4 Although health care fields were among the most 5 common majors at less-than-2-year and 2-year for- profit institutions and community colleges, the mix 6 of health majors at each institution type varied. Figure 10 shows the percentage of health majors 7 at community colleges and 2-year and less-than-2- 8 year for-profit institutions in five fields of study. To- 9 gether, these fields account for about 43 and 46 0 percent of majors at less than-2-year and 2-year for profit institutions, respectively, and 20 percent 1 at community colleges. A higher percentage of stu- 2 dents majoring in health care fields majored in 3 nursing at community colleges (59 percent) than at less-than-2-year (12 percent) and 2-year (1 0 per- 4 cent) for-profit institutions. By contrast, higher per- centages of students at for-profit i nstitutions 5 majored in health and medical administrative ser- 6 vices (21 and 29 percent for less-than-2-year and 2-year institutions, respectively, vs. 5 percent at 7 community colleges) and allied health and medical 8 assisting services (21 and 27 percent for less-than- 9 2-year and 2-year institutions, respectively, vs. 4 0 percent at community colleges) . 1 6 2 7 Combining Work and Study 43 44 8 More than two-thirds of students attending for-profit 9 institutions below the bachelor's degree level and about 45 10 one-half of community college students indicated that 4 6 11 th fi 11 b 47 . .e1r pnmaty reason or enro mg was to acqUire JO re- 12 lated skills or credentials (figure 11). Many of these stu- 13 dents work while attending classes. l n fact, regardless of 14 where undergraduates enroll , a large majority of students 15 work while enrolled (figure 12). Community college students were the most likely to work while enrolled (81 percent) and to work full time (41 percent of all community college students). Howev- er, even though a smaller percentage of students in for- profit institutions attended part time (figure 7), nearly three-quarters (73 percent) worked whil e enrolled and 39 percent of all for-profit students worked full time (figure 12). Students in traditional 4-year institutions were the least likely to work while enrolled, yet 69 per- cent did so. When working students were asked if they considered employment or going to school as their primaty activity, a majority reported the latter. 9 This was the case for stu- dents enrolled in all three institution types. About 60 percent of students in both community colleges and for- profit institutions reported that their primaty role was as a student, as did 79 percent of students in 4-year institu- tions. Find Out More See Related NCES Products More detailed information on 2007-08 undergraduates enroll ed in U.S. postsecondary institutions can be found in Web Tables produced by NCES using the NPSAS:08 data. These web Tables are a comprehensive source of information on undergraduate students during the 2007- 08 academic year. Included are estimates of de- mographics, enrollment, and employment characteris- tics. In addition, Web Tables documenting how students pay for their undergraduate education are also avail able. Web Tables-Profile of Undergraduate Students in U.S Postse- condmy Institutions: 2007-08 (NCES 2010-205). [link will be added] 9 Students who worked while enrolled were asked the foliow- tng question: "Would you say you were primarily a student working to meer expenses or an employee who decided ro enroll in school. " 1 Web Tables-Student Financing of Undergraduate Education: 2 2007-08 (NCES 2010-162). [link wil l be added] 3 Readers may also be interested in the following NCES 4 prod ucts related to the topic of this Statistics in Brief: 5 Changes in Awards Below the Bachelors Degree (NCES 201 0- 6 167). 1 OL2Ql QlGZ.pdf THE "NEW MAJORITY" OF UNDERGRADUATES: I I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 7 33 34 35 36 37 38 39 pondents. Estimates were weighted to adj ust for the un- equal probabili ty of selection into the sample and for non response. For an overview of the survey methodolo- gy, see appendix B of the report 2007-08 National Post- secondary Student Aid Study (NPSAS:08): Student FinanciaL Aid Estimates for 2007- 08: First Look (http://nces.ed.gov /pubs2009/2009166.pdf). 7 The Price of Undergraduate Education: 2007-08 (NCES 201 0- 8 175). [link to be added] 40 T he fi ndings presented here are purely descri ptive in nature. Al l estimates presented in this Statistics in Brief were produced using the Data Analysis System (DAS), a web-based software application that enables users to gen- 9 Student hnancing of Undergraduate Education: 2007-08 10 (N CES 2009-175). [li11 k to be added] 4 1 42 43 1 1 Undergraduate Financial Aid Estimates by Type oflmtitution in 44 erate tables for most of the postsecondary surveys con- 12 2007-08 (NCES 2009-201). 13 http:Unces.ed.gQvlpubs2Q09/2Q092Ql .pdf 14 2007-08 National Postsecondary Student Aid Study 15 (NPSAS:08): Student Finan,ial Aid Estimates: First Look 16 (NCES 2009-166). 17 http://nces.ed.gov/pubs2009/2009166.pdf 4 5 ducted by the National Center for Education Statistics 46 (NCES). T he DAS also contains a detailed description 47 of how each variable was created and incl udes the word- 4 8 ing of questions for variables coming d irectly from the 49 interview. With the DAS, users can repli cate or expand 50 upon the figures and tables presented in this report. For 18 Run Your Own Analysis 51 a description of al l available options, users should access 19 Direct access to the data used in this Statistics in Brief is 52 the DAS website. If users are new to the DAS, the DAS 20 avail able through NCES' s DataLab site 53 User Help Center provides online tutorials on how to 2 1 (http://nces.ed.gov/datalab/). 54 use al l functions of the DAS. The DAS is available at 22 Technical Notes 55 http://nces.ed.gov/DAS. 23 The data in this report come from the National Postse- 56 Variables Used in This Statistics in Brief 4 d d Ps S) dm d 57 Information on al l the variables used in this report can 2 condary Student Ai Stu y (N A a inistere over 25 the 2007- 08 year. T he NPSAS target population in- 58 be obtained from the NPSAS:08 DAS. Users can search 26 II d I 59 the DAS for the label or variable nan1es specified below. dudes all eligibl e students enro e in T it eN institu- 27 tions in the United States at any time between July 1, 60 T he foll owing variables included in chis Brief had a 28 2007 and June 30, 2008. 10 The sampli ng design for col- 6 1 response race ofless than 85 percent: 29 lecting data consisted of two stages. T he fi rst stage in- 62 ATTEND MR, DEPANY, DISTED UC, 30 volved selecting eligible institutions from which students63 DISTALL, H CYSMATH, H SGPA, JOBENR, 31 would then be sampled in the second stage. Approx- 64 ]OBRO LE, PAREDUC, PCT DEP, PCTlNDEP. 32 imately 114,000 undergraduate students were study res- 10 Title IV institutions are those eligible to participate in the federal fmancial aid programs incl uded in Title IV of the Higher Ed ucation Act. These programs include the Pel ! Grant, federal student loans, work-st udy, and other federal aid. I I THE "NEW MAJORITY" OF UNDERGRADUATES: 8 STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 Age (AGE) 40 Choy, S. (200 1). Stur.knts Whose Parmts Did Not Go To Col- 2 Main reasons for attending institution (AITENDMR) 3 Attendance pattern (ATfNSTKD 4 Has dependents (DEPANY) 41 42 43 lege: PostucoruM.ry A cuss, Pnsistmu, and Attainmmt (NCES 2001-126). Narlonal Center for Education Statis- tics, U.S. Department of Education. Washington, DC. 5 Dependency status (DEPEND) 44 Cohen, A.M., and Brawer, F.B. (2003). The Ammcan Com- 6 Distance education: took courses in 2007-08 7 (DISTEDUC) 45 munity College {tlth ed.). San Francisco: Jossey-Bass. 8 Distance education: entire program (DIST ALL) 9 Gender (GENDER) 46 47 48 49 Horn, L. and Li, X. Changes in Awards Below the Bachelor's Degree (NCES 2010-167). National Center for Educa- tion Statistics, Insti tute of Ed ucation Sciences, U.S. De- partment of Education. Washington, DC. 10 High school math courses planned/taken J 1 (HCYSMATH) 50 Russo, A. (2006). Traditional College Students Not So Tradi- 12 High school degree type (HSDEG) 51 tiona!. This Week in Education: Alexander Russo's WeekLy 13 High school grade point average (HSGPA) 14 Work intensity whi le enrolled QOBENR) 52 Roundup of the Best Education News and Analysis. Re- 53 trieved December 16, 2009, from 15 Primary role as student or employee QOBROLE) 16 NPSAS institution level (LEVEL) 54 55 17 Field of study/major (detailed CIP codes) (MAJORS4Y)56 18 Field of study: undergraduate (10 categories) 5? 19 (MAJORS4) ; ~ 20 Parent education (PAREOUC) 60 h up://tb jsweeki ned ucarion .blogspor.com/2006/02/ uad jrion a l-eo llegs:-sruden rs-no t -so. b tm I. Swidey, N. (2009). The Four-Year College Myrh. The Boston Globe Sunday Magazine. Retrieved November 25, 2009, from hnp://www.boston.com/bostonglobs:lmagazine/artkks/2 009/05/31/tbs: four year college myth/. 21 Tncomc percentile for dependent students (PCTDEP) 22 23 24 Income percentile for independent students (PCTTNDEP) 61 Tierney, W. and Henrschke, G. {2007). New Players, Differmt 62 Game: Understanding the Rise ofFor-Profit Colleges and 63 Universities. Baltimore, MD: The j ohns Hopkins Univer- Race/ethnicity (RACE) 64 sity Press. 25 I nstitution sector (SECTOR9) 26 Single parent (SJNGLPAR) 65 U.S. Governrnenr Accountability Office (GAO). {2009). Pro- 27 Undergraduate degree (UGDEG) 66 67 68 69 28 References 29 13erkner, L., Horn, L., and McCiw1e, M. (2000). Descriptive 70 30 Summnry of 1995-96 Beginning PostsecoruM.ry Students: 7I 31 Thm Yean Later (NCES 2000-154). NationaJ Center fol 2 32 Education Statistics, U.S. Department of Education. 73 33 Washington, DC. 74 34 35 36 37 38 39 Bradburn, E., Berger, R., Li, X., Peter, K., and Rooney, K. 75 (2003). A Descriptive Summary of1999-2000 Bachelor's 76 Degm Recipients 1 Year Later (NCES 2003-165). Nation77 al Center for Education Statistics, lnstlrute of Education 78 Sciences, U.S. Department of Education. Washington, DC. prietary SdJools: Stronger Department of Education Over- sight Needed to HeLp Ensure OnLy Eligible Students Receive FederaL Student Aid (GA0-09-600). Washington, DC: Aurbor. Wilson, R. (20 I 0). "for-Proflr Colleges Change Higher Edu- cation's Landscape. Chronicle of Higher Education Febru- ary 7, 20 I 0. Retrieved February 16, 2010 from hnp://chronjcls:.com/arrjcls:/For-Profit-Colls:gs:s- Changs:/640 12/. Wei, C. (forthcoming) Web Tabks: Student Financing of Unrkr- graduate Education {NCES 201 0-162). National Cemer for Education Statistics, U.S. Department of Education. Washington, DC. 1 www.ed.gov ies.ed.gov Figure 1. WHERE UNDERGRADUATES ARE ENROLLED: Percentage distribution of undergraduates, by type of institution: 2007-08 Private nonprofit 4-year Community colleges 44% 54% 1 Other includes public less-than-2-year and private nonprofit less- than-4-year institutions. 2 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/dasl librarv/ reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 2. FOR-PROFIT INSTITUTIONS ARE AT ALL LEVELS: Percentage distribution of undergraduates who attended for-profit institutions, by level of institution: 2007-08 4-year NOTE: Estimates include students enrolled in Title IV eligible post secondary institutions in the 50 states. DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:lfnces.ed.gov/das/library/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 3. GENDER, FAMILY STATUS, AND RACE/ETHNCITY: Percentage of undergraduates with selected student characteristics, by type of institution: 2007-{)8 Percent 100 80 60 40 20 For-profit' Community colleges Public and private nonprofit 4-year 0 0 69 57 Female 20 Percentage of undergraduates by selected characteristics 55 For-profit' 49 Percentage of undergraduates with children or dependents Community colleges 16 7 Percentage of undergraduates who were single with dependents C Public and private nonprofit 4-year Percentage distribution of undergraduates by race/ethnicity 40 60 80 Percent White OBiack CHispanic Asian Other or two or more races 1 Includes 4-, 2-, and less-than-2-year institutions. 100 NOTE: Black includes African American, Hispanic includes Latino, and Asian includes Pacific Islander. Other includes American Indian and Alaska Native, and respondents having origins in a race/ethnicity not listed. Estimates include students enrolled in Tille IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:/fnces.ed.gov/das!library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-Q8 National Postsecondary Student Aid Study (NPSAS:08). Figure 4. Percent 100 l 80 J 60 I 40 I 1 20 I 1 0 LOW-INCOME STATUS: Percentage of undergraduates who were independent and percentage in the low-income groups among dependent and independent students, by type of institution: 2007-08 76 Independent undergraduates For-profit' 51 Low-income dependent undergraduates' Community colleges 32 28 Low-income independent undergraduates 2 oPublic and private nonprofit 4-year 1 Low-income dependent undergraduates had family incomes of approximately $36.000 or less in 2006 (the year used for 2007-08 financial aid calculations), which was at or below the 25th percentile of the income distribution for all dependent undergraduates. 2 Low-income independent undergraduates had personal (including spouse's income) incomes of approximately $11,000 or less in 2006 (the year used for 2007-08 financial aid calculations), which was at or below the 25th percentile of the income distribution for all independent undergraduates. 3 Includes 4-, 2-. and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http:/fnces.ed.gov/das/librarv/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 5. AGE DISTRIBUTION: Average age and percentage distribution of undergraduates by age and type of institution: 2007-08 Percent 100 .. 80 G 60 40 36 20 0 All For- undergraduates profit' Average age 26 28 1 Includes 4-, 2 , and less-than-2-year institutions. 30 Community colleges 28 40 or older 45 0 24-29 Public and private nonprofit 4-year 24 20-23 19 or younger NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:/lnces.ed.qov/ dasllibrarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study ( NPSAS:08). Figure 6. STUDENTS' ACADEMIC BACKGROUND AND WHETHER FIRST IN FAMILY TO ATTEND COLLEGE: Percentage of undergraduates who did not graduate from high school with a regular high school diploma, who reported having a high school GPA of 8 or better, who reported taking 4 or more years of mathematics in high school, and who were the first in their family to attend college, by type of institution: 2007-08 Percent 100 80 60 40 20 0 Students without a regular high school diploma' For-profit' 81 61 54 Students with an average high school GPA equivalent to grade B or better Community colleges 76 48 54 Took 4 years or more of mathematics in high school 2 51 First in family to attend college (neither parent attended postsecondary education) 0 Public and private nonprofit 4-year 1 Undergraduates who did not have a regular high school diploma may have attended a foreign high school, been home schooled, or may have earned a high school completion certificate, graduation equivalency diploma, or other equivalency, or have no high school degree or certificate. 2 Data on academic preparation in high school are available only for undergraduates younger than 30, who account for 77 percent of all undergraduates. 3 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nces.ed .govfdas/libraryfreports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007--08 National Postsecondary Student Aid Study (NPSAS:08). Figure 7. FULL- AND PART-TIME ATTENDANCE: Percentage distribution of undergraduates by attendance status and by type of i nstitution attended: 2007-08 Percent 100 80 ~ a Part-time! part-year 60 12 aPart-time/ 33 full-year 14 40 Full-time/ part-year 20 11 a Full-time/ full-year 0 All undergraduates For-profit' Community Public and private colleges nonprofit 4-year 1 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08) . Figure 8. DISTANCE EDUCATION: Percentage of all undergraduates who took a distance education course in 2007-08 and percentage of all undergraduates who attended programs entirely taught through distance education, by institution type: 2007-08 Percent 100 80 60 40 20 0 L 21 24 17 Took a distance education course in 2007-08 For-profit' Community colleges 1 Includes 4-, 2-, and less-than-2-year institutions. 12 3 2 Percent of undergraduates in programs entirely taught through distance education ClPublic and private nonprofit 4-year NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/ library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08) . Figure 9. MAJOR FIELDS OF STUDY: Percentage distribution of undergraduates by major field of study and type of institution: 2007-08 Percent 100 80 60 40 33 20 22 20 li:n 70 6 9 6 2 ..2.__o # - _ c:J Health care fields Other applied' Business STEM 2 Humanities and Education General studies social sciences and other' For-profit 4 Community colleges a Public and private nonprofit 4-year # Rounds to zero. 1 Includes personal and consumer services, manufacturing, construction. repair, and transportation, military technology and protective services, architecture, communications, public administration and human services, design and applied arts, law and legal studies, and theology and religious vocations. 2 Science, technology, engineering and math. 3 other includes basic skills, citizenship activities, leisure and recreational activities, personal awareness and self improvement, high school/ secondary diplomas and certificate programs, interpersonal and social skills. 4 Includes 4-. 2-, and less-than-2-year institutions. NOTE: Excludes undergraduates who were not in a degree program or who had not declared a major field of study. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 10. MOST COMMON HEALTH CARE FIELDS: Percentage distribution of health majors at community colleges and for-profit subbaccalaureate institutions by type of institution: 2007-08 Percent 100 80 60 40 20 ! 0 ' 57 40 11 10 10 10 14 5 26 m:;., 22 __ _ Nursing Health professions and related clinical sciences :.J For-profit less-than-2-year Health and medical administrative services li!l For-profit 2-year Allied health and medical assisting services Other health care fields' Community colleges 1 Other health care fields include allied health diagnostic, intervention, and treatment fields, pharmacy and pharmaceutical sciences, and health aides, among others. NOTE: Health care fields accounted for 43 percent of majors at for-profit less-than-2-year institutions, 46 percent at for-profit 2-year institutions, and 20 percent of majors at community colleges. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nces.ed.gov/das/librarv/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007--Q8 National Postsecondary Student Aid Study (NPSAS:08). Figure 11. MAIN REASON FOR ENROLLI NG: Percentage distribution of undergraduates who attended community colleges and 2-year or less-than-2-year for-profit institutions, by their main reason for enrolling and type of institution: 2007-08 Percent 100 80 60 40 20 0 82 51 Acquire job-related skills or credentials t Not applicable. 12 12 t Complete associate's degree n For-profit less-than-2-year 1 From the institution in which they were primarily enrolled. 13 Solely for personal interest o For-profit 2-year 25 Prepare to transfer Community colleges 5 Earn course credits at a different institution' NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.govfdasllibrary/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-QS National Postsecondary Student Aid Study (NPSAS:08). Figure 12. COMBINING WORK AND STUDY: Percent age of all undergraduates who worked and worked full time whil e enrolled and f or those who worked, reported their main role as being a student, by type of institution: 2007-08 Percent 100 80 60 40 20 0 81 73 69 Among all undergraduates, worked while enrolled For-profit 39 41 Among all undergraduates, worked full time while enrolled 79 58 60 Of those who worked, primary role as a student' Community colleges o Public and private nonprofit 4-year 1 Undergraduates who worked while enrolled were asked whether they regarded their primary role as a student or as an employee. 2 1ncludes 4-. 2-. and less-than-2-year institutions. NOTE: Excludes work-study and assistantships. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are avai.lable at http://nces.ed.gov/ das/librarv/reports.asp . SOURCE: U.S. Department of Education. National Center for Education Statistics, 2007--QS National Postsecondary Student Aid Study (NPSAS:08) . Table 1. DEGREE OR CERTIFICATE PROGRAM: Percentage distribution of undergraduates attending community colleges, for-profit, and traditional 4-year institutions by program type: 2007-08 Associate' s Bachelor's No degree or Program type Certificate degree degree certificate program Public and private nonprofit 4-year 0.6 4.2 93.1 Community college 6.9 78.9 3.0 1 For-profit 34.4 38.2 25.8 Less-than-2-year 98.4 t t 2-year 35.7 61.8 0.5 4-year 5.6 42.6 50.4 t Not applicable. 1 Students who attended a community college and reported that they were working on a bachelor's degree may have attended a community college that offers bachelor's degrees or planned to transfer to a 4-year institution. 2.1 11.2 1.6 L6 L9 1.4 NOTE: Detail may not sum to totals because of rounding. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http:/lnces.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). Table 2. UNDERGRADUATE AWARDS CONFERRED in Title IV institutions, by type of institution: 2007 Institution type Total Type of institution Total awards 100.0 Traditional 4-year colleges and universities 53.6 Public 4-year or above 35.6 Private nonprofit 4-year and above 18.0 Public 2-year (community colleges) 28.2 Public less-than-2cyear 1 .0 Private nonprofit 2-year 0.5 Private nonprofit less-than-2-year 0.3 Private for-profit 16.4 4-year or above 4.8 2-year 5.5 Less-than-2-year 6.1 t Not applicable. NOTE: Detail may not sum to totals because of rounding. Percentage distribution of undergraduate awards conferred in 2007 Associate's Ceritifcates degree 100.0 100.0 5.1 14.2 2.9 9.2 2.2 5.0 46.2 69.1 4.3 t 1.1 0.8 1.3 t 41 .9 15.8 2.1 7.8 14.6 8.0 25.2 t Bachelor's degree 100.0 95.4 63.7 31 .7 t t t t 4.6 4.6 t t SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (I PEDS), "Completions Survey" and "Institutional Characteristics Survey," 2007. Table A. Number of for-profit Title IV institutions, by level: United States, academic year 2004-05 to 2008-09. -08 Total institutions, all controls 6383 6,441 6,536 6,551 Total for-profit institutions
1!l.6% o.4% SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (!PEDS), Fall 2004to Fall 2008, Institutional Characteristics Component Table B. Fall Enrollment by institution control : United States, Fall
Private For Profit Private Nonprofit Public Total SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System, Institutional Characteristics and Fall Enrollment Surveys: 2004 2008. 2008 6n,851 1,188,881 1,380,355 1, 797,563 3,137, 108 3,299,094 3,440,559 3,543,455 3,684,n3 11,891,450 12,883,071 13,081,358 15,701,409 17,710,798 19,574,395 Percent Change
7.1% 7.7% 10. 5% Table C. Percent of Fall Enrollment by institution control: United States, Fall 2004
Private For Profit Private Nonprofit Public SOURCE: Integrated Postsecondary Education Data System, Institutional Characteristics and FaiJ 8nrollment Surveys: 2004 2008.
4.8%
75.7%
5.0% 19.4% 75.6%
6.7% 19.4% 73.9% Percent Change 7.6% 87% 19.5% 18.8% 8% 73.0% n.o% 3% Table D. Number and percentage distribution of awards conferred at for-profit Title IV institutions, by level: United States, academic year 2003-04 to 2007-08. 2003-04 2004-05 2005-06 2006-07 2007-08 Change Total All institutions2 2,998,114 3,085,464 3,165,016 3,232,300 3,314,978 10.6% For-profit institutions Number of awards2 356,128 382,146 405,542 425,377 444,307 24.8% Percent of all awards2 11.9% 12.4% 12.8% 13.2% 13.4% 12.8% 4-year institutions} All institutions2 2,213,225 2,293,350 2,371,219 2,443,619 2,521,319 13.9% For-profit institutions Number of awards2 111,586 134,081 161, 160 182,445 202,410 81.4% Percent of all awards2 5.0% 5.8% 6.8% 7.5% 8.0% 59.2% 2-year institutionsl All institutions2 542,177 557,172 564,964 563,875 571,964 5.5% For-profit institutions Number of awards2 55,080 55,259 57,461 59,381 58,415 6.1% Percent of all awards2 10.2% 9.9% 10.2% 10.5% 10.2% 0.5% Less-than 2-year institutions3 All institutions4 242,712 234,942 228,833 224,806 221,695 -8.7% For-profit institutions Number of awards4 189,462 192,806 186,921 183,551 183,482 -3.2% Percent of all awards4 7R1% 82.1% 81.7% 81.6% 82.8% 6.0% 1 Includes degree-granting institutions only 2 Excluding certificates 3 Includes all institutions, both degree and non-degree granting 4 Includes all awards, including both degrees and certificates SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (!PEDS), Fall 2003 to Fall 2008, Completions component. 1 The Expansion of Private Loans in 2 Postsecondary Education 3 Government officials and higher education associations are con- 4 cerned that, out of confusion or ignorance, some postsecondaty 5 students may not cake full advantage of federal loan programs and 6 turn instead to more costly private loans (e.g., Federal Trade 7 Commission 2008; King 2007). Others argue that federal loan lim- 8 its don't meet some students' education financing needs and that 9 such students, therefore, seek additional funds through private 10 loans (McSwain, Price, and Cunningham 2006). Most students borrow money for postsecondary education through federal loan programs, which have eligibility requirements and bor- rowing limits. Students can also obtain private loans from banks and other lending institutions. Private (or "alternative") loans are not guaranteed by the government and can be relatively expensive, as they generally have higher fees and interest rates than federal student loans. Private education loans are estimated to have reached a peak of about $22 billion in 2007- 08 (College Board 2009). That same year, many lenders increased their direct marketing to students, highlighting a quick and easy application and approval process for private loans; some of these lenders were accused of deceptive mar- keting practices (U.S. Senate Committee 2007). According to the U.S. Department of Education (2008), "[p]rivate loans and credit cards are consumer loans and are vety expensive ways of financing your education." Since 2007-08, however, the volume of private loans for postse- condaty education is thought to have declined substantially due to a shortage of capital and higher underwriting standards by lenders (Student Lending Analytics 2009a, 2009b). Recent data released by I 2 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 the College Board (2009) are consistent with this expla- 2 nation. 3 This Statistics in Brief examines how the use of private 4 education loans changed between 2003-04 and 2007- 5 08 by addressing the following study questions: 6 1. How did undergraduate borrowing from private 7 sources change between 2003-04 and 2007-08? 8 2. Who obtained private loans? 9 3. To what extent did undergraduates combine 10 private and public loans? 11 4. Did undergraduates borrow the maximum 12 amount from federal Stafford loans before turn- 13 ing to private loans? 14 5. How did private borrowing change among 15 graduate and professional students? 16 Key Findings 17 The percentage of undergraduates obtaining private 18 loans nearly tripled, from 5 to 14 percent. 19 Undergraduates at for-profit institutions had the 20 21 22 23 24 25 highest rate of borrowing from private sources-42 percent took out private loans in 2007- 08. Dependent undergraduates from middle-income families borrowed from private sources at higher rates than did students from low- or high-income families. 26 About one-half of full-time, full-year undergraduates 27 who obtained a private loan had borrowed the max- 28 imum federal (Stafford) loan amount. 29 30 MAJOR TYPES OF HIGHER EDUCATION LOANS Private loans. Private loans are education loans, not guaranteed by the federal government, from commercial lenders, credit unions, or other non- profit entities. Their terms are determined by the lender. Private loans carry a market interest rate, usually variable and based on credit history, and they generally have higher fees and interest rates than federal student loans.(See question on p. 8) Stafford loans. These student loans have fixed interest rates and various repayment benefits and are guaranteed by the federal government. They have eligibility requirements and limits on amounts. There are two types of federal Stafford Loans: sub- sidized and unsubsidized. Subsidized Stafford loans are awarded based on financial need, and the federal government pays interest on the loan until the student begins repayment and during au- thorized periods of deferment thereafter. Unsubsi- dized Stafford loans are not need based; students are charged interest for the duration of the loan, although it can be capitalized. Parent PLUS loans. These federally guaranteed loans are available only to the parents of depen- dent students. The interest rate in 2007- 08 was fixed at ei ther 7.9 or 8.5 percent. Borrowers cannot have a negative credit history, and the amount is limited to the cost of attendance minus other finan- cial aid. The loans carry the benefits and protec- tions of all federal loans. Graduate PLUS loans. These are federally guar- anteed loans for graduate and professional stu- dents that became available in 2006. The terms are the same as for Parent PLUS loans, with the same interest rates, restrictions, and benefits. THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 3 1 Detailed Findings 28 tutions was $5,500 in 2007-08; at private nonprofit 4- 2 How did undergraduate borrowing from private 29 year institutions, it was $17,800; and at for-profit insti- 3 sources change between 2003-Q4 and 2007-QS? 30 tutions, it was $10,200. Further, the for-profit sector is 3 1 more likely to enroll low-income students. The median 4 T he rate of undergraduate private loan borrowing in- 32 income for dependent students' parents at public 4-year 5 creased from 5 to 14 percent between 2003-04 and 33 institutions was $75,700 in 2007-08. 4 At for-profit in- 6 2007- 08 (figure 1). 1 But the amount borrowed held 34 stitutions, the corresponding median income was 7 steady after adj usting for inflation: the average private 35 $35,700. 8 loan in 2003-04 was $6,600 and $6,500 in 2007-08. 2 36 I n general, the higher the tuition, the higher the rate of 9 Stafford loan borrowing among undergraduates also in- 37 private borrowing. For example, the highest rates of bor- 1 0 creased from 32 percent to 35 percent, and the average 38 rowing (30- 32 percent) occurred among students whose 11 Stafford loan amount rose from $4,900 to $5,000. 39 tuition was more than $10,000 per year (figure 3) . In 12 The rate of any borrowing rose from 34 percent in 13 2003- 04 to 39 percent in 2007- 08. 3 T he average loan 14 amount from all sources, including Parent PLUS loans, 15 increased from $6,900 to $8, 100. 40 comparison, 22 percent of students paying $5,000 to 41 $9,999 in tuition took out private loans, as did 14 per- 42 cent of those paying $3,000 to $4,999 and 9 percent or 43 less of those paying under $3,000 in tuition. 16 Who obtained private loans? 44 Dependent undergraduates from middle-income fami li es 45 attending full-time full-year borrowed from private 17 In 2007-08, private loan borrowing varied by type of 46 sources at higher rates than students from low- or high- 18 . . . . . I 1 d d d d 4 7 tnstttuuon, tuttton eve , stu ent epen ency status, an 19 family income. T he rate of private borrowing was high- 4 8 20 est at for-profit institutions, where the rate about
2 1 from 13 percent to 42 percent, from 2003-04 to 2007- 50 22 08 (figure 2). Private borrowing at private nonprofit 4- 51 23 year institutions was also high and about doubled, from 52 24 11 percent to 25 percent. 53 income famil ies. One-fifth of studenrs in the two mid- dle-income groups took out private loans, compared with 15-16 percent of students in the low- and high- income groups (figure 4). Looking at aU borrowing, in- cluding Parent PLUS loans, dependent students from high-income fan1Uies borrowed at the lowest rate (40 percent). 54 Among independent students, upper middle- and high- 25 T he higher rate of borrowing among students at private 55 income students took out private loans relatively more 26 institutions reflects to some extent the higher tuition at 56 often than low-income students. One-fifth of low- 27 these institutions. Average tuition at public 4-year insti- 57 income independent undergraduates took out private 58 loans, compared with 27- 28 percent of those in the up- 1 All comparisons of estimates were rested for statistical signi- 5 9 per middle- and high-income groups. ftcance usi ng the Student's t-statistic, and all differences cited are statistically significant at the p < .05 level. No adj ustments for multiple comparisons were made. The standard errors for the estimates can be found at http://nces.ed.gov/das/li brary/reporrs.asp. 2 All dollar amounts for 2003-04 have been adj usted for infla- tion to 2007 doll ars using the Consumer Price Index. 3 Includes Parent PLUS loans as well as Stafford, Perkins, and private loans. 4 Independent students are age 24 or older and students under 24 who are married, have dependents, are veterans, or are an orphan or ward of the courts. Other undergraduates under age 24 are considered to be dependent. Income for dependent students is the income of their parents. For independent stu- dents, income includes a spouse' s income if the st udent is mar- ried. I 4 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 To what extent did undergraduates combine pri- 2 vate and public loans? 37 Did undergraduates borrow the maximum amount 38 from federal Stafford loans before turning to pri- 39 vate loans? 3 Most undergraduates who borrowed did so through a 4 federally guaranteed loan program. Some 63 percent of 40 5 undergraduates who borrowed obtained loans from pubA 1 6 lie, 5 mostly federal, sources exclusively, and another 27 42 7 percent borrowed from both public and private sources 43 8 (figme 5) . The remaining 9 percent borrowed only from44 9 private sources. Students borrowed from public and pri- 45 10 vate sources at different rates, however, depending on 46 In 2007- 08, one-half of full-time, full-year undergra- duates exhausted their annual Stafford loan eligibility before taking out private loans (figure 6). Independent private loan borrowers exhausted Stafford el igibility at a lower rate than did dependent borrowers. Policymakers are concerned that some students seek pri- vate loans because they are unaware of the advantages of 11 the types of institutions attended. 47 federal loan programs. They are also concerned that 48 some students may not borrow the maximum Stafford 12 Undergraduates in public 2-year institutions took out 49 loan amount before turning to private loans (U.S. De- 13 exclusively private loans at higher rates than those in oth- 50 partment of Education 2008). Applying for federal aid is 14 er types of institutions. At community colleges, 21 per- 51 necessaty to obtain federal loans. Consequently, it is use- 15 cent of borrowers took out only private loans, compared 52 ful to examine whether students did apply for federal aid 16 with 9 percent among students in all institutions. This 53 when comparing public and private borrowing. 6 17 higher rate of private borrowing, however, occurred with- 18 in the context of lower rates of borrowing overall. In 54 Among full-time, full-year undergraduates who took out 19 2007-08, some 13 percent of all community college stu-55 private loans, some 19 percent did not obtain a Stafford 20 dents borrowed from any SOLtrce, representing the lowest56 loan, and about half these students (10 percent of all 21 rate among students in all types of institutions (Wei et al57 private borrowers) did not apply for financial aid. 7 22 2009a, table 13). Some policy analysts believe that many53 Another 31 percent took out Stafford loans, but appear 23 community colleges do not encourage borrowing federal 59 to have borrowed less than the ma:ximwn amount. s The 24 loans (Cochrane, Shireman, and Sivashankaran 2008). 60 remaining 50 percent had taken out the maximum 25 The largest proportion of borrowers who took out pri- 26 vate loans either exclusively or in combination with pub- 27 lie loans (42 percent) was found among those enrolled at 28 for-profit institutions (figure 2), and those enrolled at 29 institutions with programs of 2 or more years had the 30 highest percentage who took out both private and public 31 loans (figure 5). Among those enrolled at for-profit insti- 32 tutions with programs taking 2 or more years to com- 33 plete, 45 percent of undergraduate borrowers took out 34 both private and public loans, while the overall percen- 35 cage of undergraduates who cook out both types of loans 36 at all institutions was 27 percent. 5 "Public loans" includes Stafford loans, other federal loans (e.g., Perkins and PLUS), state, and institutional loans. 6 Foreign students and those attending part time or part yea.r were excluded from this part of the analysis because they either are ineligible for federal loans or qualifY for very little. Other reasons that students cannot borrow from federal loan pro- grams couJd not be identifled from the NPSAS data. 7 Some may have taken out other loans, such as Perkins, state, or institutional loans, but those are comparatively rare. 8 The maximum Stafford amomu is limited for those attend- ing part time or for less than a fttll year, so this analysis of maximizing Stafford loans was limited to fuJI-time, full-year students. There are other restrictions on Stafford borrowing based on program or budget that were not taken into account. Because of these restrictions, some borrowers who appear to be borrowing below the maximum amount are in fact borrowing at their maximum. Therefore, our estimates of the percentage of borrowers who are borrowing at less than the maximum couJd be overstated. THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 5 I 1 amount allowed under the Stafford loan program. These24 points, 9 compared with an increase of9 percentage 2 students sought more money than was available from 25 points among undergraduates (figure 1 ). 3 federal programs to pay for their education expenses. 26 Graduate students differed significantly in borrowing 4 Undergraduate students have different annual Stafford 27 rates depending on the degree program in which they 5 loan limits based upon both. dependency status and class28 were enrolled (figure 7). Master's degree students' rate of 6 level. For example, for first-year undergraduates, the lim-29 total borrowing increased from 38 percent to 44 percent 7 its were $3,500 for dependent students and $7,500 for 30 over this period. The rate of private borrowing among 8 independent students. In 2007- 08, about one-third (35 31 master's degree students doubled between 2003- 04 and 9 percent) offull-time, full-year independent undergra- 32 2007-08 (from 6 percent to 12 percent), while their rate 10 duates who took out private loans also borrowed the 33 of Stafford borrowing increased from 36 percent to 39 11 maximum Stafford loan amount, compared with. 56 per-34 percent. 12 cent of dependent undergraduates who took out the 13 maximum Stafford loan amount (figure 6) . 35 Among doctoral students, changes in private, Stafford, 14 Annual Undergraduate Stafford Loan Limits (for loans taken out between July 1, 2007 and June 30, 2008) 36 or total borrowing were not evident. Between 5 and 7 7 percent took out private loans in both 2003- 04 and 8 2007-08. 9 Students in first-professional programs had the highest f0 rate of private borrowing, but the proportion with pri- Dependent Independent Academic year student student i 1 vate loans declined over time, while borrowing from fed- ------''----------------- i2 eral sources increased. 10 In both years, students in frrst- First year $3,500 $7,500 . Second year 4,500 8,500 !3 professional programs borrowed from all sources at high- Third and remaining years 5,500 10,500 i4 er rates than students in other degree progran1s. In NOTE: Aside from dependency status and year in school, the i5 2003-04, about one-fourth (23 percent) of students in amount a student can borrow under the Stafford loan program can be further reduced depending on the cost of attendance, the student's expected family contribution, attendance status, whether the program is less than a year long, and how much other financial aid is received. SOURCE: U.S. Department of Education. (2007). 2007-oB Federal Student Aid Handbook. Retrieved April 23, 2010, from http://ifap.ed.gov/ifaplbyAwardYear.jsp?tyoe-fsahandbook&awa i6 first-professional programs took out private loans, com- i7 pared with 5 to 6 percent of master's and doctoral stu- iS dents. By 2007-08, however, the rate of private i9 borrowing among first-professional students had ;o dropped to 16 percent, while their rate of Stafford bor- _::rd;:v::ea;:r;:=2::00=: 7 - ::2:;00:;8::,. _______________ , ; 1 rowing increased from 69 to 76 percent and one-fourth 15 How did private borrowing change among gradu- 52 (25 percent) took out Graduate PLUS loans. 16 ate and first-professional students? 53 54 17 ln 2006, graduate students became eligible for the feder- 55 18 al Graduate PLUS loan program. This gave graduate 56 19 students another source ofloans from a government- 20 guaranteed progran1 with competitive, ftxed-interest 21 22 23 rates, eliminating some of the need for private loans. Between 2003- 04 and 2007- 08, the rate at which grad- uate students took out private loans rose 4 percentage Between 2003- 04 and 2007- 08, after adjusting for in- flation, overall average loan amounts for all graduate and first-professional students increased from $17,700 to $18,500, largely due to the newly established Graduate 9 NPSA$:04 and NPSA$:08 Data Analysis System; data not shown in figures or tables. 1 First professional programs include dentistry, medicine, optometry, osteopathic medicine, pharmacy, podiatric medi- cine, veterinaty medicine, chiropractic, law, and theology. I 6 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 PLUS loans. The average private loan amount for gradu-37 2 ate students decreased from $ l 0.500 to $8,400, and the 38 3 average Stafford loan amount decreased from $16, 100 to 39 Technical Notes Dara in this report come from the National Postsecon- dary Student Aid Study (NPSAS) administered for the 4 $15,600. 40 years 2003-04 and 2007-08. Conducted every 4 years, 5 Find Out More 4 1 NPSAS is based on a nationally representative sample of 42 al l students enroll ed in Title N -eligible institutions in 6 More detailed information on 2007-08 undergraduates 43 the United States between J uly 1 and J une 30 of a given 7 and graduate students enrolled in U.S. postsecondaty 44 academic year. The sampling design for coll ecting data 8 institutions can be found in Web Tables produced by 45 consists of two stages. The first stage involved selecting 9 the National Center for Education Statistics (NC.ES) 46 eligible institutions from which students would then be 10 using the 2007- 08 National Postsecondaty Student Aid 47 sampled in the second stage. In 2007- 08, approximately 11 Study (NPSAS:08) data. These Web Tables are a com- 48 114,000 undergraduate students were study respondents. 12 prehensive source of information on students during the49 Estimates were weighted to adjust for the unequal prob- 13 2007- 08 academic year. Included are estimates of de- 50 abili ty of selection into the sample and for nonresponse. 14 mographi cs, enroll ment, and employment characteris- 15 tics. Web Tables docw 11 enting how students pay for 51 NCES Statistical Standard 4-4-1 states that "[a]ny survey 16 their undergraduate education are also available. 52 stage of data collection wim a unit or item response rate 53 less than 85 percent must be evaluated for the potential 17 Web Tables-Profile of Undergraduate Students in US. Postse- 54 magnitude of nonresponse bias before the data or any 18 condary !mtitutiom: 2007-08 (NCES 20 I 0-205). [link 55 analysis using me data may be released" (U.S. Depart- 19 will be added) 56 ment of Education 2003). The only variable included in 20 Web Tables-Student Financing of Undergraduate Education: 57 this Bri ef that has a response rate of less than 85 percent 2 1 2007-08 (NCES 2010-162) . [link will be added) 58 is TOTLOAN. 22 Web Tables-Profile of Students in Graduate andFirst- 23 Professional Education: 2007-08 (NCES 20 10-177). [link59 For an overview of the survey memodology and a discus- 24 wil l be added] 60 sion of nonresponse bias, see appendix B of the report 6 1 2007- 08 National Postsecondary Student Aid Study 25 Readers may also be interested in the following NCES 26 products related to me topic of mis Statistics in Brief 62 63 27 2007-08 National Postsecondary Student Aid Study 28 (NPSAS:08): Student Finandal Aid Estimates: First Look 64 29 (NCES 2009-166). 30 hrrp:l/nces.ed .gov/pubs2009/2009l66.pdf 3 1 Undergraduate Financial Aid Estimates by Type of Imtitution in 32 2007-08 (NCES 2009-201). 33 34 35 36 h ttp:l/nces.ed.g,ov/pubs2009/2009201.pdf Federal Loam in 2007-08: Undergraduate Cumulative Debt and Students Who Bonow at the Maximum (NCES 2010- 151). [link to be added) (NPSAS:OB): Student Financial Aid Estimates for 2007-08: First Look (http:/ / nces.ed. gov/pubs2009/2009166.pdt). THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 References 39 40 41 2 The College Board. (2009). Trends in Student Aid. Table l. 3 4 5 Retrieved October 28, 2009, from http://www.rrends-collegeboard.com/student aid/pdf/ 2009 Trends Smdent Ald.pdf. 42 43 44 6 Cochrane, D. F., Shireman, R., and Sivashankaran, S. (2008, 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 1 22 April). Denied: Community College Students Lack Access to 45 A/fordable Loam. The Project on Smdent Debt. Retrieved46 September 9, 2009, from 47 48 http://ticas.org/ flies/pub/ denied .pdf. Federal Trade Commission. (2008, June). Student Loam: 49 50 Avoiding Deceptive Offers. FTC Facts for Consumers. 51 Federal Trade Commission and U.S. Department of Edu- cation. Retrieved September 9, 2009, from h rrp://sruden taid.ed.gov/smden ts/auach menrs/ siteresources/loa nsA voidDecep. pdf. King, J.. (2007). Who Borrows Private Loam? ACE Issue 52 53 54 55 56 Brief. Washington, DC: American Council on Education. Retrieved October 28, 2008, fiom 57 http://www.acenet.edu/AJ\If/Template.cfm?Section-Searc58 h&seqion-issue briefs&templare-/CM/ContenrDisplay.59 cfm&ConrenrFileiD- 3445. 60 6 1 23 McSwain, C., Price, D., and Cwutingham, A. (2006). The 62 24 Future of Private Loam: Who Is Bonowing, and Why? 25 Washington, DC: lnstitute for Higher Education Policy. 63 64 26 Student Lending Analytics. (2009a, July 23). The Incredible 65 27 Shrinking Private Student Loan Mmket: Outlook for 2009"'66 28 10. Slog. Retrieved September 9, 2009, from 67 29 h up://studen tlendi nganalytic.qypepad.com/studen t lend68 30 ing analytics/2009/07/the-i ncredible-shrinking-private- 69 31 loan-market.html. 70 32 Student Lending Analytics. (2009b, August 17). Bank Lending 33 Standards May Remain Tight Through Second Half of 34 2010. Blog. Retrieved September 9, 2009, from 3 5 http://srudenrlendinganalytics. typepad.corn/smdent lend 36 ing analytics/2009/08/bank-lending-standards-may- 37 remain-tight-through-second-half-of-20 l O.htrnl. 38 U.S. Department of Education, Federal Student Aid, St udents Charmel. (2008). Your Federal Student Loans: Learn the Basics and Manage Your Debt. Washington, DC: Author. U.S. Department of Education, National Center for Educa- tion Statistics. (2003). NCES StatisticaL Standards (NCES 2003-601). Washington, DC. U.S. Senate Committee on Banking, Housing and Urban Af- fairs. (2007, J tme 6). Hearing on "Paying for College: The Role of Private Student Lending." Washi ngton, DC. Retrieved November l, 2009, from h rtp://banki ng.senate.gov/ pub! ic/i ndex .cfm?Fuseaction- Hearings.Hearing&Hearing ID-8c46al82-alff-4bc5- af53-e0982b49527f. Wei, C. C. (forthcoming). What is the Real Price of College? Sticker, Net, and Out-of-Pocket Prices in 2007-08 (NCES 2010-175). National Center for Education Statis- tics, Institute of Education Sciences, U.S. Department of Education. Washington, DC. Wei, C.C., Berkner, L. , He, S., ar1d Lew, S. (2009a). Web- Tables: Undergraduate Financial Aid Estimates by Type of Institution in 2007-08 (NCES 2009-201). National Cen- ter for Education Statistics, Institute of Education Sciences, U.S. Deparunenr of Education. Washington, DC. Wei, C. C., Berkner, L., He, S., Lew. S., Cominole, M., and Siegel, P. (2009b). 2007-08 NationaL Postsecondmy Stu- dent Aid Study (NPSAS:08): Student Financial Aid Esti- mates for 2007-08 (flrst Look) (NCES 2009-166). National Center for Education Statistics, Institute of Education Sciences, U.S. Department of education. Washington, DC. I 8 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 Run Your Own Analysis in Datalab 38 "During the 2007-2008 school year, did you take out 39 2 Direct access to the data used in this Statistics in Brief is 40 3 available through the NCES DataLab any private or alternative loans from a financial institu- tion? Some examples of commonly used private loans include: 41 4 (http://nces.ed.gov/datalab/). You can generate your own 5 tables using one of three programs: PowerS tats, Quick- 42 Sallie Mae Signature Student Loan 6 Stats, or the Data Analysis System (DAS). 43 CitiAssist Undergraduate and Graduate Loan 7 All estimates presented in this Brief were produced using44 Chase Education One Private Student Loan 8 the DAS, a web-based software application that enables 45 Nellie Mae EXCEL Loan 9 users to generate tables for most of the postsecondary 46 Access Group Loans 10 surveys conducted by NCES. These figures were gener- 11 ated using the DAS, which contains a detailed descrip- 47 (Keep in mind that many lenders that offer private loans 12 tion of how each variable was created and includes the 48 might also offer federal Stafford, Graduate/Professional 13 wording of questions for variables coming directly from 49 PLUS loans, and Parent PLUS loans. For this question 14 the interview. 50 we want to know about private or alternative loans on- 51 ly.)" 15 You can replicate or expand upon the figures and tables 16 presented in this report by using DataLab. All variables 52 Package of private and nonprivate loans (PRJVPACK): 17 used to generate the figures and ta.bles in this Brief can 18 be found in the NPSAS:04 and NPSAS:08 DAS. More 19 information and descriptions of each variable can be 20 found at http://nces.ed.gov/DAS. 21 The variables used in this report are as follows: 53 Indicates the loan package by whether the loan received 54 was private (alternative) or not during the 2007- 08 aca- 55 demic year. For students with any loan (TOTLOAN2 > 56 0), indicates whether a borrower had only private oral- 57 ternative loans (PRIVLOAN), only nonprivate loans 58 consisting of federal loans (TFEDLN2, including 59 PLUS), state loans (STLNAMT), or institutional loans 60 (INLNAMT), or both private and nonprivate. 22 Private (alternative) loans (PRJVLOAN): Indicates the 23 amount of private or alternative loans received by stu- 24 dents for the 2003- 04 and 2007- 08 academic years. 61 Stafford total maximum (STAFCT3): Classifies the total 25 These are education loans from commercial lenders that 62 Stafford Joan amount received in 2007-08 26 are not guaJanteed by the federal government and that 63 (STAFFAMT) into categories based on the maximum 27 cany market interest rates based on credit scores. Exam- 64 Joan limits for subsidized and unsubsidized Stafford 28 pies of such loans are the Sallie Mae Signature Student 65 29 30 loans combined and includes a category for those who didn't apply for federal aid. The normal maximum loan an1ounts in 2007-08 for undergraduates were deter- Loan, CitiAssist Loan, or Chase Education One Private 66 Student Loan. Private loans differ from Stafford, Parent 67 31 PLUS, Perkins, and Graduate PLUS loans, which are 32 33 68 mined by the student's undergraduate class level and guaranteed by the federal government; private loans, 69 dependency status. This variable does not take into ac- however, can be offered by the same lenders or by states 70 count further borrowing limits that might be imposed, 34 or other nonprofit institutions. Institutions do notal- 71 e.g., Stafford loan amounts cannot exceed a borrower's 35 ways have information on students' private or price of attendance, and subsidized Stafford loans cannot 36 loans, so this information came primarily from student 73 exceed a borrower's need amount. 37 interviews, in which students were asked the following: 1 Other Variables 2 Attendance pattern (A ITNST AT) 3 Citizenship status (CITIZEN2) 4 NPSAS institution control (CONTROL) 5 Dependency status (DEPEND) 6 Parents' income (DEPlNC) 7 Independent student's income (INDEPINC) 8 Applied for federal aid (FEDAPP) 9 Graduate PLUS loan total (GPLUSAMT) 10 Graduate degree program (GRADDEG) 11 Total federal Parent PLUS loans (PLUSAMT) 12 Type of institution (AID SECT) 13 Institution sector (SECI'OR4) 14 Federal subsidized loans (except PLUS) (SUBLOAN) 15 Total student loans from all sources (TOTLOAN) 16 Institution tuition and fees (TUITION2) 17 THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 9 I www.ed.gov ies.ed.gov Figure 1. Percentage of undergraduates who borrowed, by type of loan: 2003-04 and 2007-08 Percent 100 80 60 40 32 35 20 14 5 0 Private Stafford 2003-04 2007-08 34 39 All loans Average undergraduate loan amounts, by type of loan: 2003--04 and 2007-QS 2003--04 2007-QS Private loans $6,600 $6,500 Stafford loans 4,900 5,000 All loans including PLUS 6,900 8,100 NOTE: Amounts for 2003-04 have been adjusted for inflation using the Consumer Price Index for urban households (CPI U). Arrounts are averages for those who received the specified type of aid. NOTE: Private loans are education loans from commercial lenders which are not guaranteed by t he federal government and carry market interest rates. SOURCE: U.S. Department of Education, Nationa.l Center for Education Statistics, 2003-04 and 2007-08 National Postsecondary Student Aid Studies (NPSAS:04 and NPSAS:OS) . Figure 2. Percentage of undergraduates who took out private loans, by institution type: 2003-04 and 2007-08 Percent 100 80 60 40 20 0 Public 2-year 14 Public 4-year 2003-04 25 11 Private nonprofit 4-year 2007-08 42 13 For-profit Average tuition and fees paid by undergraduates, by institution type: 2007-QS (includes full-time and part-time students) Public 2-year Public 4-year Private nonprofit 4-year For-profit $1,200 5,500 17,800 10,200 Median income, by institution type: 2007-QB Dependent lndepen- students dent parents students' Public 2-year $54,200 $29,400 Public 4-year 75,700 22,000 Private nonprom 4-year 84,500 30,300 For-profit 35,700 19,500 1 Independent students are age 24 or older and 1udents under 24 who are married, have dependents, are veterans, or are an orphan or ward of the oourts. Other undergraduates under age 24 are considered to be dependent. Income for dependent students is the inoome of their parents. For independent students. income includes a spouse's income if the student is married. NOTE: Private loans are education loans from commercial lenders which are not guaranteed by t he federal government and carry market interest rates. Students who attended more than one inst itution or any type of institution not listed in the figure were not included due to the small number of cases. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2003-04 and 2007-08 National Postsecondary Student Aid St udies (NPSAS:04 and NPSAS:08). Figure 3. Percentage of undergraduates who took out private loans, by tuition amount: 2007-os $15,000 or more $10,000-$14,999 $5,000-$9,999 $3,000-$4,999 14 $1 ,500-$2,999 $1 ,499 or less 0 20 32 30 22 40 60 Percent 80 NOTE: Private loans are education loans from commercial lenders which 100 are not guaranteed by the federal government and carry market interest rates. SOURCE: U.S. Department of Education. National Center for Education Statistics, 2007- 08 National Postsecondary Student Aid St udy (NPSAS:08). Figure 4. Percentage of fulltime, full-year undergraduates who took out private loans and any loans including Parent PLUS, by dependency status and family income level: 2007-QS Percent 100 80 60 54 56 61 66 69 52 40 40 27 28 21 20 0 60 Low-income Lower middle- income Upper High-income middle- Low-income Lower middle- income Upper High-income middle- income income Dependent Independent Private loans All borrowing including PLUS NOTE: Family income categories were based upon the annual income distribution for 2006, from the lowest to the highest quartile ranges. Among dependent students, low-income was less than $36,100: lower middle-income was $36.100-$66,600: upper middle-income was $66,600-$104,600: and high-income was $104,600 or more. Among independent students, low-income was less than $11 ,000; lower middle- income was $11,000-$26,000; upper middle-income was $26,000- $48,400; and high-income was $48,400 or more. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-()8 National Postsecondary Student Aid Study (NPSAS:08). Figure 5. Percentage distribution of undergraduate borrowers, by borrowing package and institution type: 2007-QS Percent 100 ..
2 Exclusively 80 20 private 27 35 45 loans 60 Both programs 40 Exclusively 20 public loans 0 Total Public Public Private For-profit For-profit 2-year 4-year nonprofit less-than- 2 years 4-year 2-year or more NOTE: Public loans includes Stafford loans, other federal loans (e.g., Perkins and PLUS), state, and institutional loans. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. Total estimates also include those attending public less-than2-year institutions, those attending private nonprofit less-than-4-year institutions, and those attending more than one institution but t hese are not shown separately. Detail may not sum t o totals because of rounding. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-QS National Postsecondary St udent Aid Study (NPSAS:OS). Figure 6. Percentage distribution of full-time, full-year undergraduates who took out private loans, by status of Stafford borrowing, status of federal aid application, and dependency status: 2007-QB Percent 100 80 60 40 20 0 Total Dependent Independent ~ M a x i m u m Stafford DLessthan maximum Applied, no Stafford Did not apply for aid NOTE: In this analysis, full-lime undergraduates excludes foreign students and unclassified undergraduates. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. Maximum Stafford is a loan in the amount of the annual limit for Stafford loans based on dependency status and class level. Some restrictions on Stafford borrowing were not taken into account when computing a student's Stafford borrowing limit. Because of these restrictions, some borrowers who appear to be borrowing below the maximum amount are in fact borrowing at their maximum. Therefore, estimates of the percentage of borrowers who are borrowing at less than the maximum may be overstated. Detail may not sum to totals because of rounding. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 7. Percentage of graduate students who took out private, Stafford, Graduate PLUS, and all loans, by type of degree program: 2003-04 and 2007-08 Private loans Stafford loans Graduate PLUS loans Total loans L6 ~ 1 2 I 3 38 44 p,,. .. '""' ~ 5 7 Stafford loans ~ 2 6 2 9 Graduate PLUS loans Total loans Private loans Stafford loans Graduate PLUS loans Total loans 0 20 28 32 40 Percent 69 60 Average loan amounts received by graduate students, by type of loan: 2003--{)4 and 2007-{)8 Private loans Stafford loans Graduate PLUS loans Total loans 2003-Q4 2007--{)8 $10,500 16,100 17,700 $8.400 15,600 15,500 18,500 NOTE: Amounts for 2003-04 have been adjusted for inflation using the Consumer Price Index for urban households (CPI-U). Amounts are averages for those who received the specified type of aid. 2003-04 2007-08 76 75 79 80 100 1 First-professional programs include dentistry, medicine, optometry, osteopat hic medicine, pharmacy, podiatric medicine, veterinary medicine, chiropractic, law, and theology. NOTE: Private loans are education loans f rom commercial tenders which are not guaranteed by the federal government and carry market interest rates. Graduate PLUS loans were not available in 2003-Q4. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2003-Q4 and 2007-QS National Postsecondary Student Aid Studies (NPSAS:04 and NPSA$:08). U.S. DEPARTMENT OF EDUCATION APRIL 2010 What Is the Price of College? Sticker, Net, and Out -of-Pocket Prices in 2007-08 AUTHOR Christina Chang Wei MPR Associates, Inc. PROJECT OFFICER Tracy Hunt-White National Center for Education Statistics Students and parents see college attendance as a principal avenue to middle-class life, and, given the rising price of postsecondary education, they are apprehensive about their ability t o af- f ord it. 1 In a recent survey of college freshmen, about two-thirds (66 percent) reported having concerns about being able to fi nance their education. 2 Many U. S. policymakers and researchers share their concern, and are exploring ways to make college more affordable. 3 Legislators have required colleges and universities t o pro- vide more extensive information about tuition and prices, and in the 2008 Higher Education Opportunity Act mandated a host of price-related measures, including institutional disclosure of net prices charged to students, the reporting of net price data to the U.S. Department of Edu- cation, and the creation and disclosure of "tuition watch lists." 4 This Statistics in Brief shows the amounts U.S. undergraduates pay on average for postsecondary education, wi th and wi th- out financial aid. Drawing upon data from the National Postsecondary Student Aid Study, a nationally representative survey of all postsecondary students, included in this report are the average prices for pub- lic 2-year, public 4-year, private nonprofit 4-year, and for-profit institutions. 1 A recent public opinion poll showed that increasing numbers of Americans view college as a necessity for success (lmmerwahr et al. 2009). The College Board (2009) reports that the published, or stick er, price of college has increased more rapidly than the price of other goods and services over the past three decades. See also Marchand (2010), which reported on these findings. 1 The Higher Education Research Institute at the University of Cali fornia, Los Angeles, has conducted a survey of freshmen each year since 1973 (Pryor et al. 2009). See also recent media anent ion to the issue (Lewin 2009). 3 Both governmental and nongovernmental study commissions have convened to address this. See, for example, The College Board (2008) and Harvey et al. (1998). 4 Public Law 110315, title I, Sec. 132. August 14, 2008. Higher Edu cation Opportunity Act .
1es NATIONAL CENTER FOR . . EDUCATION STATISTICS STUDY QUESTIONS What are the average prices paid by full-time undergraduate students and how do these prices vary by the type of insti- tution attended? Most of the figures in this Brief display data only for full-time undergraduates 5 who attended one institution. These students comprised about one-third (35 percent) of all undergraduates in 2007-08. 6 Of all full-time undergra- duates, 18 percent were enrolled in public 2-year institutions, 43 percent attended public 4-year institutions, 21 percent were at private nonprofit 4- year institutions, and 8 percent were enrolled in for-profit institutions (table 1). 7 Focusing on full-time students who attended only one institution allows for comparisons in tuition, price of atten- dance, and financial aid. Those attend- ing full time generally have higher overall expenses than do all students. They also generally qualify for federal aid and other assistance not available to many part-time students (table 2). 5 "full time" status is defined as having been enrolled full time in one postsecondary institution for 9 months or more during the academic year. 6 National Postsecondary Student Aid Study (NPSAS:OS) Data Analysis System. 1 The remaining students were enrolled in other types of insti tutions or in more than one institution during the academic year. What factors are re- lated to variations in average sticker and net prices among those attending these institutions? KEY FINDINGS There is a wide range of prices for postsecondary education. Students enrolled at public 2-year institutions had the lowest average sticker price ($12,600) while those at private nonprofit 4-year institutions had the highest {$35,500). 8 Those at public 4-year institutions had an average sticker price of $18,900, and those at for-profit institutions had an aver- age sticker price of $28,600. After all financial aid is received, {in- cluding grants, loans, and work- study), the average out-of-pocket net price ranged from $9,100 at public 2-year institutions to $10,300 at public 4-year institutions, $16,000 at for-profit institutions, and $16,600 at private nonprofit 4-year institutions. 3 All comparisons of estimates were tested for statistical signi ficance using the Student's t-statistic, and all differences cited are statistically significant at the p < .OS level. No adjustments for multiple comparisons were made. The standard errors for the estimates c a n ~ found at http://nces.ed.gov/dasf librarv/reoorts.asp. 2 How do the net prices paid by under- graduates vary by family income? Lower sticker prices often mean a lower need-or eligibility-for fi- nancial aid. Those attending private institutions had the highest tuition but they also received the most fi- nancial aid. Undergraduates at pri- vate nonprofit 4-year institutions received the greatest amount of in- stitutional grant aid while those at for-profit institutions had the largest proportion of borrowers. Among low-income undergra- duates enrolled full time, those at- tending for-profit institutions had the highest average net price after grants and average out-of-pocket net price. 1 What are the average prices paid by full-time undergraduate students and how do these prices vary by the type of institution attended? This Brief discusses three different measures of the price of an undergra- duate education: the sticker price, the net price after grants, and the out-of- pocket net price. The Sticker Price The sticker price is the total price of an undergraduate education including tuition 9 and all other nontuition and living expenses such as books, sup- plies, and housing. The sticker price va- ried widely by the type of institution attended in 2007-08, rangi ng from an average of $12,600 among undergra- duates enrolled full time at public 2- year institutions, to $18,900 at public 4- year institutions, $28,600 at for-prof it institutions, and $35,500 at private nonprofit 4-year institutions (figure 1 ). 9 1n this report, the term "tuition includes both tuition and fees. Sometimes institutions treat tuition and fees as a single charge, and sometimes as separate charges. Tuition is defined as the price ofinstruction and fees as the price of other services provided by the school. The tuition amounts shown here in elude those charged to outof-state and out-of-district students enrolled in public 4-year and public 1-year institutions, respec- tively. FIGURE 1. THE PRICE OF AN UNDERGRADUATE EDUCATION for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Public 2-year Public 4-year For-profit Type of institution Private nonprofit 4-year Average sticker w Average net price ~ A v e r a g e out-of- price after grants pocket net price NOTE: The "sticker price" is the total price of attendance which includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneous, or personal, expenses. The "net price is the price that must be paid after receiving grants. The "out-of-pocket net price subtracts from the sticker price all forms of financial aid, including grants, student loans, Parent PLUS loans, work-study, employer aid, job training benefits, veterans benefits, and any other finan cia I aid received. Both the net price after grants and the out-of-pocket net price are calculated for all full-time, full-year students, regardless of whether or not they received any financial ald. "Full-time, full-year' is defined as having been enrolled in one postsecondary institution for 9 months or more full time. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at hnpl/nces.ed.gov/das/library/reports.asp. SOURCE: U5. Department of Education, National Center for Education Statistics, 1007-08 National Postsecondary Student Aid Study (NPSAS:08). 3 For some institutions (private nonprofit known in financial aid parlance as the supporting families (Wei forthcoming), 4-year institutions in particular), the "student budget." Student budgets which raises their nontuition expenses tuition is a large component of the vary according to students' attendance as compared with students who have sticker price. In 2007-08, average tui- and dependency status, family respon- no family responsibilities. tion was $2,400 at public 2-year institu- sibilities, and residence (e.g., living at tions, $7,100 at public 4-year home with parents, in an on-campus Students attending public 2-year insti- institutions, $11,900 at for-profit insti- dormitory, or in off-campus housing). tutions-mostly community colleges- tutions, and $23,400 at private non- profit 4-year institutions {figure 2). In 2007-08, students enrolled full time in for-profit institutions had the high- Nontuition expenses, which include est average nontuition expenses had the lowest nontuition expenses. A larger proportion lived at home with their parents, which reduces costs for room and board, as compared with students at for-profit institutions (many of whom are supporting themselves or their own families) and those at 4-year institutions (where a larger proportion lived on campus or in off-campus hous- ing) (Wei forthcoming). books and supplies, housing and ($16,700), when compared with those meals, transportation, and personal at other types of institutions {where {or miscellaneous) expenses, also can average nontuition expenses ranged vary by institution type. College or uni- from $10,200 to $12,1 00). Many stu- versity financial aid officers usually de- dents at for-profit institutions are fi- velop an estimate of the sticker price, nancially independent and are In-state vs. out-of-state tuition At most public 4-year institutions, tuition charges are generally higher for out-of-state students than for in-state residents, reflecting the state subsidies public institutions receive. In 2007- 08, the average in-state tuition was $6,200 and the average out-of-state tuition was $15,1 00 for full-time undergraduates enrolled in public 4-year institutions.* NPSAS:OS Data Analysis System (data not shown). FIGURE 2. TUITION AND NONTUITION EXPENSES for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Public 2-year Public 4ycar For profit Type of institution Private nonprofit 4-year tJ Average nontuition expenses Average tuition NOTE:"full-time, full year is defined as havlng been enrolled in one postsecondary institution for 9 months or more full time. "Tuition" includes all tuition and fees. Non tuition expenses" include books, supplies, housing, meals, transporta tion, and miscellaneous 01 pe1>onal expenses. Estimates include students enrolled in Title IV eligible postsecondary institu- tions in the 50 states, DC, and Puerto Rico. Standard error tables are available at htto://nces.ed.gov/das/librarv/reoorts.aso. SOURCE: U 5. Department of Education, National (enter for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). 4 The Net Price After Grants those at public 4-year institutions, Policymakers and researchers generally grant aid to full-time undergraduates subtract grants from the sticker price lowered the average sticker price of when discussing the net price of at- $18,900 to an average net price after tending a postsecondary institution. grants of $15,200. For example, Congress recently re- quired institutions to make public both For those at private institutions (both the sticker price and the average net for-profit and nonprofit), the average price of attendance, calculated as the net price after grants was about total price of attendance minus all $25,700. For those attending for-profit grants received. In this Brief, two measures of net price are discussed: the "net price after grants" and the "out-of-pocket net price," which is the price after all financial aid (i ncluding loans, which must be repaid} is t aken into account. 10 Grant aid helped to lower the average st icker price among full-time under- graduates at public 2-year institutions from $12,600 to an average net price after grants of $10,600 (figure 1 ). For 10 Both net price and out of-pocket net price averages are cal- culated for all students, regardless of whether they received any financial aid. This method of calculating net price averages for all students differs from that used to calculate average aid amounts in this report (see table 2). Average aid amounts are calculated only for students receiving a particular type of aid. Those not receiving a specific type of aid (i.e., zero values) are not included in the average for that aid. The average grant therefore, will be greater than the difference between the sticker price and the net price after grants. institutions, the difference between the average sticker price and the net price af ter grants was about $2,800. At private nonprofit 4-year instituti ons, however, that difference was $10,000. The Out-of-Pocket Net Price The "out-of-pocket net price," defined as the sticker price less all fi nancial aid received, takes into account all forms of financial aid, including grants, loans, work-study, and other aid (as well as Parent PLUS loans). The out-of-pocket net price represents the amount t hat must be paid immediately to enroll in a postsecondary institution f or that aca- demic year.'' Because the out-of- pocket net price subtracts loans from the sticker price, it measures the net price only in the short t erm. Loans off- set immediate costs to students and their families, but they must be repaid overtime. Full-time undergraduates enroll ed at public 2-year institutions had the low- est average out-of-pocket net price ($9,100}, reflecting the already lower sticker price at these institutions (figure 1}. Those at public 4-year instituti ons had a slightly higher average out-of- pocket net price ($1 0,300}. Students at private institutions had the highest av- erage out-of-pocket net prices ($16,000 at for-profit institutions and $16,600 at private nonprofit 4-year institutions). 11 Since 1998, the federal government has also provided postse- condary students and their families with various federal tax benefits. These are not included in the definition of financial aid and are not used in the calculation of net price in this study. 2 What factors are related to variations in average sticker and net prices among those attending these institutions? Prices vary by institution type for sev- eral reasons. Institutions charge differ- ent levels of tuition (based on whether they are public or private and the amount of state and local subsidies re- ceived); the demographic characteris- tics of students (and thus their nontuition expenses and eligibility for federal and state grant aid) vary by type of institution; and institutional policies for awarding institutional aid differ. As noted previously, the amount of tui- tion charged by institutions is a prima- ry factor in the total price of attendance, but students also incur dif- ferent nontuition expenses depending on their family responsibilities and liv- ing arrangements. Average net prices are further affected by differences in the proportion of aid recipients at each type of institution. For example, the number of students eligible for federal Pell Grants or state- funded grant aid at a particular school will affect the average net price after grants, as will a school's policies for awarding grants from institutional funds. The out-of-pocket net price fur- ther depends on the level of borrowing among students and their parents and other types of aid received, such as work-study. Public 2-Year Institutions Full-time students attending public 2- year institutions had the lowest aver- age sticker price ($12,600), net price af- ter grants ($1 0,600), and out-of-pocket net price ($9, 1 00) among all undergra- duates (figure 1 ). Because students at public 2-year insti- tutions had a lower average sticker price initially, their average net prices also were lower-even though they had the smallest proportions of grant recipients (56 percent) and students who borrowed (23 percent took out a student loan) (table 2). 6 Public 4-Year Institutions Tuition at public 4-year institutions was higher than at public 2-year institu- tions, but not as high as at the private institutions (figure 2). Students at these institutions also have slightly higher nontuition expenses than those at public 2-year institutions, with a larger proportion living on campus or away from home {see Wei forthcoming). Among those enrolled full time at pub- lic 4-year institutions, 60 percent re- ceived grant aid, about one-half (53 percent) took out student loans, and 10 percent received work-study support (table 2). Grant aid helped to lower the net price after grants to an average of $15,200, and the addition of loans, work-study, and other aid resulted in an average out-of-pocket net price of $10,300 (figure 1 ). This compares to an average out-of-pocket net price of $9,100 at public 2-year institutions-a difference of $1,200 in the average out- of-pocket net price, even though the difference in the average sticker price was $6,300. For-Profit Institutions For-profit institutions are privately owned and operated and the profits they generate benefit individual own- ers and shareholders. The programs can range from less than 1 year to 4- year bachelor's and graduate degrees. Most undergraduates enrolled in less- than-4-year for-profit institutions are pursuing certificates or associate's de- grees in occupational training pro- grams (Staklis forthcoming). Undergraduates at for-profit institu- tions also tend to be older, financially independent, and have family respon- sibilities. This increases their nontuition expenses and hence, their average sticker price. More undergraduates at for-profit institutions received federal grants (62 percent) than did students in any other type of institution in our analysis (figure 3). However, a smaller percentage of for-profit students re- ceived state, institutional, or private grants than students in other sectors. On average, these students had a net price after grants of $25,80Q-not measurably different than that of pri- vate nonprofit 4-year institutions, and higher than that of public institutions (figure 1 ). FIGURE 3. SOURCES OF GRANT AID for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Percent 100 80 60 40 20 0 Public 2year Public 4-year 62 For-profit Type of institution 67 Private nonprofit 4-year Federal grants ~ s t a t e grant s Institutional grants n Private source grants NOTE: "Grants" include S<holarships and tuition waivers. full-time, full-year" is defined as having been enrolled in one postsecondary institution for 9 months or more full time. Estimates indude students enrolled in Title IV eligible postsecon- dary institutions ln the 50 states, DC, and Puerto Rico. Standard error tables are available at hnpJ/nces.ed.gov/dasllibrarv/reports.asp. SOURCE: U.S. Oepartment of Education, National Center for Education Statistics, 2007- 08 National Postsecondary Student Aid Study (NPSAS:OS). 7 Student loans were critical to reducing Private Nonprofit 4-Year Institutions next highest sticker price: for-profit in- the average out-of-pocket net price for Even though they had the highest av- stitutions ($25,800 and $16,000, re- al I undergraduates, but particularly for erage sticker price ($35,500) of the four spectively) (figure 1 ). those at for-profit institutions. For- profit institutions had the largest pro- portion of full-time undergraduates with at least one loan in thei r financial aid package: 9 out of 10 (92 percent) received an aid package containi ng a loan (table 2 and figure 4}, compared to 65 percent of those at private non- profit 4-year institutions, 53 percent at public 4-year institutions, and 23 per- cent at public 2-year institutions. The high level of student borrowing at for- profit institutions resulted in an aver- age out-of-pocket net price of $16,000 (figure 1 ). FIGURE 4. TYPE OF AID PACKAGE major sectors, financial aid recipients at private nonprofit 4-year institutions al- so received the largest average amount of total aid ($21, 100), when compared with those at for-profit institutions ($13, 1 00), public 4-year institutions ($11 ,000}, and public 2-year institutions ($5,400) (table 2). In fact, aid received by undergraduates at private nonprofit 4-year institutions resulted in an average net price of $25,500 and an average out-of-pocket net price of $16,600, both of which were not measurably different from undergraduates at schools with the for full-time, full-year undergraduates, by aid package received and type of institution attended: 2007- 08 Percent 100 80 60 40 20 0 Percent distribution receiving aid 16 Public 2ycar Public 4-year For-profit Type of institution Private nonprofit 4-year Aid package Grants, work- study, or other aid, with loans Loans only ;::: Grants, work- study, or other aid, without loans No aid received NOTE: "Grants" include scholarships and tuition waivers. "Loans" include federal, state, ins1itutional, or private student loans, excludiog Parent PLUS loans. "Othe(' aid includes job training, veterans benefits, employer aid, and Parent PLUS loans. "Full-time, full-year" is defined as having been enrolled In one postse<ondary institution for 9 months or more full time. Estimates include stlldents enrolled in Title IV eligible postsecondary institutions in the 50 states, OC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/ librarv/reports.asp. SOURCE: U.S. Department of EduCiltion, National Center for Education Statistics, 2007-08 National Postsecondary Stlldent Aid Study (NPSAS:08). 8 The receipt of institutional grants, in particular, was critical in lowering the price for those attending private non- profit 4-year colleges and universities. About two-thirds (67 percent) of stu- dents in private nonprofit +year schools received institutional grants or tuition waivers, a larger proportion than at any other type of institution (30 percent at public 4-year institutions, 17 percent at public 2-year institutions, and 7 percent at for-profit institutions) (f igure 3). The average institutional grant received by those attending pri- vate nonprofit 4-year institutions was $10,400, 12 which helped reduce the av- erage sticker price to an average net price after grants of $25,500 (figure 1 ). Work-study was also an important source of aid to those at private non- profit 4-year institutions. Nearly one- third (31 percent) of all full-time un- dergraduates at private nonprofit 4- year institutions received work-study aid, the highest percentage among all full-time undergraduates (between 2 and 10 percent of undergraduates at other types of institutions received work-study aid) (table 2). With the aid of student loans, work-study, and other types of support, full-time undergra- duates at private nonprofit 4-year insti- tutions had an average out-of-pocket net price of $16,600-not measurably different from those attending for- profit institutions ($16,000) (figure 1 ). 12 NPSAS:OS Data Analysis System (data not shown). 3 How do the net prices paid by undergraduates vary by family income? Figure 5 shows the average net price after grants among dependent under- graduates by their family income and type of institution attended. Among low-income and low middle-income dependent students, those with the highest average net price after grants were enrolled at for-profit institutions. In contrast, among high middle- income and high-income students, the average net price af ter grants for those at for-profit institutions was not mea- surably different from those at private nonprofit 4-year institutions. FIGURE 5. NET PRICE AFTER GRANTS BY INCOME for full-time, full-year dependent undergraduates, by family income category and type of institution attended: 2007-08 Price $40,000 30,000 20,000 10,000 0 Low income Average net price after grants Low middle-income High middle-income Highincome Public 2year D Public 4-year Forprofit 0 Private nonprofit 4year NOTE: The "net price after grants" Is the price of attending a postsecondary institution after all grants have been received. This amount is calculated by subtracting total grant aid from the sticker price. The sticker price is the total price of atten- dance and includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneous, or per- sonal, expenses. Grant aid includes grants, scholarships, tuition waivers, and other gift aid that does not need to be repaid. The net price after grants is calculated for all students, regardless of whether or notthey received any grant aid. Family income categories were based upon parents' annual income in 2006. Dollar cutoffs are based on the distribution among all dependent undergraduates: "low-income" was the lowest 25th percentile (less than $36, 100); "low middle-income"was the 26tll to 50th percentile ($36, 100-$66,600); "High middle-income was the 51st to 75th percentile ($66,60Q- $104,6001; and "High-income" was the highest 25th percentile ($104,600 or more). ' Full-time, full-yea(' is defined as having been enrolled in one postsecondary institution for9 months or more full time. Estimates Include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nct>5.ed.gov/dasllibrarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics. 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). 9 The average out-of-pocket net price, on the other hand, shows a slightly dif- ferent pattern (figure 6). After borrow- ing, low-income and low middle- income undergraduates enrolled at for- prof it institutions continued to have the highest average out-of-pocket net price, when compared with those at other institutions. However, among those with incomes above t he median (i.e., high middle-income and high- income students), the average out-of- pocket net price was highest for those enrolled at private nonprofit 4-year in- stitutions. FIGURE 6. OUT -OF-POCKET NET PRICE BY INCOME for full-time, full-year dependent undergraduates, by family il)come: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Low income Average out-of-pocket net price Low middle-income High middle-income Highincome Public 2year 0 Public 4year For-profit IJ Private nonprofit 4-year NOTE: The "out-of-pocket net price is the price of attending a post5econdaryinstitution after all aid has been received. This amount is calculated by subtracting total financial aid from the sticker price. The sticker price is the total price of at tendance and includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneoos, or personal, expenses. Financial aid includes grants, student loans, Parent PLUS loans, work-study, employer aid, job training benefi\5, veterans benefits, and any other type of aid.lhe ootof-pocket net price is calculated for all students, regardless of whether or not they received any aid. Family income categories were based upon parents' annual income in 2006. Dollar cutoffs are based on the distribution among all dependent undergraduates: "low-income was the lowest 25th percentile (less than $3-6,100); "low middle-income was the 26th to 50th percentile ($36, 106-$66,600); "High middle-income" was the 51st to 75th peJcentile ($66,600-$104,600); and''Higlrincome was the highest 25th percentile ($104,600 or more). "Full-time, full-year" is defined as having been enrolled in one postsecondary instirution for 9 months or more full time. Estimates include studen\5 enrolled in Trtle IV eligible postsecondary institutions in the 50 states, OC, and Puerto Rico. Standard error tables are available at htto:l/nm.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Post5econdary Student Aid Study (NPSAS:OS). 10 SUPPLEMENTAL TABLES TABLE 1. UNDERGRADUATE ENROLLMENT, TUITION, AND STICKER PRICE for all undergraduates and full-time, full-year undergraduates, by type of institution attended: 2007- 08 All undergraduates Full-time, Percent Average Percent Average distribution Average sticker distribution Average sticker enrolled tuition' price' enrolled tuition' price 1 Total 100.0 $5,800 $14,000 100.0 $10,300 $22,400 Type of institution Public 2-year 40.0 1,200 7,000 17.8 2,400 12,600 Public 4-year 29.2 5,500 15,200 42.7 7,100 18,900 Private nonprofit 4-year 13.0 17,800 28,200 20.6 23,400 35,500 For-profit 9.0 10,200 20,600 8.5 11,900 28,600 Other, or more than one institution 8.8 4,800 12,300 10.5 7,000 18,000 TABLE 2. FINANCIAL AID for all undergraduates and full-time, full-year undergraduates, by type of institution attended: 2007- 08 1 Average tuition and average sticker price estimates are shown for those attending one lnstiwtlon only. NOTE: "full-time, full-year is defined as having been enrolled in a postsecondary institution for 9 months or more full time. "Tuition includes all tllition and fees. "Stkker price" is thetotal price of attendance which includes tllition and fees, books and supplies, housing, meals, transportation, and other miscella- neous, or personal, expenses. Estimates include stu- dents enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. De- tail may not sum to totals because of rounding. Stan dard error tables are available at
SOURCE: U.S. Department of Education, National Cen- ter for Education Statistics, 2007- 08 National Postse condary Student Ai d Study (NPSAS:OS). Any grants Any loans Any work-study Any aid NOTE:"Grants" include scholarships Average Average Average Average and tuition waiver;. "Loans" Include Percent amount Percent amount Percent amount Percent amount federal, state, institutional, or private student loans, excluding Parent PLUS loans. rota!" aid includes grants, All undergraduates 51.7 $4,900 38.5 $7,100 7.4 $2,400 65.6 $9,100 loans, job training, veterans benefits, employer aid, and Parent PLUS loans. "All undergraduates" include those Type of institution attending more than one institution. "Full-time, full-yea(' is defined as Public 2-year 39.6 2,200 13.2 4,100 3.3 3,000 47.6 3,400 having been enrolled in one postse- Public4-year 52.9 5,200 46.2 6,600 7.7 2,500 71.3 9.400 condary institution for 9 months or more full time. Average aid amounts Private nonprofit 4-year 73.6 10,200 58.9 9,100 23.2 2,100 84.7 17,400 are calculated only for students re- For-profit 70.4 3,200 91.6 8,100 2.0 3,500 96.3 10,800 ceiving a particular type of aid. Those not receiving a specific type of aid (i.e., zero values) are not included in Full-time, full-year 65.3 7,200 53.1 8,000 13.7 2,300 80.1 12,900 theaverageforthat aid. Estimates include students enrolled in mle IV eligible pnstsecondary institutions in Type of institution the 50 states, DC, and Puerto Rico. Standard error tables are available at Public 2-year 55.7 3.700 22.5 4,900 6.9 2,600 65.7 5,400 Public4-year 60.4 6,100 52.7 7,100 10.5 2,400 78.3 11,000
SOURCE: U.S. Oepartmem ofEducation, Private nonprofit 4-year 81.2 12,300 65.0 9,800 31.5 2,100 89.4 21,100 National Ceoter for fducation Statistics, For-profit 71.9 4,000 91.6 9,600 2.0 3,600 96.7 13,100 2007-08 National Postsecondary Stu dent Aid Study (NPSAS:08). 1l FIND OUT MORE For questions about content, ordering additional copies of this Statistics in Brief, or to view this report online, go to: http://nces.ed.gov/insert-url/ More detailed information on the price of undergra- duate education and undergraduate financing can be found in Web Tables produced by the National Center for Education Statistics (NCES) using the 2007-08 Na- tional Postsecondary Student Aid Study (NPSAS:08) data. These Web Tables are a comprehensive source of information on financial aid awarded to undergra- duate students during the 2007-08 academic year. In- cluded are estimates of tuition, price of attendance, and financial aid. Additional information on the de- mographic characteristics of 2007- 08 undergraduates can be found in a second set of Web Tables. Web Tables-Student Financing of Undergraduate Edu- cation: 2007-08 (NCES 2010-162). (link will be added) Web Tables-Profile of Undergraduate Students in U.S. Postsecondary Institutions: 2007- 08 (NCES 2010-205). (link will be added) Readers may also be interested in the following NCES products related to the topic of this Statistics in Brief: 2007-08 National Postsecondary Student Aid Study (NPSAS:08): Student Financial Aid Estimates: First Look (NCES 2009-166). http://nces.ed.gov /pu bs2009 /2009166.pdf Undergraduate Financial Aid Estimates by Type of Insti- tution in 2007-08 (NCES 2009-201). http://nces.ed.gov/pubs2009/2009201.pdf -------------------------------------- 12 -------------------------------------- TECHNICAL NOTES Survey Methodology The statistics provided in this Statistics in Brief are based on data collected through the 2007- 08 National Postse- condary Student Aid Study (NPSAS:08). NPSAS:08 is the seventh administration of NPSAS, which has been conducted every 3 to 4 years since 1986-87. The NPSAS:08 target population includes all eligible students enrolled in Title IV institutions in the United States at any time between July 1, 2007 and June 30, 2008, representing about 21 million undergraduates and 3 million graduate students enrolled in over 6,000 institu- tions. The institution sampling frame for NPSAS:08 was constructed from the 2004-05 and 2005-061nstitutional Characteristics, Fall Enrollment, and Completions files of the Integrated Postsecondary Education Data System (IPEDS). The sampling design consisted of first selecting eligible institutions, from which students were sampled in the second stage. Institutions were se- lected with probabilities proportional to a composite measure of size based on expected enrollment. Approximate- ly 1,700 institutions participated in the study, yielding an unweighted re- sponse rate of 89 percent. Approx- imately 114,000 undergraduates and 14,000 graduate students were study respondents, yielding an unweighted response rate of 96 percent. Estimates were weighted to adjust for the un- equal probability of selection into the sample and for nonresponse. NPSAS covers broad topics concerning student enrollment in postsecondary education and how students, and their families, finance their education. Res- pondents provided data through in- struments administered over the Internet, by telephone, or in person. In addition to respondent-provided data, data on respondents were collected from other relevant databases, includ- ing U.S. Department of Education records on student loan and grant pro- grams and student financial aid appli- cations. VARIABLES USED Two broad categories of error occur in estimates generated from surveys: sampling and nonsampling errors. Sampling errors occur when observa- tions are based on samples rather than on entire populations. Nonsampling errors can be attributed to several sources: incomplete information about all respondents (e.g., some students or institutions refused to participate, or students participated but answered only certain items); differences among respondents in question interpretation; inability or unwillingness to give cor- All estimates presented in this Statistics in Brief were produced using the Data Analysis System (DAS). See "Run Your Own Analysis" for more informa- tion on the DAS and other web-based software applications that enable us- ers to generate tables for most of the postsecondary surveys conducted by NCES. The program files that generated the statistics presented here can be found at [insert-uri-here}. The variables used in these analyses include the following: Label Attendance status Family income for dependent students Federal grants Institutional grants Net price after grants Non-tuition expenses Out-of-pocket net price Private grants State grants Sticker price Total financial aid Total grants Total student loans Tuition Type of aid package Type of institution Work-study Name ATINSTAT PGDEP TFEDGRT INGRTAMT NETCST3 BUDNONAJ NETCSTl PRIVAID STGTAMT BUDGETAJ TOT AID TOTGRT TOTLOAN TUITION2 AIDTYPE SEGOR4 TOTWKST -------------------------------------- 13 -------------------------------------- rect information; mistakes in recording or coding data; and other errors of col- lecting, processing, sampling, and im- puting missing data. For more information on NPSA$:08 me- thodology, see 2007-08 National Post- secondary Student Aid Study (NPSAS:08) Full-scale Methodology Report (NCES 201 0-1 88) (forthcoming). Item Response Rates NCES Statistical Standard 4-4-1 states that " [a)ny survey stage of data collec- tion with a unit or item response rate less than 85 percent must be evaluated for the potential magnitude of nonres- ponse bias before the data or any anal- REFERENCES The College Board (2009). Trends in College Pricing 2009. Retrieved on February 11,2010, from http://www.trends-col legeboard. com/college pricing/pdf/ 2009 Trends College Pricing.pdf. The College Board (2008). Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid: TheRe- port from the Rethinking Student Aid Study Group. Retrieved on January 15, 201 0, from .!:!.llQ.;LL professionals.collegeboard.com/ profdownload/rethinking-stu-aid- fulfilling-commitment- recom mendations.pdf. Harvey, J., Williams, R.M., Kirshstein, RJ., O'Malley, A.S., and Wellman, J.V. ( 1998). Straight Talk About College Costs and Prices. Report of the National Commission on the Cost of Higher Edu- cation. Phoenix, AZ: Oryx Press. ysis using the data may be released" (U.S. Department of Education 2003). Several derived variables used in this report were comprised of variables that had response rates of less than 85 per- cent before imputation. EMPLYAM1 and EMPL YAM2 (measures of employer aid received, and components of TOTGRT) had response rates of 79 per- cent and 80 percent, respectively. Non- response bias analyses showed that for EMPL YAM 1, there was statistically sig- nificant bias on 87 percent of the cha- racteristics analyzed, and for EMPLYAM2, there was significant bias on 76 percent of all characteristics. PRIVLOAN (private loans received, and lmmerwahr, J., Johnson, J., Gasbarra, P., Ott, A., and Rochkind, J. (2009). Squeeze Play 2009: The Public's Views on College Costs Today. New York and San Jose, CA: Public Agenda and The National Center for Public Policy and Higher Education. Lewin, T. (2009, October 20). College Costs Keep Rising, Report Says. The New York Times. Marchand, A. (201 0, January 21 ). Cost of College Is a Big Worry of Freshmen in National Survey. The Chronicle of High- er Education. Pryor, J.H., Hurtado, S., DeAngelo, L., Pa- lucki Blake, l., and Tran, S. (2009). The American Freshman: National Norms Fall2009. Los Angeles: Higher Educa- tion Research Instit ute, University of California, Los Angeles. a component ofTOTLOAN) had a re- sponse rate of 67 percent. The nonres- ponse bias analysis for this variable showed that respondent s and nonres- pondents were significantly different on 80 percent of all analyzed characte- ristics. PCTDEP had a response rate of 56 percent, and the non response bias analysis also showed significant bias on 80 percent of all characteristics. For more detailed information on nonres- ponse bias analysis and an overview of the survey methodology, see 2007-08 National Postsecondary Student Aid Study (NPSAS:08) Full-scale Methodology Report (NCES 201 0-188) (forthcoming). Staklis, S. (forthcoming). Web Tables- Profile of Undergraduate Students: 2007-08 (NCES 2010-205). National Center for Education Statistics, Insti- tute of Education Sciences, U.S. De- partment of Education. Washington, DC. U.S. Department of Education, National Center for Education Statistics. (2003). NCES Statistical Standards (NCES 2003- 601 ). Washington, DC. Wei, C. (forthcoming). Web Tables- Student Financing of Undergraduate Education: 2007- 08 (NCES 201 0-162). National Center for Education Statis- tics, Institute of Education Sciences, U.S. Department of Education. Wash- ington, DC. -------------------------------------- 14 -------------------------------------- RUN YOUR OWN ANALYSIS WITH DATALAB You can replicate or expand upon the figures and tables in this report, or even create your own. Data lab has several different tools that allow you to customize and generate output from a variety of different survey datasets. Visit Data Lab at: QuickS tats Create a simple table quickly View )'O'Jr cutp-..rt as a chart or table Choose from many data sets each with about one hundred Y!lriables Select from postsecondary surmes Cover artwork iStockphoto.<Om!centauria. http:/ /nces.ed.gov/datalab/ Dotolab PowerS tats Produee- complex tables Run linear and logistic
Choose from many data sets each with thousands of variabl&s library Search existing tables and figures to find to your questions Vistt NCES Tables sod Figures Comr119 soon Thousands of pubhshed tables using Po,verStats and OuickStats Help Need Ccntact John Vuicka MPR Assoc.iatas Inc. d3tala!rhelp@mpnrte com Aurora D'Amico. NCES Au.ora gcw Need access to restncted data? Learn more on The Restnctedll se Data Procedures Manual -------------------------------------- 15 -------------------------------------- www.ed.gov ies.ed.gov (b){5) G From: Kanter, Martha Sent Friday, April 30, 2010 2:49PM To: Yuan, Georgia Subject FW: Tony Miller briefing l(b)(5) From: Bergeron, David Sent: Friday, April 30, 2010 2:37PM To: Kanter, Martha Subject FW: Tony Miller briefing From: Weko, Tom Sent: Friday, April 30, 2010 2:35PM To: Bergeron, David Cc: Miller, Elise; Hunt-White, Tracy Subject: Tony Miller briefing (b)(5) From: Yuan, Georgia To.: Cunningham,Peter CC: Date: 4/30/2010 3:11 :12PM Subject: FW: Tony Miller briefing (b)(5) (b)(5) (b)(5) ................................................................................................................................................................................................................................................................................................. (b)(5) 1 The "New Majority" of Undergraduates: 2 Students in Community Colleges and 3 For-Profit Institutions 4 Introduction 5 Depictions of postsecondaty education in the news, films, and oth- 6 er media often focus on undergraduates who study at traditional 7 4-year public universities and nonprofit colleges (Swidey 2009; 8 Russo 2006; U.S. Department of Education 2002). Yet even two 9 decades ago these students accounted for just 55 percent of stu- l 0 dents enrolled in U.S. postsecondaty education (Choy and Gifford 1990). 1 Now a majority of undergraduates in U.S. postsecondaty education attend community colleges and for-profit institutions. These two sectors together enrolled 54 percent of the approximate- ly 21 million undergraduates who attended U.S. postsecondary institutions in 2007-08. Some 44 percent of undergraduates at- l6 tended community colleges, the single largest sector of U.S. postse- condary education, and another 10 percent attended for-profit institutions (figure 1). While the for-profit sector accounts for a relatively small percentage of undergraduates, its enrollment is growing at a rapid pace relative to other postsecondaty sectors (Horn and Li 2009; Wilson 2010). Who are the undergraduate students served by community colleges and for-profit institutions, and how do they compare to students who are enrolled at traditional 4-year institutions? Drawing on data from a nationally representative sample of undergraduates enrolled L Based on fall enrollment in the 1986-87 National Postsecondary Stu- dent Aid Study (NPSAS:87). THE "NEW MAJORITY" OF UNDERGRADUATES: STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 in U.S. postseconda1y institutions, this Statistics in Brief27 enrolled in bachelor's degree programs, while 43 percent 2 addresses the following questions. 28 were pursuing associate's degrees, and the remaining stu- 29 dents were either in certificate programs or not in a de- 3 How do students enrolled in for-profit institutions and 30 gree program (table 1).2 The average 2007-08 tuition 4 community colleges differ from each other and from 31 and fees for full-time, full-year students was $11,900, 5 those enrolled in traditional4-year institutions in terms 32 and for all students, $10,200 (Wei forthcoming). 6 of: 7 8 9 10 11 12 13 33 Community colleges: Also known as public 2-year institu- 1) demographic and socioeconomic characreristics?34 tions, community colleges offer associate's degrees in 2) indicators of high school academic preparation 35 occupational and academic fields, as well as occupational and being the first in their family to attend col- 36 certificates. Unlike for-profit institutions, which offer lege? 37 primarily occupational programs, community colleges 38 offer a variety of progran1s with different goals. These 3) enrollment patterns and major fields of study? 39 include academic transfer to 4-year institutions, voca- 4) the extent to which they combine work and study? 40 tionalltechnical education, continuing education, and 41 developmental education (Cohen and Brawer 2003). 14 The three groups of postsecondary institutions comparcJ2 Conu11w1ity colleges, therefore, serve a range of students, 15 in this Brief are briefly defined below. 43 from those needing basic remedial courses to very high 44 achieving students meeting lower-division bachelor's 16 For-profit institutions: A recent report by the U.S. Gov- 45 degree requirements before transferring to a selective 4- 17 ernment Accountability Office defined propriety institu-46 year college or university (Provasnik and Planty 2008). 18 tions as "Institutions that are privately-owned whose net47 The average 2007-08 tuition and fees for full-time, full- 19 earnings can benefit a shareholder or individual; that is, 48 year students was $2,400, and for all students, $1,200 20 for-profit institutions." (U.S. GovernmentAccountabili-49 (WeiforthcominiJ. 21 ty Office 2009). Among undergraduates enrolled in for- 22 profit institutions in 2007-08, about half attended insti-50 23 tutions authorized to award 4-year (bachelor) degrees, 27 24 percent attended 2-year institutions, and 22 percent at- 25 tended less-than-2-year institutions (figure 2). Half of 26 those in for-profit 4-year institutions were 2 At community colleges, 79 percent of undergraduates were in associate's degree programs, 7 percent in cerrillcate programs, and 11 percent were not in a degree program. In traditional 4- year institutions, 93 percent of lmdergraduates were enrolled in bachelor's degree programs. THE "NEW MAJORITY" OF UNDERGRADUATES: I I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 3 1 Public and private nonprofit 4-year institutions: Public 28 2 and private nonprofit institutions serve as the main 29 3 comparison group in this analysis. Consistent with pre- 30 4 vious research, they are referred to as "traditional4-year 31 5 institutions" (Tierney and Hentschke 2007). Together, 32 6 students in these two sectors accounted for 46 percent of 33 7 all undergraduates in 2007-08-32 percent attending 34 8 public 4-year colleges and universities, and 14 percent 35 9 attending private nonprofit 4-year institutions (figure 1) 36 ic), and income (larger proportion oflow- income students). 3 Community college students also differ from traditional 4-year college stu- dents on most of these characteristics, but to a lesser extent. 4 The part-time status of the majority of commu- nity coll ege students sets them apart from their peers in for-profit and traditional 4-year institu- tions, the majority of whom attend full time. 10 The average 2007-08 tuition and fees for full-time, full- 11 year students in 4-year public institutions was $5,700 37 12 and $6,300 and for all students, $4,100 and $6,300, at 38 Health care fields are the most common fields of study among students in for-profit institutions, and arean1ong the most common fields for community college students. 13 non-doctorate- and doctorate-granting institutions, re- 39 14 spectively. Tuition and fees in private nonprofit institu- 40 15 tions totaled $20, 800 and $25,800 for full-time, full- 41 Regardless of where undergraduates enroll, a majority work while enrolled. 16 year students and $15,200 and $20,700 for all students, 42 17 at non-doctorate- and doctorate-granting institutions, 18 respectively (Wei forthcoming). 19 20 UNDERGRADUATE AWARDS CONFERRED Table 2 shows the distribution of undergraduate awards for the institution comparison groups (shaded) presented in this report. These comple- tions data are reported by all institutions that partic- ipate in Title IV student aid programs. Based on these data, community colleges awarded 46 per- cent of all certificates and 69 percent of associate's degrees in 2007. For-profit institutions awarded 42 percent of all certificates and 16 percent of asso- ciate's degrees. For-profit 4-year institutions awarded about 5 percent of bachelor's degrees and traditional 4-year colleges and universities awarded the remaining 95 percent. 21 Key findings 43 Demographic and Socioeconomic 44 Characteristics 5 Many demographic characteristics, including gender, 6 race/ethnicity, family status, income and age distinguish 7 students enrolled in for-profit institutions and commu- 8 nity colleges from those enrolled in traditional 4-ycar 9 colleges. Students in the for-profit sector, for example, 0 were the most likely to be female, Black or Hispanic, to 1 have children or other dependents, and to be single with 2 dependents in 2007-08 (figure 3). Women constituted a 3 majority of undergraduates in all three sectors, but com- 4 prised 69 percent of students in for-profit institutions. fn 5 contrast, 57 percent of community college students and 6 55 percent of traditional4-year institution students were 7 women. 22 Students enrolled in for-profit institutions differ 3 All comparisons of estimates were tested for statistical signi- ficance using the Student's !-statistic, and all differences cited are statistically significant at the p < .05 level. No adjustments for mltltiple comparisons were made. The standard errors for the estimates can be found at http://nces.ed.goy/das/library/rs:ports.asp. 23 from those enrolled in traditional 4-year institu- 24 tions across a wide range of demographic and 25 socioeconomic characteristics, including gender 26 (larger proportion of women), age (older), 27 race/ethnicity (nearly half are Black or Hispan- 4 Determined by a Student' s t-srarisric that rests the signillc- ance of the difference of differences. THE "NEW MAJORITY" OF UNDERGRADUATES: STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 Nearly half of the students in for-profit institutions were35 students were 31 percent for dependent students and 22 2 Black (25 percent) or Hispanic (21 percent). In commu-36 percent for independent students. 3 nity colleges, the percentages of Black (14 percent) and 4 Hispanic students (15 percent) were lower than those in 37 The income status of community college students rela- 5 for-profit institutions but higher than those in tradition-38 tive to their peers in traditional 4-year institutions dif- 6 al4-year institutions (1 1 and 12 percent, respectively, 39 fered for dependent and independent students. A larger 7 were Black or Hispanic). 40 percentage of dependent community college students 4 1 were from low-income families (31 vs. 20 percent), while 8 Community college students also fel l between for-profit 42 a smaller percentage of independent students earned low 9 and traditional 4-year institutions in terms of their like- 43 incomes (22 vs. 28 percent) . 10 lihood of having dependents and being single with de- 11 pendents. Some 32 percent of communi ty college 44 The average age of students enrolled at conummity col- 12 students had children or other dependents, versus 49 anJ5 leges and for-profit institutions was older than the aver- 13 14 percent in for-profit and traditional 4-year institu- 14 15 tions, respectively. The same pattern was found for the percentage of undergraduates who were single with de- 16 pendents (16 vs. 31 and 7 percent) . 46 age age of students at traditional 4-year institutions (28 47 vs. 24) (figure 5) . Although the average age of students 48 in both for-profit institutions and communi ty coll eges 49 was 28, the distri bution of students by age group in each 50 type of institution differed (figure 5) . Undergraduates 17 When income is considered for postsecondaty students, 51 enroll ed in for-profit institutions were least likely to be 18 family income is reported for students considered finan- 52 traditional-aged students-23 or younger. 19 cially dependent on their parents, and student (and 20 spousal) income is reported for chose considered finan- 53 2 1 cially independent. Dependency status is based largely 54 22 on age: all students 24 or older are considered indepen- 55 23 dent. Married students and students who are parents are 6 24 also considered independent. Reflecting these characte- 5 25 ristics, just over three-quarters (76 percent) of students 57 26 in for-profit institutions were independent (figure 4). I n ~ ~ 27 contrast, 57 percent of community college students and 60 28 32 percent of students at traditional4-year institutions 61 29 were independent. 62 30 Students in the for-profit sector were the most likely to 31 32 63 64 be low income; roughly half (51 percent) of dependent students had low family incomes, and roughJy one-third 65 33 of independent students earned low incomes (32 per- 66 Indicators of High School Academic Preparation and First in Family to Attend College Students in for-profit institutions appeared to be the least academically prepared based on indicators of high school completion and academic preparation available in the data. Indicators include high school completion sta- tus (standard diploma), average grades, and the number of years of mathematics taken. As illustrated in figure 6, compared with their peers in community colleges and traditional 4-year institutions, students in for-profit in- stitutions were the most likely co have enrolled in postse- condaty education without a standard hi gh school diploma (19 percent, vs. 14 percent and 7 percent, re- 34 cent) .s Comparable percentages for conununity college 67 spectively, of community college and traditional4-year 5 Low income is defmed as a parent (dependent wldergra- duates) or student (including spouse's income, for indepen- dent wldergraduates) income that is at or below the 25th percentile of the income distribution for each group. In 2006 (the year used for 2007-08 financial ajd applications) the in- come levels were at or below $36,000 for dependent students and at or below $11,000 for independent students. THE "NEW MAJORITY" OF UNDERGRADUATES: I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 5 1 college students) . 6 They were also least likely to report 30 in for-profit institutions attended full time for the full 2 earning grades ofB or higher (54 vs. 6 1 and 81 percent),31 year and 33 percent attended full time for part of the 3 or completing 4 or more years of high school mathemat-32 year. A higher percentage of undergraduates attended 4 ics (48 vs. 54 and 76 percent) ? At the same time, about 33 full time, full year in traditional4-year institutions (59 5 half of for-profi t students were the first in their famil y to34 percent) than in for-profit institutions. 6 enroll in postsecondary education, as measured by the 7 level of education achieved by either parent (figure 6). 35 Not ali students attend classes on campuses, but instead 8 SpecificaHy, among for-profi t students, 51 percent were 36 participate in distance education. Students in communi- 9 from families in which neither parent had an education 37 ty coll eges and for-profit institutions di d so more often 10 beyond high school, compared with 39 and 25 percent, 38 chan their peers at traditional4-year colleges. About one- 11 respectively, of community coll ege and tradi tional 4-yea 1 39 quarter of community college students and about one- 12 college students. 40 fifth of students in for-profi t institutions reported taking 41 distance education courses during the 2007-08 academic 13 Enrollment Patterns and Major Fields of 14 Study 42 year (figure 8) . In contrast, 17 percent of students at tra- 43 di tional 4-year institutions reported the same. In addi- 44 cion, a larger percentage offor-proflt enrollees (12 15 The part-time enrollment patterns of conumrnity collegC45 percent) than those at commttnity colleges (3 percent) 16 students distinguish them from their peers in both for- 46 reported that their entire program was offered through 17 profi t and traditiona14-year institutions (figure 7) . Se- 47 distance education. 18 venty percent attended part time, while the same percen- 19 cage of students in traditional 4-year and for-profit 4 8 With respect to fields of study, community college stu- 20 institutions attended full time. 49 dents sought both academic and occupational prepara- 50 cion (figure 9) . For example, 7 percent of community 2 1 22 23 While part-time attendance offers a flexibility often 5 1 college students and 22 percent of students in traditional needed by studenrs attending community colleges (Co- 52 4-year institutions majored in humanities and social wen and Brower 2003) , it is also associated with lower 53 sciences, compared with 2 percent of students in for- 24 rates of degree completion relative to full-time atten- 25 dance (e.g., Berkner, He, and Cataldi 2002). 54 profit institutions. Another 20 percent at community 55 coll eges and 6 percent at tradi tional 4-year institutions 56 majored in general studies and other fields, compared 26 Looking at attendance patterns over the year, in 57 27 2007-08, some 38 percent of community college stu- 58 28 dents attended part time for part of the year and 32 per- 59 29 cent for the full year. 8 By contrast, 37 percent of with less chan 1 percent at for-profit institutions. Com- munity coll ege students majoring in humanities, social sciences, and general studies are largely those who seek to transfer to a 4-year college (Berkner, Horn, and Chrne 6 1 2000). 6 These students may have dropped out of high school, ob- tained aGED or high school equivalency certificate, been 62 Health care fields accounted for one-third of undergra- home schooled, or attended a foreign high school. 63 duace majors in for-profit institutions and about one- 7 Data on high school academic preparation (GPA and courses) is available only for students younger than 30, which 64 fifth (21 percent) in community coll eges. In conuast, 9 accowued for 77 percent of alltmdergraduares (figure 5). 65 percent of students in traditional 4-year institutions ma- 8 A full year is defined as 9 or more months. Those attending 66 jored in health care fields. l n addition to health care part year may have completed a program of study or left with-67 fields, students in for-profit institutions were the most out completing, either temporari ly or permanently. 68 likely to major in fields that are grouped under the head- I I THE "NEW MAJORITY" OF UNDERGRADUATES: 6 STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 ing "other applied" (26 vs. 16 and 14 percent at com- 16 2 munity coll eges and tradi t ional 17 3 4-year institutions, respectively). These fields include 18 4 criminal justice, communications, and design and ap- 19 5 plied arts, among others. 20 1 HEALTH MAJORS AT COMMUNITY COLLEGES AND 2 FORPROFIT LESS THAN4YEAR INSTITUTIONS 3 4 Although health care fields were among the most 5 common majors at less-than-2-year and 2-year for- profit institutions and community colleges, the mix 6 of health majors at each institution type varied. Figure 10 shows the percentage of health majors 7 at community colleges and 2-year and less-than-2- 8 year for-profit institutions in five fields of study. To- 9 gether, these fields account for about 43 and 46 0 percent of majors at less than-2-year and 2-year for profit institutions, respectively, and 20 percent 1 at community colleges. A higher percentage of stu- 2 dents majoring in health care fields majored in 3 nursing at community colleges (59 percent) than at less-than-2-year (12 percent) and 2-year (1 0 per- 4 cent) for-profit institutions. By contrast, higher per- centages of students at for-profit i nstitutions 5 majored in health and medical administrative ser- 6 vices (21 and 29 percent for less-than-2-year and 2-year institutions, respectively, vs. 5 percent at 7 community colleges) and allied health and medical 8 assisting services (21 and 27 percent for less-than- 9 2-year and 2-year institutions, respectively, vs. 4 0 percent at community colleges) . 1 6 2 7 Combining Work and Study 43 44 8 More than two-thirds of students attending for-profit 9 institutions below the bachelor's degree level and about 45 10 one-half of community college students indicated that 4 6 11 th fi 11 b 47 . .e1r pnmaty reason or enro mg was to acqUire JO re- 12 lated skills or credentials (figure 11). Many of these stu- 13 dents work while attending classes. l n fact, regardless of 14 where undergraduates enroll , a large majority of students 15 work while enrolled (figure 12). Community college students were the most likely to work while enrolled (81 percent) and to work full time (41 percent of all community college students). Howev- er, even though a smaller percentage of students in for- profit institutions attended part time (figure 7), nearly three-quarters (73 percent) worked whil e enrolled and 39 percent of all for-profit students worked full time (figure 12). Students in traditional 4-year institutions were the least likely to work while enrolled, yet 69 per- cent did so. When working students were asked if they considered employment or going to school as their primaty activity, a majority reported the latter. 9 This was the case for stu- dents enrolled in all three institution types. About 60 percent of students in both community colleges and for- profit institutions reported that their primaty role was as a student, as did 79 percent of students in 4-year institu- tions. Find Out More See Related NCES Products More detailed information on 2007-08 undergraduates enroll ed in U.S. postsecondary institutions can be found in Web Tables produced by NCES using the NPSAS:08 data. These web Tables are a comprehensive source of information on undergraduate students during the 2007- 08 academic year. Included are estimates of de- mographics, enrollment, and employment characteris- tics. In addition, Web Tables documenting how students pay for their undergraduate education are also avail able. Web Tables-Profile of Undergraduate Students in U.S Postse- condmy Institutions: 2007-08 (NCES 2010-205). [link will be added] 9 Students who worked while enrolled were asked the foliow- tng question: "Would you say you were primarily a student working to meer expenses or an employee who decided ro enroll in school. " 1 Web Tables-Student Financing of Undergraduate Education: 2 2007-08 (NCES 2010-162). [link wil l be added] 3 Readers may also be interested in the following NCES 4 prod ucts related to the topic of this Statistics in Brief: 5 Changes in Awards Below the Bachelors Degree (NCES 201 0- 6 167). 1 OL2Ql QlGZ.pdf THE "NEW MAJORITY" OF UNDERGRADUATES: I I STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 7 33 34 35 36 37 38 39 pondents. Estimates were weighted to adj ust for the un- equal probabili ty of selection into the sample and for non response. For an overview of the survey methodolo- gy, see appendix B of the report 2007-08 National Post- secondary Student Aid Study (NPSAS:08): Student FinanciaL Aid Estimates for 2007- 08: First Look (http://nces.ed.gov /pubs2009/2009166.pdf). 7 The Price of Undergraduate Education: 2007-08 (NCES 201 0- 8 175). [link to be added] 40 T he fi ndings presented here are purely descri ptive in nature. Al l estimates presented in this Statistics in Brief were produced using the Data Analysis System (DAS), a web-based software application that enables users to gen- 9 Student hnancing of Undergraduate Education: 2007-08 10 (N CES 2009-175). [li11 k to be added] 4 1 42 43 1 1 Undergraduate Financial Aid Estimates by Type oflmtitution in 44 erate tables for most of the postsecondary surveys con- 12 2007-08 (NCES 2009-201). 13 http:Unces.ed.gQvlpubs2Q09/2Q092Ql .pdf 14 2007-08 National Postsecondary Student Aid Study 15 (NPSAS:08): Student Finan,ial Aid Estimates: First Look 16 (NCES 2009-166). 17 http://nces.ed.gov/pubs2009/2009166.pdf 4 5 ducted by the National Center for Education Statistics 46 (NCES). T he DAS also contains a detailed description 47 of how each variable was created and incl udes the word- 4 8 ing of questions for variables coming d irectly from the 49 interview. With the DAS, users can repli cate or expand 50 upon the figures and tables presented in this report. For 18 Run Your Own Analysis 51 a description of al l available options, users should access 19 Direct access to the data used in this Statistics in Brief is 52 the DAS website. If users are new to the DAS, the DAS 20 avail able through NCES' s DataLab site 53 User Help Center provides online tutorials on how to 2 1 (http://nces.ed.gov/datalab/). 54 use al l functions of the DAS. The DAS is available at 22 Technical Notes 55 http://nces.ed.gov/DAS. 23 The data in this report come from the National Postse- 56 Variables Used in This Statistics in Brief 4 d d Ps S) dm d 57 Information on al l the variables used in this report can 2 condary Student Ai Stu y (N A a inistere over 25 the 2007- 08 year. T he NPSAS target population in- 58 be obtained from the NPSAS:08 DAS. Users can search 26 II d I 59 the DAS for the label or variable nan1es specified below. dudes all eligibl e students enro e in T it eN institu- 27 tions in the United States at any time between July 1, 60 T he foll owing variables included in chis Brief had a 28 2007 and June 30, 2008. 10 The sampli ng design for col- 6 1 response race ofless than 85 percent: 29 lecting data consisted of two stages. T he fi rst stage in- 62 ATTEND MR, DEPANY, DISTED UC, 30 volved selecting eligible institutions from which students63 DISTALL, H CYSMATH, H SGPA, JOBENR, 31 would then be sampled in the second stage. Approx- 64 ]OBRO LE, PAREDUC, PCT DEP, PCTlNDEP. 32 imately 114,000 undergraduate students were study res- 10 Title IV institutions are those eligible to participate in the federal fmancial aid programs incl uded in Title IV of the Higher Ed ucation Act. These programs include the Pel ! Grant, federal student loans, work-st udy, and other federal aid. I I THE "NEW MAJORITY" OF UNDERGRADUATES: 8 STUDENTS IN COMMUNITY COLLEGES AND FOR-PROFIT INSTITUTIONS 1 Age (AGE) 40 Choy, S. (200 1). Stur.knts Whose Parmts Did Not Go To Col- 2 Main reasons for attending institution (AITENDMR) 3 Attendance pattern (ATfNSTKD 4 Has dependents (DEPANY) 41 42 43 lege: PostucoruM.ry A cuss, Pnsistmu, and Attainmmt (NCES 2001-126). Narlonal Center for Education Statis- tics, U.S. Department of Education. Washington, DC. 5 Dependency status (DEPEND) 44 Cohen, A.M., and Brawer, F.B. (2003). The Ammcan Com- 6 Distance education: took courses in 2007-08 7 (DISTEDUC) 45 munity College {tlth ed.). San Francisco: Jossey-Bass. 8 Distance education: entire program (DIST ALL) 9 Gender (GENDER) 46 47 48 49 Horn, L. and Li, X. Changes in Awards Below the Bachelor's Degree (NCES 2010-167). National Center for Educa- tion Statistics, Insti tute of Ed ucation Sciences, U.S. De- partment of Education. Washington, DC. 10 High school math courses planned/taken J 1 (HCYSMATH) 50 Russo, A. (2006). Traditional College Students Not So Tradi- 12 High school degree type (HSDEG) 51 tiona!. This Week in Education: Alexander Russo's WeekLy 13 High school grade point average (HSGPA) 14 Work intensity whi le enrolled QOBENR) 52 Roundup of the Best Education News and Analysis. Re- 53 trieved December 16, 2009, from 15 Primary role as student or employee QOBROLE) 16 NPSAS institution level (LEVEL) 54 55 17 Field of study/major (detailed CIP codes) (MAJORS4Y)56 18 Field of study: undergraduate (10 categories) 5? 19 (MAJORS4) ; ~ 20 Parent education (PAREOUC) 60 h up://tb jsweeki ned ucarion .blogspor.com/2006/02/ uad jrion a l-eo llegs:-sruden rs-no t -so. b tm I. Swidey, N. (2009). The Four-Year College Myrh. The Boston Globe Sunday Magazine. Retrieved November 25, 2009, from hnp://www.boston.com/bostonglobs:lmagazine/artkks/2 009/05/31/tbs: four year college myth/. 21 Tncomc percentile for dependent students (PCTDEP) 22 23 24 Income percentile for independent students (PCTTNDEP) 61 Tierney, W. and Henrschke, G. {2007). New Players, Differmt 62 Game: Understanding the Rise ofFor-Profit Colleges and 63 Universities. Baltimore, MD: The j ohns Hopkins Univer- Race/ethnicity (RACE) 64 sity Press. 25 I nstitution sector (SECTOR9) 26 Single parent (SJNGLPAR) 65 U.S. Governrnenr Accountability Office (GAO). {2009). Pro- 27 Undergraduate degree (UGDEG) 66 67 68 69 28 References 29 13erkner, L., Horn, L., and McCiw1e, M. (2000). Descriptive 70 30 Summnry of 1995-96 Beginning PostsecoruM.ry Students: 7I 31 Thm Yean Later (NCES 2000-154). NationaJ Center fol 2 32 Education Statistics, U.S. Department of Education. 73 33 Washington, DC. 74 34 35 36 37 38 39 Bradburn, E., Berger, R., Li, X., Peter, K., and Rooney, K. 75 (2003). A Descriptive Summary of1999-2000 Bachelor's 76 Degm Recipients 1 Year Later (NCES 2003-165). Nation77 al Center for Education Statistics, lnstlrute of Education 78 Sciences, U.S. Department of Education. Washington, DC. prietary SdJools: Stronger Department of Education Over- sight Needed to HeLp Ensure OnLy Eligible Students Receive FederaL Student Aid (GA0-09-600). Washington, DC: Aurbor. Wilson, R. (20 I 0). "for-Proflr Colleges Change Higher Edu- cation's Landscape. Chronicle of Higher Education Febru- ary 7, 20 I 0. Retrieved February 16, 2010 from hnp://chronjcls:.com/arrjcls:/For-Profit-Colls:gs:s- Changs:/640 12/. Wei, C. (forthcoming) Web Tabks: Student Financing of Unrkr- graduate Education {NCES 201 0-162). National Cemer for Education Statistics, U.S. Department of Education. Washington, DC. 1 www.ed.gov ies.ed.gov Figure 1. WHERE UNDERGRADUATES ARE ENROLLED: Percentage distribution of undergraduates, by type of institution: 2007-08 Private nonprofit 4-year Community colleges 44% 54% 1 Other includes public less-than-2-year and private nonprofit less- than-4-year institutions. 2 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/dasl librarv/ reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 2. FOR-PROFIT INSTITUTIONS ARE AT ALL LEVELS: Percentage distribution of undergraduates who attended for-profit institutions, by level of institution: 2007-08 4-year NOTE: Estimates include students enrolled in Title IV eligible post secondary institutions in the 50 states. DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:lfnces.ed.gov/das/library/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 3. GENDER, FAMILY STATUS, AND RACE/ETHNCITY: Percentage of undergraduates with selected student characteristics, by type of institution: 2007-{)8 Percent 100 80 60 40 20 For-profit' Community colleges Public and private nonprofit 4-year 0 0 69 57 Female 20 Percentage of undergraduates by selected characteristics 55 For-profit' 49 Percentage of undergraduates with children or dependents Community colleges 16 7 Percentage of undergraduates who were single with dependents C Public and private nonprofit 4-year Percentage distribution of undergraduates by race/ethnicity 40 60 80 Percent White OBiack CHispanic Asian Other or two or more races 1 Includes 4-, 2-, and less-than-2-year institutions. 100 NOTE: Black includes African American, Hispanic includes Latino, and Asian includes Pacific Islander. Other includes American Indian and Alaska Native, and respondents having origins in a race/ethnicity not listed. Estimates include students enrolled in Tille IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:/fnces.ed.gov/das!library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-Q8 National Postsecondary Student Aid Study (NPSAS:08). Figure 4. Percent 100 l 80 J 60 I 40 I 1 20 I 1 0 LOW-INCOME STATUS: Percentage of undergraduates who were independent and percentage in the low-income groups among dependent and independent students, by type of institution: 2007-08 76 Independent undergraduates For-profit' 51 Low-income dependent undergraduates' Community colleges 32 28 Low-income independent undergraduates 2 oPublic and private nonprofit 4-year 1 Low-income dependent undergraduates had family incomes of approximately $36.000 or less in 2006 (the year used for 2007-08 financial aid calculations), which was at or below the 25th percentile of the income distribution for all dependent undergraduates. 2 Low-income independent undergraduates had personal (including spouse's income) incomes of approximately $11,000 or less in 2006 (the year used for 2007-08 financial aid calculations), which was at or below the 25th percentile of the income distribution for all independent undergraduates. 3 Includes 4-, 2-. and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http:/fnces.ed.gov/das/librarv/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 5. AGE DISTRIBUTION: Average age and percentage distribution of undergraduates by age and type of institution: 2007-08 Percent 100 .. 80 G 60 40 36 20 0 All For- undergraduates profit' Average age 26 28 1 Includes 4-, 2 , and less-than-2-year institutions. 30 Community colleges 28 40 or older 45 0 24-29 Public and private nonprofit 4-year 24 20-23 19 or younger NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http:/lnces.ed.qov/ dasllibrarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study ( NPSAS:08). Figure 6. STUDENTS' ACADEMIC BACKGROUND AND WHETHER FIRST IN FAMILY TO ATTEND COLLEGE: Percentage of undergraduates who did not graduate from high school with a regular high school diploma, who reported having a high school GPA of 8 or better, who reported taking 4 or more years of mathematics in high school, and who were the first in their family to attend college, by type of institution: 2007-08 Percent 100 80 60 40 20 0 Students without a regular high school diploma' For-profit' 81 61 54 Students with an average high school GPA equivalent to grade B or better Community colleges 76 48 54 Took 4 years or more of mathematics in high school 2 51 First in family to attend college (neither parent attended postsecondary education) 0 Public and private nonprofit 4-year 1 Undergraduates who did not have a regular high school diploma may have attended a foreign high school, been home schooled, or may have earned a high school completion certificate, graduation equivalency diploma, or other equivalency, or have no high school degree or certificate. 2 Data on academic preparation in high school are available only for undergraduates younger than 30, who account for 77 percent of all undergraduates. 3 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nces.ed .govfdas/libraryfreports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007--08 National Postsecondary Student Aid Study (NPSAS:08). Figure 7. FULL- AND PART-TIME ATTENDANCE: Percentage distribution of undergraduates by attendance status and by type of i nstitution attended: 2007-08 Percent 100 80 ~ a Part-time! part-year 60 12 aPart-time/ 33 full-year 14 40 Full-time/ part-year 20 11 a Full-time/ full-year 0 All undergraduates For-profit' Community Public and private colleges nonprofit 4-year 1 Includes 4-, 2-, and less-than-2-year institutions. NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08) . Figure 8. DISTANCE EDUCATION: Percentage of all undergraduates who took a distance education course in 2007-08 and percentage of all undergraduates who attended programs entirely taught through distance education, by institution type: 2007-08 Percent 100 80 60 40 20 0 L 21 24 17 Took a distance education course in 2007-08 For-profit' Community colleges 1 Includes 4-, 2-, and less-than-2-year institutions. 12 3 2 Percent of undergraduates in programs entirely taught through distance education ClPublic and private nonprofit 4-year NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/ library/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08) . Figure 9. MAJOR FIELDS OF STUDY: Percentage distribution of undergraduates by major field of study and type of institution: 2007-08 Percent 100 80 60 40 33 20 22 20 li:n 70 6 9 6 2 ..2.__o # - _ c:J Health care fields Other applied' Business STEM 2 Humanities and Education General studies social sciences and other' For-profit 4 Community colleges a Public and private nonprofit 4-year # Rounds to zero. 1 Includes personal and consumer services, manufacturing, construction. repair, and transportation, military technology and protective services, architecture, communications, public administration and human services, design and applied arts, law and legal studies, and theology and religious vocations. 2 Science, technology, engineering and math. 3 other includes basic skills, citizenship activities, leisure and recreational activities, personal awareness and self improvement, high school/ secondary diplomas and certificate programs, interpersonal and social skills. 4 Includes 4-. 2-, and less-than-2-year institutions. NOTE: Excludes undergraduates who were not in a degree program or who had not declared a major field of study. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 10. MOST COMMON HEALTH CARE FIELDS: Percentage distribution of health majors at community colleges and for-profit subbaccalaureate institutions by type of institution: 2007-08 Percent 100 80 60 40 20 ! 0 ' 57 40 11 10 10 10 14 5 26 m:;., 22 __ _ Nursing Health professions and related clinical sciences :.J For-profit less-than-2-year Health and medical administrative services li!l For-profit 2-year Allied health and medical assisting services Other health care fields' Community colleges 1 Other health care fields include allied health diagnostic, intervention, and treatment fields, pharmacy and pharmaceutical sciences, and health aides, among others. NOTE: Health care fields accounted for 43 percent of majors at for-profit less-than-2-year institutions, 46 percent at for-profit 2-year institutions, and 20 percent of majors at community colleges. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nces.ed.gov/das/librarv/reports.asp . SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007--Q8 National Postsecondary Student Aid Study (NPSAS:08). Figure 11. MAIN REASON FOR ENROLLI NG: Percentage distribution of undergraduates who attended community colleges and 2-year or less-than-2-year for-profit institutions, by their main reason for enrolling and type of institution: 2007-08 Percent 100 80 60 40 20 0 82 51 Acquire job-related skills or credentials t Not applicable. 12 12 t Complete associate's degree n For-profit less-than-2-year 1 From the institution in which they were primarily enrolled. 13 Solely for personal interest o For-profit 2-year 25 Prepare to transfer Community colleges 5 Earn course credits at a different institution' NOTE: Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.govfdasllibrary/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-QS National Postsecondary Student Aid Study (NPSAS:08). Figure 12. COMBINING WORK AND STUDY: Percent age of all undergraduates who worked and worked full time whil e enrolled and f or those who worked, reported their main role as being a student, by type of institution: 2007-08 Percent 100 80 60 40 20 0 81 73 69 Among all undergraduates, worked while enrolled For-profit 39 41 Among all undergraduates, worked full time while enrolled 79 58 60 Of those who worked, primary role as a student' Community colleges o Public and private nonprofit 4-year 1 Undergraduates who worked while enrolled were asked whether they regarded their primary role as a student or as an employee. 2 1ncludes 4-. 2-. and less-than-2-year institutions. NOTE: Excludes work-study and assistantships. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are avai.lable at http://nces.ed.gov/ das/librarv/reports.asp . SOURCE: U.S. Department of Education. National Center for Education Statistics, 2007--QS National Postsecondary Student Aid Study (NPSAS:08) . Table 1. DEGREE OR CERTIFICATE PROGRAM: Percentage distribution of undergraduates attending community colleges, for-profit, and traditional 4-year institutions by program type: 2007-08 Associate' s Bachelor's No degree or Program type Certificate degree degree certificate program Public and private nonprofit 4-year 0.6 4.2 93.1 Community college 6.9 78.9 3.0 1 For-profit 34.4 38.2 25.8 Less-than-2-year 98.4 t t 2-year 35.7 61.8 0.5 4-year 5.6 42.6 50.4 t Not applicable. 1 Students who attended a community college and reported that they were working on a bachelor's degree may have attended a community college that offers bachelor's degrees or planned to transfer to a 4-year institution. 2.1 11.2 1.6 L6 L9 1.4 NOTE: Detail may not sum to totals because of rounding. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http:/lnces.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). Table 2. UNDERGRADUATE AWARDS CONFERRED in Title IV institutions, by type of institution: 2007 Institution type Total Type of institution Total awards 100.0 Traditional 4-year colleges and universities 53.6 Public 4-year or above 35.6 Private nonprofit 4-year and above 18.0 Public 2-year (community colleges) 28.2 Public less-than-2cyear 1 .0 Private nonprofit 2-year 0.5 Private nonprofit less-than-2-year 0.3 Private for-profit 16.4 4-year or above 4.8 2-year 5.5 Less-than-2-year 6.1 t Not applicable. NOTE: Detail may not sum to totals because of rounding. Percentage distribution of undergraduate awards conferred in 2007 Associate's Ceritifcates degree 100.0 100.0 5.1 14.2 2.9 9.2 2.2 5.0 46.2 69.1 4.3 t 1.1 0.8 1.3 t 41 .9 15.8 2.1 7.8 14.6 8.0 25.2 t Bachelor's degree 100.0 95.4 63.7 31 .7 t t t t 4.6 4.6 t t SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (I PEDS), "Completions Survey" and "Institutional Characteristics Survey," 2007. Table A. Number of for-profit Title IV institutions, by level: United States, academic year 2004-05 to 2008-09. -08 Total institutions, all controls 6383 6,441 6,536 6,551 Total for-profit institutions
1!l.6% o.4% SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (!PEDS), Fall 2004to Fall 2008, Institutional Characteristics Component Table B. Fall Enrollment by institution control : United States, Fall
Private For Profit Private Nonprofit Public Total SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System, Institutional Characteristics and Fall Enrollment Surveys: 2004 2008. 2008 6n,851 1,188,881 1,380,355 1, 797,563 3,137, 108 3,299,094 3,440,559 3,543,455 3,684,n3 11,891,450 12,883,071 13,081,358 15,701,409 17,710,798 19,574,395 Percent Change
7.1% 7.7% 10. 5% Table C. Percent of Fall Enrollment by institution control: United States, Fall 2004
Private For Profit Private Nonprofit Public SOURCE: Integrated Postsecondary Education Data System, Institutional Characteristics and FaiJ 8nrollment Surveys: 2004 2008.
4.8%
75.7%
5.0% 19.4% 75.6%
6.7% 19.4% 73.9% Percent Change 7.6% 87% 19.5% 18.8% 8% 73.0% n.o% 3% Table D. Number and percentage distribution of awards conferred at for-profit Title IV institutions, by level: United States, academic year 2003-04 to 2007-08. 2003-04 2004-05 2005-06 2006-07 2007-08 Change Total All institutions2 2,998,114 3,085,464 3,165,016 3,232,300 3,314,978 10.6% For-profit institutions Number of awards2 356,128 382,146 405,542 425,377 444,307 24.8% Percent of all awards2 11.9% 12.4% 12.8% 13.2% 13.4% 12.8% 4-year institutions} All institutions2 2,213,225 2,293,350 2,371,219 2,443,619 2,521,319 13.9% For-profit institutions Number of awards2 111,586 134,081 161, 160 182,445 202,410 81.4% Percent of all awards2 5.0% 5.8% 6.8% 7.5% 8.0% 59.2% 2-year institutionsl All institutions2 542,177 557,172 564,964 563,875 571,964 5.5% For-profit institutions Number of awards2 55,080 55,259 57,461 59,381 58,415 6.1% Percent of all awards2 10.2% 9.9% 10.2% 10.5% 10.2% 0.5% Less-than 2-year institutions3 All institutions4 242,712 234,942 228,833 224,806 221,695 -8.7% For-profit institutions Number of awards4 189,462 192,806 186,921 183,551 183,482 -3.2% Percent of all awards4 7R1% 82.1% 81.7% 81.6% 82.8% 6.0% 1 Includes degree-granting institutions only 2 Excluding certificates 3 Includes all institutions, both degree and non-degree granting 4 Includes all awards, including both degrees and certificates SOURCE: U.S. Department of Education, National Center for Education Statistics, Integrated Postsecondary Education Data System (!PEDS), Fall 2003 to Fall 2008, Completions component. 1 The Expansion of Private Loans in 2 Postsecondary Education 3 Government officials and higher education associations are con- 4 cerned that, out of confusion or ignorance, some postsecondaty 5 students may not cake full advantage of federal loan programs and 6 turn instead to more costly private loans (e.g., Federal Trade 7 Commission 2008; King 2007). Others argue that federal loan lim- 8 its don't meet some students' education financing needs and that 9 such students, therefore, seek additional funds through private 10 loans (McSwain, Price, and Cunningham 2006). Most students borrow money for postsecondary education through federal loan programs, which have eligibility requirements and bor- rowing limits. Students can also obtain private loans from banks and other lending institutions. Private (or "alternative") loans are not guaranteed by the government and can be relatively expensive, as they generally have higher fees and interest rates than federal student loans. Private education loans are estimated to have reached a peak of about $22 billion in 2007- 08 (College Board 2009). That same year, many lenders increased their direct marketing to students, highlighting a quick and easy application and approval process for private loans; some of these lenders were accused of deceptive mar- keting practices (U.S. Senate Committee 2007). According to the U.S. Department of Education (2008), "[p]rivate loans and credit cards are consumer loans and are vety expensive ways of financing your education." Since 2007-08, however, the volume of private loans for postse- condaty education is thought to have declined substantially due to a shortage of capital and higher underwriting standards by lenders (Student Lending Analytics 2009a, 2009b). Recent data released by I 2 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 the College Board (2009) are consistent with this expla- 2 nation. 3 This Statistics in Brief examines how the use of private 4 education loans changed between 2003-04 and 2007- 5 08 by addressing the following study questions: 6 1. How did undergraduate borrowing from private 7 sources change between 2003-04 and 2007-08? 8 2. Who obtained private loans? 9 3. To what extent did undergraduates combine 10 private and public loans? 11 4. Did undergraduates borrow the maximum 12 amount from federal Stafford loans before turn- 13 ing to private loans? 14 5. How did private borrowing change among 15 graduate and professional students? 16 Key Findings 17 The percentage of undergraduates obtaining private 18 loans nearly tripled, from 5 to 14 percent. 19 Undergraduates at for-profit institutions had the 20 21 22 23 24 25 highest rate of borrowing from private sources-42 percent took out private loans in 2007- 08. Dependent undergraduates from middle-income families borrowed from private sources at higher rates than did students from low- or high-income families. 26 About one-half of full-time, full-year undergraduates 27 who obtained a private loan had borrowed the max- 28 imum federal (Stafford) loan amount. 29 30 MAJOR TYPES OF HIGHER EDUCATION LOANS Private loans. Private loans are education loans, not guaranteed by the federal government, from commercial lenders, credit unions, or other non- profit entities. Their terms are determined by the lender. Private loans carry a market interest rate, usually variable and based on credit history, and they generally have higher fees and interest rates than federal student loans.(See question on p. 8) Stafford loans. These student loans have fixed interest rates and various repayment benefits and are guaranteed by the federal government. They have eligibility requirements and limits on amounts. There are two types of federal Stafford Loans: sub- sidized and unsubsidized. Subsidized Stafford loans are awarded based on financial need, and the federal government pays interest on the loan until the student begins repayment and during au- thorized periods of deferment thereafter. Unsubsi- dized Stafford loans are not need based; students are charged interest for the duration of the loan, although it can be capitalized. Parent PLUS loans. These federally guaranteed loans are available only to the parents of depen- dent students. The interest rate in 2007- 08 was fixed at ei ther 7.9 or 8.5 percent. Borrowers cannot have a negative credit history, and the amount is limited to the cost of attendance minus other finan- cial aid. The loans carry the benefits and protec- tions of all federal loans. Graduate PLUS loans. These are federally guar- anteed loans for graduate and professional stu- dents that became available in 2006. The terms are the same as for Parent PLUS loans, with the same interest rates, restrictions, and benefits. THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 3 1 Detailed Findings 28 tutions was $5,500 in 2007-08; at private nonprofit 4- 2 How did undergraduate borrowing from private 29 year institutions, it was $17,800; and at for-profit insti- 3 sources change between 2003-Q4 and 2007-QS? 30 tutions, it was $10,200. Further, the for-profit sector is 3 1 more likely to enroll low-income students. The median 4 T he rate of undergraduate private loan borrowing in- 32 income for dependent students' parents at public 4-year 5 creased from 5 to 14 percent between 2003-04 and 33 institutions was $75,700 in 2007-08. 4 At for-profit in- 6 2007- 08 (figure 1). 1 But the amount borrowed held 34 stitutions, the corresponding median income was 7 steady after adj usting for inflation: the average private 35 $35,700. 8 loan in 2003-04 was $6,600 and $6,500 in 2007-08. 2 36 I n general, the higher the tuition, the higher the rate of 9 Stafford loan borrowing among undergraduates also in- 37 private borrowing. For example, the highest rates of bor- 1 0 creased from 32 percent to 35 percent, and the average 38 rowing (30- 32 percent) occurred among students whose 11 Stafford loan amount rose from $4,900 to $5,000. 39 tuition was more than $10,000 per year (figure 3) . In 12 The rate of any borrowing rose from 34 percent in 13 2003- 04 to 39 percent in 2007- 08. 3 T he average loan 14 amount from all sources, including Parent PLUS loans, 15 increased from $6,900 to $8, 100. 40 comparison, 22 percent of students paying $5,000 to 41 $9,999 in tuition took out private loans, as did 14 per- 42 cent of those paying $3,000 to $4,999 and 9 percent or 43 less of those paying under $3,000 in tuition. 16 Who obtained private loans? 44 Dependent undergraduates from middle-income fami li es 45 attending full-time full-year borrowed from private 17 In 2007-08, private loan borrowing varied by type of 46 sources at higher rates than students from low- or high- 18 . . . . . I 1 d d d d 4 7 tnstttuuon, tuttton eve , stu ent epen ency status, an 19 family income. T he rate of private borrowing was high- 4 8 20 est at for-profit institutions, where the rate about
2 1 from 13 percent to 42 percent, from 2003-04 to 2007- 50 22 08 (figure 2). Private borrowing at private nonprofit 4- 51 23 year institutions was also high and about doubled, from 52 24 11 percent to 25 percent. 53 income famil ies. One-fifth of studenrs in the two mid- dle-income groups took out private loans, compared with 15-16 percent of students in the low- and high- income groups (figure 4). Looking at aU borrowing, in- cluding Parent PLUS loans, dependent students from high-income fan1Uies borrowed at the lowest rate (40 percent). 54 Among independent students, upper middle- and high- 25 T he higher rate of borrowing among students at private 55 income students took out private loans relatively more 26 institutions reflects to some extent the higher tuition at 56 often than low-income students. One-fifth of low- 27 these institutions. Average tuition at public 4-year insti- 57 income independent undergraduates took out private 58 loans, compared with 27- 28 percent of those in the up- 1 All comparisons of estimates were rested for statistical signi- 5 9 per middle- and high-income groups. ftcance usi ng the Student's t-statistic, and all differences cited are statistically significant at the p < .05 level. No adj ustments for multiple comparisons were made. The standard errors for the estimates can be found at http://nces.ed.gov/das/li brary/reporrs.asp. 2 All dollar amounts for 2003-04 have been adj usted for infla- tion to 2007 doll ars using the Consumer Price Index. 3 Includes Parent PLUS loans as well as Stafford, Perkins, and private loans. 4 Independent students are age 24 or older and students under 24 who are married, have dependents, are veterans, or are an orphan or ward of the courts. Other undergraduates under age 24 are considered to be dependent. Income for dependent students is the income of their parents. For independent stu- dents, income includes a spouse' s income if the st udent is mar- ried. I 4 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 To what extent did undergraduates combine pri- 2 vate and public loans? 37 Did undergraduates borrow the maximum amount 38 from federal Stafford loans before turning to pri- 39 vate loans? 3 Most undergraduates who borrowed did so through a 4 federally guaranteed loan program. Some 63 percent of 40 5 undergraduates who borrowed obtained loans from pubA 1 6 lie, 5 mostly federal, sources exclusively, and another 27 42 7 percent borrowed from both public and private sources 43 8 (figme 5) . The remaining 9 percent borrowed only from44 9 private sources. Students borrowed from public and pri- 45 10 vate sources at different rates, however, depending on 46 In 2007- 08, one-half of full-time, full-year undergra- duates exhausted their annual Stafford loan eligibility before taking out private loans (figure 6). Independent private loan borrowers exhausted Stafford el igibility at a lower rate than did dependent borrowers. Policymakers are concerned that some students seek pri- vate loans because they are unaware of the advantages of 11 the types of institutions attended. 47 federal loan programs. They are also concerned that 48 some students may not borrow the maximum Stafford 12 Undergraduates in public 2-year institutions took out 49 loan amount before turning to private loans (U.S. De- 13 exclusively private loans at higher rates than those in oth- 50 partment of Education 2008). Applying for federal aid is 14 er types of institutions. At community colleges, 21 per- 51 necessaty to obtain federal loans. Consequently, it is use- 15 cent of borrowers took out only private loans, compared 52 ful to examine whether students did apply for federal aid 16 with 9 percent among students in all institutions. This 53 when comparing public and private borrowing. 6 17 higher rate of private borrowing, however, occurred with- 18 in the context of lower rates of borrowing overall. In 54 Among full-time, full-year undergraduates who took out 19 2007-08, some 13 percent of all community college stu-55 private loans, some 19 percent did not obtain a Stafford 20 dents borrowed from any SOLtrce, representing the lowest56 loan, and about half these students (10 percent of all 21 rate among students in all types of institutions (Wei et al57 private borrowers) did not apply for financial aid. 7 22 2009a, table 13). Some policy analysts believe that many53 Another 31 percent took out Stafford loans, but appear 23 community colleges do not encourage borrowing federal 59 to have borrowed less than the ma:ximwn amount. s The 24 loans (Cochrane, Shireman, and Sivashankaran 2008). 60 remaining 50 percent had taken out the maximum 25 The largest proportion of borrowers who took out pri- 26 vate loans either exclusively or in combination with pub- 27 lie loans (42 percent) was found among those enrolled at 28 for-profit institutions (figure 2), and those enrolled at 29 institutions with programs of 2 or more years had the 30 highest percentage who took out both private and public 31 loans (figure 5). Among those enrolled at for-profit insti- 32 tutions with programs taking 2 or more years to com- 33 plete, 45 percent of undergraduate borrowers took out 34 both private and public loans, while the overall percen- 35 cage of undergraduates who cook out both types of loans 36 at all institutions was 27 percent. 5 "Public loans" includes Stafford loans, other federal loans (e.g., Perkins and PLUS), state, and institutional loans. 6 Foreign students and those attending part time or part yea.r were excluded from this part of the analysis because they either are ineligible for federal loans or qualifY for very little. Other reasons that students cannot borrow from federal loan pro- grams couJd not be identifled from the NPSAS data. 7 Some may have taken out other loans, such as Perkins, state, or institutional loans, but those are comparatively rare. 8 The maximum Stafford amomu is limited for those attend- ing part time or for less than a fttll year, so this analysis of maximizing Stafford loans was limited to fuJI-time, full-year students. There are other restrictions on Stafford borrowing based on program or budget that were not taken into account. Because of these restrictions, some borrowers who appear to be borrowing below the maximum amount are in fact borrowing at their maximum. Therefore, our estimates of the percentage of borrowers who are borrowing at less than the maximum couJd be overstated. THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 5 I 1 amount allowed under the Stafford loan program. These24 points, 9 compared with an increase of9 percentage 2 students sought more money than was available from 25 points among undergraduates (figure 1 ). 3 federal programs to pay for their education expenses. 26 Graduate students differed significantly in borrowing 4 Undergraduate students have different annual Stafford 27 rates depending on the degree program in which they 5 loan limits based upon both. dependency status and class28 were enrolled (figure 7). Master's degree students' rate of 6 level. For example, for first-year undergraduates, the lim-29 total borrowing increased from 38 percent to 44 percent 7 its were $3,500 for dependent students and $7,500 for 30 over this period. The rate of private borrowing among 8 independent students. In 2007- 08, about one-third (35 31 master's degree students doubled between 2003- 04 and 9 percent) offull-time, full-year independent undergra- 32 2007-08 (from 6 percent to 12 percent), while their rate 10 duates who took out private loans also borrowed the 33 of Stafford borrowing increased from 36 percent to 39 11 maximum Stafford loan amount, compared with. 56 per-34 percent. 12 cent of dependent undergraduates who took out the 13 maximum Stafford loan amount (figure 6) . 35 Among doctoral students, changes in private, Stafford, 14 Annual Undergraduate Stafford Loan Limits (for loans taken out between July 1, 2007 and June 30, 2008) 36 or total borrowing were not evident. Between 5 and 7 7 percent took out private loans in both 2003- 04 and 8 2007-08. 9 Students in first-professional programs had the highest f0 rate of private borrowing, but the proportion with pri- Dependent Independent Academic year student student i 1 vate loans declined over time, while borrowing from fed- ------''----------------- i2 eral sources increased. 10 In both years, students in frrst- First year $3,500 $7,500 . Second year 4,500 8,500 !3 professional programs borrowed from all sources at high- Third and remaining years 5,500 10,500 i4 er rates than students in other degree progran1s. In NOTE: Aside from dependency status and year in school, the i5 2003-04, about one-fourth (23 percent) of students in amount a student can borrow under the Stafford loan program can be further reduced depending on the cost of attendance, the student's expected family contribution, attendance status, whether the program is less than a year long, and how much other financial aid is received. SOURCE: U.S. Department of Education. (2007). 2007-oB Federal Student Aid Handbook. Retrieved April 23, 2010, from http://ifap.ed.gov/ifaplbyAwardYear.jsp?tyoe-fsahandbook&awa i6 first-professional programs took out private loans, com- i7 pared with 5 to 6 percent of master's and doctoral stu- iS dents. By 2007-08, however, the rate of private i9 borrowing among first-professional students had ;o dropped to 16 percent, while their rate of Stafford bor- _::rd;:v::ea;:r;:=2::00=: 7 - ::2:;00:;8::,. _______________ , ; 1 rowing increased from 69 to 76 percent and one-fourth 15 How did private borrowing change among gradu- 52 (25 percent) took out Graduate PLUS loans. 16 ate and first-professional students? 53 54 17 ln 2006, graduate students became eligible for the feder- 55 18 al Graduate PLUS loan program. This gave graduate 56 19 students another source ofloans from a government- 20 guaranteed progran1 with competitive, ftxed-interest 21 22 23 rates, eliminating some of the need for private loans. Between 2003- 04 and 2007- 08, the rate at which grad- uate students took out private loans rose 4 percentage Between 2003- 04 and 2007- 08, after adjusting for in- flation, overall average loan amounts for all graduate and first-professional students increased from $17,700 to $18,500, largely due to the newly established Graduate 9 NPSA$:04 and NPSA$:08 Data Analysis System; data not shown in figures or tables. 1 First professional programs include dentistry, medicine, optometry, osteopathic medicine, pharmacy, podiatric medi- cine, veterinaty medicine, chiropractic, law, and theology. I 6 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 PLUS loans. The average private loan amount for gradu-37 2 ate students decreased from $ l 0.500 to $8,400, and the 38 3 average Stafford loan amount decreased from $16, 100 to 39 Technical Notes Dara in this report come from the National Postsecon- dary Student Aid Study (NPSAS) administered for the 4 $15,600. 40 years 2003-04 and 2007-08. Conducted every 4 years, 5 Find Out More 4 1 NPSAS is based on a nationally representative sample of 42 al l students enroll ed in Title N -eligible institutions in 6 More detailed information on 2007-08 undergraduates 43 the United States between J uly 1 and J une 30 of a given 7 and graduate students enrolled in U.S. postsecondaty 44 academic year. The sampling design for coll ecting data 8 institutions can be found in Web Tables produced by 45 consists of two stages. The first stage involved selecting 9 the National Center for Education Statistics (NC.ES) 46 eligible institutions from which students would then be 10 using the 2007- 08 National Postsecondaty Student Aid 47 sampled in the second stage. In 2007- 08, approximately 11 Study (NPSAS:08) data. These Web Tables are a com- 48 114,000 undergraduate students were study respondents. 12 prehensive source of information on students during the49 Estimates were weighted to adjust for the unequal prob- 13 2007- 08 academic year. Included are estimates of de- 50 abili ty of selection into the sample and for nonresponse. 14 mographi cs, enroll ment, and employment characteris- 15 tics. Web Tables docw 11 enting how students pay for 51 NCES Statistical Standard 4-4-1 states that "[a]ny survey 16 their undergraduate education are also available. 52 stage of data collection wim a unit or item response rate 53 less than 85 percent must be evaluated for the potential 17 Web Tables-Profile of Undergraduate Students in US. Postse- 54 magnitude of nonresponse bias before the data or any 18 condary !mtitutiom: 2007-08 (NCES 20 I 0-205). [link 55 analysis using me data may be released" (U.S. Depart- 19 will be added) 56 ment of Education 2003). The only variable included in 20 Web Tables-Student Financing of Undergraduate Education: 57 this Bri ef that has a response rate of less than 85 percent 2 1 2007-08 (NCES 2010-162) . [link will be added) 58 is TOTLOAN. 22 Web Tables-Profile of Students in Graduate andFirst- 23 Professional Education: 2007-08 (NCES 20 10-177). [link59 For an overview of the survey memodology and a discus- 24 wil l be added] 60 sion of nonresponse bias, see appendix B of the report 6 1 2007- 08 National Postsecondary Student Aid Study 25 Readers may also be interested in the following NCES 26 products related to me topic of mis Statistics in Brief 62 63 27 2007-08 National Postsecondary Student Aid Study 28 (NPSAS:08): Student Finandal Aid Estimates: First Look 64 29 (NCES 2009-166). 30 hrrp:l/nces.ed .gov/pubs2009/2009l66.pdf 3 1 Undergraduate Financial Aid Estimates by Type of Imtitution in 32 2007-08 (NCES 2009-201). 33 34 35 36 h ttp:l/nces.ed.g,ov/pubs2009/2009201.pdf Federal Loam in 2007-08: Undergraduate Cumulative Debt and Students Who Bonow at the Maximum (NCES 2010- 151). [link to be added) (NPSAS:OB): Student Financial Aid Estimates for 2007-08: First Look (http:/ / nces.ed. gov/pubs2009/2009166.pdt). THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 References 39 40 41 2 The College Board. (2009). Trends in Student Aid. Table l. 3 4 5 Retrieved October 28, 2009, from http://www.rrends-collegeboard.com/student aid/pdf/ 2009 Trends Smdent Ald.pdf. 42 43 44 6 Cochrane, D. F., Shireman, R., and Sivashankaran, S. (2008, 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2 1 22 April). Denied: Community College Students Lack Access to 45 A/fordable Loam. The Project on Smdent Debt. Retrieved46 September 9, 2009, from 47 48 http://ticas.org/ flies/pub/ denied .pdf. Federal Trade Commission. (2008, June). Student Loam: 49 50 Avoiding Deceptive Offers. FTC Facts for Consumers. 51 Federal Trade Commission and U.S. Department of Edu- cation. Retrieved September 9, 2009, from h rrp://sruden taid.ed.gov/smden ts/auach menrs/ siteresources/loa nsA voidDecep. pdf. King, J.. (2007). Who Borrows Private Loam? ACE Issue 52 53 54 55 56 Brief. Washington, DC: American Council on Education. Retrieved October 28, 2008, fiom 57 http://www.acenet.edu/AJ\If/Template.cfm?Section-Searc58 h&seqion-issue briefs&templare-/CM/ContenrDisplay.59 cfm&ConrenrFileiD- 3445. 60 6 1 23 McSwain, C., Price, D., and Cwutingham, A. (2006). The 62 24 Future of Private Loam: Who Is Bonowing, and Why? 25 Washington, DC: lnstitute for Higher Education Policy. 63 64 26 Student Lending Analytics. (2009a, July 23). The Incredible 65 27 Shrinking Private Student Loan Mmket: Outlook for 2009"'66 28 10. Slog. Retrieved September 9, 2009, from 67 29 h up://studen tlendi nganalytic.qypepad.com/studen t lend68 30 ing analytics/2009/07/the-i ncredible-shrinking-private- 69 31 loan-market.html. 70 32 Student Lending Analytics. (2009b, August 17). Bank Lending 33 Standards May Remain Tight Through Second Half of 34 2010. Blog. Retrieved September 9, 2009, from 3 5 http://srudenrlendinganalytics. typepad.corn/smdent lend 36 ing analytics/2009/08/bank-lending-standards-may- 37 remain-tight-through-second-half-of-20 l O.htrnl. 38 U.S. Department of Education, Federal Student Aid, St udents Charmel. (2008). Your Federal Student Loans: Learn the Basics and Manage Your Debt. Washington, DC: Author. U.S. Department of Education, National Center for Educa- tion Statistics. (2003). NCES StatisticaL Standards (NCES 2003-601). Washington, DC. U.S. Senate Committee on Banking, Housing and Urban Af- fairs. (2007, J tme 6). Hearing on "Paying for College: The Role of Private Student Lending." Washi ngton, DC. Retrieved November l, 2009, from h rtp://banki ng.senate.gov/ pub! ic/i ndex .cfm?Fuseaction- Hearings.Hearing&Hearing ID-8c46al82-alff-4bc5- af53-e0982b49527f. Wei, C. C. (forthcoming). What is the Real Price of College? Sticker, Net, and Out-of-Pocket Prices in 2007-08 (NCES 2010-175). National Center for Education Statis- tics, Institute of Education Sciences, U.S. Department of Education. Washington, DC. Wei, C.C., Berkner, L. , He, S., ar1d Lew, S. (2009a). Web- Tables: Undergraduate Financial Aid Estimates by Type of Institution in 2007-08 (NCES 2009-201). National Cen- ter for Education Statistics, Institute of Education Sciences, U.S. Deparunenr of Education. Washington, DC. Wei, C. C., Berkner, L., He, S., Lew. S., Cominole, M., and Siegel, P. (2009b). 2007-08 NationaL Postsecondmy Stu- dent Aid Study (NPSAS:08): Student Financial Aid Esti- mates for 2007-08 (flrst Look) (NCES 2009-166). National Center for Education Statistics, Institute of Education Sciences, U.S. Department of education. Washington, DC. I 8 I THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION 1 Run Your Own Analysis in Datalab 38 "During the 2007-2008 school year, did you take out 39 2 Direct access to the data used in this Statistics in Brief is 40 3 available through the NCES DataLab any private or alternative loans from a financial institu- tion? Some examples of commonly used private loans include: 41 4 (http://nces.ed.gov/datalab/). You can generate your own 5 tables using one of three programs: PowerS tats, Quick- 42 Sallie Mae Signature Student Loan 6 Stats, or the Data Analysis System (DAS). 43 CitiAssist Undergraduate and Graduate Loan 7 All estimates presented in this Brief were produced using44 Chase Education One Private Student Loan 8 the DAS, a web-based software application that enables 45 Nellie Mae EXCEL Loan 9 users to generate tables for most of the postsecondary 46 Access Group Loans 10 surveys conducted by NCES. These figures were gener- 11 ated using the DAS, which contains a detailed descrip- 47 (Keep in mind that many lenders that offer private loans 12 tion of how each variable was created and includes the 48 might also offer federal Stafford, Graduate/Professional 13 wording of questions for variables coming directly from 49 PLUS loans, and Parent PLUS loans. For this question 14 the interview. 50 we want to know about private or alternative loans on- 51 ly.)" 15 You can replicate or expand upon the figures and tables 16 presented in this report by using DataLab. All variables 52 Package of private and nonprivate loans (PRJVPACK): 17 used to generate the figures and ta.bles in this Brief can 18 be found in the NPSAS:04 and NPSAS:08 DAS. More 19 information and descriptions of each variable can be 20 found at http://nces.ed.gov/DAS. 21 The variables used in this report are as follows: 53 Indicates the loan package by whether the loan received 54 was private (alternative) or not during the 2007- 08 aca- 55 demic year. For students with any loan (TOTLOAN2 > 56 0), indicates whether a borrower had only private oral- 57 ternative loans (PRIVLOAN), only nonprivate loans 58 consisting of federal loans (TFEDLN2, including 59 PLUS), state loans (STLNAMT), or institutional loans 60 (INLNAMT), or both private and nonprivate. 22 Private (alternative) loans (PRJVLOAN): Indicates the 23 amount of private or alternative loans received by stu- 24 dents for the 2003- 04 and 2007- 08 academic years. 61 Stafford total maximum (STAFCT3): Classifies the total 25 These are education loans from commercial lenders that 62 Stafford Joan amount received in 2007-08 26 are not guaJanteed by the federal government and that 63 (STAFFAMT) into categories based on the maximum 27 cany market interest rates based on credit scores. Exam- 64 Joan limits for subsidized and unsubsidized Stafford 28 pies of such loans are the Sallie Mae Signature Student 65 29 30 loans combined and includes a category for those who didn't apply for federal aid. The normal maximum loan an1ounts in 2007-08 for undergraduates were deter- Loan, CitiAssist Loan, or Chase Education One Private 66 Student Loan. Private loans differ from Stafford, Parent 67 31 PLUS, Perkins, and Graduate PLUS loans, which are 32 33 68 mined by the student's undergraduate class level and guaranteed by the federal government; private loans, 69 dependency status. This variable does not take into ac- however, can be offered by the same lenders or by states 70 count further borrowing limits that might be imposed, 34 or other nonprofit institutions. Institutions do notal- 71 e.g., Stafford loan amounts cannot exceed a borrower's 35 ways have information on students' private or price of attendance, and subsidized Stafford loans cannot 36 loans, so this information came primarily from student 73 exceed a borrower's need amount. 37 interviews, in which students were asked the following: 1 Other Variables 2 Attendance pattern (A ITNST AT) 3 Citizenship status (CITIZEN2) 4 NPSAS institution control (CONTROL) 5 Dependency status (DEPEND) 6 Parents' income (DEPlNC) 7 Independent student's income (INDEPINC) 8 Applied for federal aid (FEDAPP) 9 Graduate PLUS loan total (GPLUSAMT) 10 Graduate degree program (GRADDEG) 11 Total federal Parent PLUS loans (PLUSAMT) 12 Type of institution (AID SECT) 13 Institution sector (SECI'OR4) 14 Federal subsidized loans (except PLUS) (SUBLOAN) 15 Total student loans from all sources (TOTLOAN) 16 Institution tuition and fees (TUITION2) 17 THE EXPANSION OF PRIVATE LOANS IN POSTSECONDARY EDUCATION I 9 I www.ed.gov ies.ed.gov Figure 1. Percentage of undergraduates who borrowed, by type of loan: 2003-04 and 2007-08 Percent 100 80 60 40 32 35 20 14 5 0 Private Stafford 2003-04 2007-08 34 39 All loans Average undergraduate loan amounts, by type of loan: 2003--04 and 2007-QS 2003--04 2007-QS Private loans $6,600 $6,500 Stafford loans 4,900 5,000 All loans including PLUS 6,900 8,100 NOTE: Amounts for 2003-04 have been adjusted for inflation using the Consumer Price Index for urban households (CPI U). Arrounts are averages for those who received the specified type of aid. NOTE: Private loans are education loans from commercial lenders which are not guaranteed by t he federal government and carry market interest rates. SOURCE: U.S. Department of Education, Nationa.l Center for Education Statistics, 2003-04 and 2007-08 National Postsecondary Student Aid Studies (NPSAS:04 and NPSAS:OS) . Figure 2. Percentage of undergraduates who took out private loans, by institution type: 2003-04 and 2007-08 Percent 100 80 60 40 20 0 Public 2-year 14 Public 4-year 2003-04 25 11 Private nonprofit 4-year 2007-08 42 13 For-profit Average tuition and fees paid by undergraduates, by institution type: 2007-QS (includes full-time and part-time students) Public 2-year Public 4-year Private nonprofit 4-year For-profit $1,200 5,500 17,800 10,200 Median income, by institution type: 2007-QB Dependent lndepen- students dent parents students' Public 2-year $54,200 $29,400 Public 4-year 75,700 22,000 Private nonprom 4-year 84,500 30,300 For-profit 35,700 19,500 1 Independent students are age 24 or older and 1udents under 24 who are married, have dependents, are veterans, or are an orphan or ward of the oourts. Other undergraduates under age 24 are considered to be dependent. Income for dependent students is the inoome of their parents. For independent students. income includes a spouse's income if the student is married. NOTE: Private loans are education loans from commercial lenders which are not guaranteed by t he federal government and carry market interest rates. Students who attended more than one inst itution or any type of institution not listed in the figure were not included due to the small number of cases. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2003-04 and 2007-08 National Postsecondary Student Aid St udies (NPSAS:04 and NPSAS:08). Figure 3. Percentage of undergraduates who took out private loans, by tuition amount: 2007-os $15,000 or more $10,000-$14,999 $5,000-$9,999 $3,000-$4,999 14 $1 ,500-$2,999 $1 ,499 or less 0 20 32 30 22 40 60 Percent 80 NOTE: Private loans are education loans from commercial lenders which 100 are not guaranteed by the federal government and carry market interest rates. SOURCE: U.S. Department of Education. National Center for Education Statistics, 2007- 08 National Postsecondary Student Aid St udy (NPSAS:08). Figure 4. Percentage of fulltime, full-year undergraduates who took out private loans and any loans including Parent PLUS, by dependency status and family income level: 2007-QS Percent 100 80 60 54 56 61 66 69 52 40 40 27 28 21 20 0 60 Low-income Lower middle- income Upper High-income middle- Low-income Lower middle- income Upper High-income middle- income income Dependent Independent Private loans All borrowing including PLUS NOTE: Family income categories were based upon the annual income distribution for 2006, from the lowest to the highest quartile ranges. Among dependent students, low-income was less than $36,100: lower middle-income was $36.100-$66,600: upper middle-income was $66,600-$104,600: and high-income was $104,600 or more. Among independent students, low-income was less than $11 ,000; lower middle- income was $11,000-$26,000; upper middle-income was $26,000- $48,400; and high-income was $48,400 or more. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-()8 National Postsecondary Student Aid Study (NPSAS:08). Figure 5. Percentage distribution of undergraduate borrowers, by borrowing package and institution type: 2007-QS Percent 100 ..
2 Exclusively 80 20 private 27 35 45 loans 60 Both programs 40 Exclusively 20 public loans 0 Total Public Public Private For-profit For-profit 2-year 4-year nonprofit less-than- 2 years 4-year 2-year or more NOTE: Public loans includes Stafford loans, other federal loans (e.g., Perkins and PLUS), state, and institutional loans. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. Total estimates also include those attending public less-than2-year institutions, those attending private nonprofit less-than-4-year institutions, and those attending more than one institution but t hese are not shown separately. Detail may not sum t o totals because of rounding. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-QS National Postsecondary St udent Aid Study (NPSAS:OS). Figure 6. Percentage distribution of full-time, full-year undergraduates who took out private loans, by status of Stafford borrowing, status of federal aid application, and dependency status: 2007-QB Percent 100 80 60 40 20 0 Total Dependent Independent ~ M a x i m u m Stafford DLessthan maximum Applied, no Stafford Did not apply for aid NOTE: In this analysis, full-lime undergraduates excludes foreign students and unclassified undergraduates. Private loans are education loans from commercial lenders which are not guaranteed by the federal government and carry market interest rates. Maximum Stafford is a loan in the amount of the annual limit for Stafford loans based on dependency status and class level. Some restrictions on Stafford borrowing were not taken into account when computing a student's Stafford borrowing limit. Because of these restrictions, some borrowers who appear to be borrowing below the maximum amount are in fact borrowing at their maximum. Therefore, estimates of the percentage of borrowers who are borrowing at less than the maximum may be overstated. Detail may not sum to totals because of rounding. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:08). Figure 7. Percentage of graduate students who took out private, Stafford, Graduate PLUS, and all loans, by type of degree program: 2003-04 and 2007-08 Private loans Stafford loans Graduate PLUS loans Total loans L6 ~ 1 2 I 3 38 44 p,,. .. '""' ~ 5 7 Stafford loans ~ 2 6 2 9 Graduate PLUS loans Total loans Private loans Stafford loans Graduate PLUS loans Total loans 0 20 28 32 40 Percent 69 60 Average loan amounts received by graduate students, by type of loan: 2003--{)4 and 2007-{)8 Private loans Stafford loans Graduate PLUS loans Total loans 2003-Q4 2007--{)8 $10,500 16,100 17,700 $8.400 15,600 15,500 18,500 NOTE: Amounts for 2003-04 have been adjusted for inflation using the Consumer Price Index for urban households (CPI-U). Amounts are averages for those who received the specified type of aid. 2003-04 2007-08 76 75 79 80 100 1 First-professional programs include dentistry, medicine, optometry, osteopat hic medicine, pharmacy, podiatric medicine, veterinary medicine, chiropractic, law, and theology. NOTE: Private loans are education loans f rom commercial tenders which are not guaranteed by the federal government and carry market interest rates. Graduate PLUS loans were not available in 2003-Q4. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2003-Q4 and 2007-QS National Postsecondary Student Aid Studies (NPSAS:04 and NPSA$:08). U.S. DEPARTMENT OF EDUCATION APRIL 2010 What Is the Price of College? Sticker, Net, and Out -of-Pocket Prices in 2007-08 AUTHOR Christina Chang Wei MPR Associates, Inc. PROJECT OFFICER Tracy Hunt-White National Center for Education Statistics Students and parents see college attendance as a principal avenue to middle-class life, and, given the rising price of postsecondary education, they are apprehensive about their ability t o af- f ord it. 1 In a recent survey of college freshmen, about two-thirds (66 percent) reported having concerns about being able to fi nance their education. 2 Many U. S. policymakers and researchers share their concern, and are exploring ways to make college more affordable. 3 Legislators have required colleges and universities t o pro- vide more extensive information about tuition and prices, and in the 2008 Higher Education Opportunity Act mandated a host of price-related measures, including institutional disclosure of net prices charged to students, the reporting of net price data to the U.S. Department of Edu- cation, and the creation and disclosure of "tuition watch lists." 4 This Statistics in Brief shows the amounts U.S. undergraduates pay on average for postsecondary education, wi th and wi th- out financial aid. Drawing upon data from the National Postsecondary Student Aid Study, a nationally representative survey of all postsecondary students, included in this report are the average prices for pub- lic 2-year, public 4-year, private nonprofit 4-year, and for-profit institutions. 1 A recent public opinion poll showed that increasing numbers of Americans view college as a necessity for success (lmmerwahr et al. 2009). The College Board (2009) reports that the published, or stick er, price of college has increased more rapidly than the price of other goods and services over the past three decades. See also Marchand (2010), which reported on these findings. 1 The Higher Education Research Institute at the University of Cali fornia, Los Angeles, has conducted a survey of freshmen each year since 1973 (Pryor et al. 2009). See also recent media anent ion to the issue (Lewin 2009). 3 Both governmental and nongovernmental study commissions have convened to address this. See, for example, The College Board (2008) and Harvey et al. (1998). 4 Public Law 110315, title I, Sec. 132. August 14, 2008. Higher Edu cation Opportunity Act .
1es NATIONAL CENTER FOR . . EDUCATION STATISTICS STUDY QUESTIONS What are the average prices paid by full-time undergraduate students and how do these prices vary by the type of insti- tution attended? Most of the figures in this Brief display data only for full-time undergraduates 5 who attended one institution. These students comprised about one-third (35 percent) of all undergraduates in 2007-08. 6 Of all full-time undergra- duates, 18 percent were enrolled in public 2-year institutions, 43 percent attended public 4-year institutions, 21 percent were at private nonprofit 4- year institutions, and 8 percent were enrolled in for-profit institutions (table 1). 7 Focusing on full-time students who attended only one institution allows for comparisons in tuition, price of atten- dance, and financial aid. Those attend- ing full time generally have higher overall expenses than do all students. They also generally qualify for federal aid and other assistance not available to many part-time students (table 2). 5 "full time" status is defined as having been enrolled full time in one postsecondary institution for 9 months or more during the academic year. 6 National Postsecondary Student Aid Study (NPSAS:OS) Data Analysis System. 1 The remaining students were enrolled in other types of insti tutions or in more than one institution during the academic year. What factors are re- lated to variations in average sticker and net prices among those attending these institutions? KEY FINDINGS There is a wide range of prices for postsecondary education. Students enrolled at public 2-year institutions had the lowest average sticker price ($12,600) while those at private nonprofit 4-year institutions had the highest {$35,500). 8 Those at public 4-year institutions had an average sticker price of $18,900, and those at for-profit institutions had an aver- age sticker price of $28,600. After all financial aid is received, {in- cluding grants, loans, and work- study), the average out-of-pocket net price ranged from $9,100 at public 2-year institutions to $10,300 at public 4-year institutions, $16,000 at for-profit institutions, and $16,600 at private nonprofit 4-year institutions. 3 All comparisons of estimates were tested for statistical signi ficance using the Student's t-statistic, and all differences cited are statistically significant at the p < .OS level. No adjustments for multiple comparisons were made. The standard errors for the estimates c a n ~ found at http://nces.ed.gov/dasf librarv/reoorts.asp. 2 How do the net prices paid by under- graduates vary by family income? Lower sticker prices often mean a lower need-or eligibility-for fi- nancial aid. Those attending private institutions had the highest tuition but they also received the most fi- nancial aid. Undergraduates at pri- vate nonprofit 4-year institutions received the greatest amount of in- stitutional grant aid while those at for-profit institutions had the largest proportion of borrowers. Among low-income undergra- duates enrolled full time, those at- tending for-profit institutions had the highest average net price after grants and average out-of-pocket net price. 1 What are the average prices paid by full-time undergraduate students and how do these prices vary by the type of institution attended? This Brief discusses three different measures of the price of an undergra- duate education: the sticker price, the net price after grants, and the out-of- pocket net price. The Sticker Price The sticker price is the total price of an undergraduate education including tuition 9 and all other nontuition and living expenses such as books, sup- plies, and housing. The sticker price va- ried widely by the type of institution attended in 2007-08, rangi ng from an average of $12,600 among undergra- duates enrolled full time at public 2- year institutions, to $18,900 at public 4- year institutions, $28,600 at for-prof it institutions, and $35,500 at private nonprofit 4-year institutions (figure 1 ). 9 1n this report, the term "tuition includes both tuition and fees. Sometimes institutions treat tuition and fees as a single charge, and sometimes as separate charges. Tuition is defined as the price ofinstruction and fees as the price of other services provided by the school. The tuition amounts shown here in elude those charged to outof-state and out-of-district students enrolled in public 4-year and public 1-year institutions, respec- tively. FIGURE 1. THE PRICE OF AN UNDERGRADUATE EDUCATION for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Public 2-year Public 4-year For-profit Type of institution Private nonprofit 4-year Average sticker w Average net price ~ A v e r a g e out-of- price after grants pocket net price NOTE: The "sticker price" is the total price of attendance which includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneous, or personal, expenses. The "net price is the price that must be paid after receiving grants. The "out-of-pocket net price subtracts from the sticker price all forms of financial aid, including grants, student loans, Parent PLUS loans, work-study, employer aid, job training benefits, veterans benefits, and any other finan cia I aid received. Both the net price after grants and the out-of-pocket net price are calculated for all full-time, full-year students, regardless of whether or not they received any financial ald. "Full-time, full-year' is defined as having been enrolled in one postsecondary institution for 9 months or more full time. Estimates include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at hnpl/nces.ed.gov/das/library/reports.asp. SOURCE: U5. Department of Education, National Center for Education Statistics, 1007-08 National Postsecondary Student Aid Study (NPSAS:08). 3 For some institutions (private nonprofit known in financial aid parlance as the supporting families (Wei forthcoming), 4-year institutions in particular), the "student budget." Student budgets which raises their nontuition expenses tuition is a large component of the vary according to students' attendance as compared with students who have sticker price. In 2007-08, average tui- and dependency status, family respon- no family responsibilities. tion was $2,400 at public 2-year institu- sibilities, and residence (e.g., living at tions, $7,100 at public 4-year home with parents, in an on-campus Students attending public 2-year insti- institutions, $11,900 at for-profit insti- dormitory, or in off-campus housing). tutions-mostly community colleges- tutions, and $23,400 at private non- profit 4-year institutions {figure 2). In 2007-08, students enrolled full time in for-profit institutions had the high- Nontuition expenses, which include est average nontuition expenses had the lowest nontuition expenses. A larger proportion lived at home with their parents, which reduces costs for room and board, as compared with students at for-profit institutions (many of whom are supporting themselves or their own families) and those at 4-year institutions (where a larger proportion lived on campus or in off-campus hous- ing) (Wei forthcoming). books and supplies, housing and ($16,700), when compared with those meals, transportation, and personal at other types of institutions {where {or miscellaneous) expenses, also can average nontuition expenses ranged vary by institution type. College or uni- from $10,200 to $12,1 00). Many stu- versity financial aid officers usually de- dents at for-profit institutions are fi- velop an estimate of the sticker price, nancially independent and are In-state vs. out-of-state tuition At most public 4-year institutions, tuition charges are generally higher for out-of-state students than for in-state residents, reflecting the state subsidies public institutions receive. In 2007- 08, the average in-state tuition was $6,200 and the average out-of-state tuition was $15,1 00 for full-time undergraduates enrolled in public 4-year institutions.* NPSAS:OS Data Analysis System (data not shown). FIGURE 2. TUITION AND NONTUITION EXPENSES for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Public 2-year Public 4ycar For profit Type of institution Private nonprofit 4-year tJ Average nontuition expenses Average tuition NOTE:"full-time, full year is defined as havlng been enrolled in one postsecondary institution for 9 months or more full time. "Tuition" includes all tuition and fees. Non tuition expenses" include books, supplies, housing, meals, transporta tion, and miscellaneous 01 pe1>onal expenses. Estimates include students enrolled in Title IV eligible postsecondary institu- tions in the 50 states, DC, and Puerto Rico. Standard error tables are available at htto://nces.ed.gov/das/librarv/reoorts.aso. SOURCE: U 5. Department of Education, National (enter for Education Statistics, 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). 4 The Net Price After Grants those at public 4-year institutions, Policymakers and researchers generally grant aid to full-time undergraduates subtract grants from the sticker price lowered the average sticker price of when discussing the net price of at- $18,900 to an average net price after tending a postsecondary institution. grants of $15,200. For example, Congress recently re- quired institutions to make public both For those at private institutions (both the sticker price and the average net for-profit and nonprofit), the average price of attendance, calculated as the net price after grants was about total price of attendance minus all $25,700. For those attending for-profit grants received. In this Brief, two measures of net price are discussed: the "net price after grants" and the "out-of-pocket net price," which is the price after all financial aid (i ncluding loans, which must be repaid} is t aken into account. 10 Grant aid helped to lower the average st icker price among full-time under- graduates at public 2-year institutions from $12,600 to an average net price after grants of $10,600 (figure 1 ). For 10 Both net price and out of-pocket net price averages are cal- culated for all students, regardless of whether they received any financial aid. This method of calculating net price averages for all students differs from that used to calculate average aid amounts in this report (see table 2). Average aid amounts are calculated only for students receiving a particular type of aid. Those not receiving a specific type of aid (i.e., zero values) are not included in the average for that aid. The average grant therefore, will be greater than the difference between the sticker price and the net price after grants. institutions, the difference between the average sticker price and the net price af ter grants was about $2,800. At private nonprofit 4-year instituti ons, however, that difference was $10,000. The Out-of-Pocket Net Price The "out-of-pocket net price," defined as the sticker price less all fi nancial aid received, takes into account all forms of financial aid, including grants, loans, work-study, and other aid (as well as Parent PLUS loans). The out-of-pocket net price represents the amount t hat must be paid immediately to enroll in a postsecondary institution f or that aca- demic year.'' Because the out-of- pocket net price subtracts loans from the sticker price, it measures the net price only in the short t erm. Loans off- set immediate costs to students and their families, but they must be repaid overtime. Full-time undergraduates enroll ed at public 2-year institutions had the low- est average out-of-pocket net price ($9,100}, reflecting the already lower sticker price at these institutions (figure 1}. Those at public 4-year instituti ons had a slightly higher average out-of- pocket net price ($1 0,300}. Students at private institutions had the highest av- erage out-of-pocket net prices ($16,000 at for-profit institutions and $16,600 at private nonprofit 4-year institutions). 11 Since 1998, the federal government has also provided postse- condary students and their families with various federal tax benefits. These are not included in the definition of financial aid and are not used in the calculation of net price in this study. 2 What factors are related to variations in average sticker and net prices among those attending these institutions? Prices vary by institution type for sev- eral reasons. Institutions charge differ- ent levels of tuition (based on whether they are public or private and the amount of state and local subsidies re- ceived); the demographic characteris- tics of students (and thus their nontuition expenses and eligibility for federal and state grant aid) vary by type of institution; and institutional policies for awarding institutional aid differ. As noted previously, the amount of tui- tion charged by institutions is a prima- ry factor in the total price of attendance, but students also incur dif- ferent nontuition expenses depending on their family responsibilities and liv- ing arrangements. Average net prices are further affected by differences in the proportion of aid recipients at each type of institution. For example, the number of students eligible for federal Pell Grants or state- funded grant aid at a particular school will affect the average net price after grants, as will a school's policies for awarding grants from institutional funds. The out-of-pocket net price fur- ther depends on the level of borrowing among students and their parents and other types of aid received, such as work-study. Public 2-Year Institutions Full-time students attending public 2- year institutions had the lowest aver- age sticker price ($12,600), net price af- ter grants ($1 0,600), and out-of-pocket net price ($9, 1 00) among all undergra- duates (figure 1 ). Because students at public 2-year insti- tutions had a lower average sticker price initially, their average net prices also were lower-even though they had the smallest proportions of grant recipients (56 percent) and students who borrowed (23 percent took out a student loan) (table 2). 6 Public 4-Year Institutions Tuition at public 4-year institutions was higher than at public 2-year institu- tions, but not as high as at the private institutions (figure 2). Students at these institutions also have slightly higher nontuition expenses than those at public 2-year institutions, with a larger proportion living on campus or away from home {see Wei forthcoming). Among those enrolled full time at pub- lic 4-year institutions, 60 percent re- ceived grant aid, about one-half (53 percent) took out student loans, and 10 percent received work-study support (table 2). Grant aid helped to lower the net price after grants to an average of $15,200, and the addition of loans, work-study, and other aid resulted in an average out-of-pocket net price of $10,300 (figure 1 ). This compares to an average out-of-pocket net price of $9,100 at public 2-year institutions-a difference of $1,200 in the average out- of-pocket net price, even though the difference in the average sticker price was $6,300. For-Profit Institutions For-profit institutions are privately owned and operated and the profits they generate benefit individual own- ers and shareholders. The programs can range from less than 1 year to 4- year bachelor's and graduate degrees. Most undergraduates enrolled in less- than-4-year for-profit institutions are pursuing certificates or associate's de- grees in occupational training pro- grams (Staklis forthcoming). Undergraduates at for-profit institu- tions also tend to be older, financially independent, and have family respon- sibilities. This increases their nontuition expenses and hence, their average sticker price. More undergraduates at for-profit institutions received federal grants (62 percent) than did students in any other type of institution in our analysis (figure 3). However, a smaller percentage of for-profit students re- ceived state, institutional, or private grants than students in other sectors. On average, these students had a net price after grants of $25,80Q-not measurably different than that of pri- vate nonprofit 4-year institutions, and higher than that of public institutions (figure 1 ). FIGURE 3. SOURCES OF GRANT AID for full-time, full-year undergraduates, by type of institution attended: 2007- 08 Percent 100 80 60 40 20 0 Public 2year Public 4-year 62 For-profit Type of institution 67 Private nonprofit 4-year Federal grants ~ s t a t e grant s Institutional grants n Private source grants NOTE: "Grants" include S<holarships and tuition waivers. full-time, full-year" is defined as having been enrolled in one postsecondary institution for 9 months or more full time. Estimates indude students enrolled in Title IV eligible postsecon- dary institutions ln the 50 states, DC, and Puerto Rico. Standard error tables are available at hnpJ/nces.ed.gov/dasllibrarv/reports.asp. SOURCE: U.S. Oepartment of Education, National Center for Education Statistics, 2007- 08 National Postsecondary Student Aid Study (NPSAS:OS). 7 Student loans were critical to reducing Private Nonprofit 4-Year Institutions next highest sticker price: for-profit in- the average out-of-pocket net price for Even though they had the highest av- stitutions ($25,800 and $16,000, re- al I undergraduates, but particularly for erage sticker price ($35,500) of the four spectively) (figure 1 ). those at for-profit institutions. For- profit institutions had the largest pro- portion of full-time undergraduates with at least one loan in thei r financial aid package: 9 out of 10 (92 percent) received an aid package containi ng a loan (table 2 and figure 4}, compared to 65 percent of those at private non- profit 4-year institutions, 53 percent at public 4-year institutions, and 23 per- cent at public 2-year institutions. The high level of student borrowing at for- profit institutions resulted in an aver- age out-of-pocket net price of $16,000 (figure 1 ). FIGURE 4. TYPE OF AID PACKAGE major sectors, financial aid recipients at private nonprofit 4-year institutions al- so received the largest average amount of total aid ($21, 100), when compared with those at for-profit institutions ($13, 1 00), public 4-year institutions ($11 ,000}, and public 2-year institutions ($5,400) (table 2). In fact, aid received by undergraduates at private nonprofit 4-year institutions resulted in an average net price of $25,500 and an average out-of-pocket net price of $16,600, both of which were not measurably different from undergraduates at schools with the for full-time, full-year undergraduates, by aid package received and type of institution attended: 2007- 08 Percent 100 80 60 40 20 0 Percent distribution receiving aid 16 Public 2ycar Public 4-year For-profit Type of institution Private nonprofit 4-year Aid package Grants, work- study, or other aid, with loans Loans only ;::: Grants, work- study, or other aid, without loans No aid received NOTE: "Grants" include scholarships and tuition waivers. "Loans" include federal, state, ins1itutional, or private student loans, excludiog Parent PLUS loans. "Othe(' aid includes job training, veterans benefits, employer aid, and Parent PLUS loans. "Full-time, full-year" is defined as having been enrolled In one postse<ondary institution for 9 months or more full time. Estimates include stlldents enrolled in Title IV eligible postsecondary institutions in the 50 states, OC, and Puerto Rico. Detail may not sum to totals because of rounding. Standard error tables are available at http://nces.ed.gov/das/ librarv/reports.asp. SOURCE: U.S. Department of EduCiltion, National Center for Education Statistics, 2007-08 National Postsecondary Stlldent Aid Study (NPSAS:08). 8 The receipt of institutional grants, in particular, was critical in lowering the price for those attending private non- profit 4-year colleges and universities. About two-thirds (67 percent) of stu- dents in private nonprofit +year schools received institutional grants or tuition waivers, a larger proportion than at any other type of institution (30 percent at public 4-year institutions, 17 percent at public 2-year institutions, and 7 percent at for-profit institutions) (f igure 3). The average institutional grant received by those attending pri- vate nonprofit 4-year institutions was $10,400, 12 which helped reduce the av- erage sticker price to an average net price after grants of $25,500 (figure 1 ). Work-study was also an important source of aid to those at private non- profit 4-year institutions. Nearly one- third (31 percent) of all full-time un- dergraduates at private nonprofit 4- year institutions received work-study aid, the highest percentage among all full-time undergraduates (between 2 and 10 percent of undergraduates at other types of institutions received work-study aid) (table 2). With the aid of student loans, work-study, and other types of support, full-time undergra- duates at private nonprofit 4-year insti- tutions had an average out-of-pocket net price of $16,600-not measurably different from those attending for- profit institutions ($16,000) (figure 1 ). 12 NPSAS:OS Data Analysis System (data not shown). 3 How do the net prices paid by undergraduates vary by family income? Figure 5 shows the average net price after grants among dependent under- graduates by their family income and type of institution attended. Among low-income and low middle-income dependent students, those with the highest average net price after grants were enrolled at for-profit institutions. In contrast, among high middle- income and high-income students, the average net price af ter grants for those at for-profit institutions was not mea- surably different from those at private nonprofit 4-year institutions. FIGURE 5. NET PRICE AFTER GRANTS BY INCOME for full-time, full-year dependent undergraduates, by family income category and type of institution attended: 2007-08 Price $40,000 30,000 20,000 10,000 0 Low income Average net price after grants Low middle-income High middle-income Highincome Public 2year D Public 4-year Forprofit 0 Private nonprofit 4year NOTE: The "net price after grants" Is the price of attending a postsecondary institution after all grants have been received. This amount is calculated by subtracting total grant aid from the sticker price. The sticker price is the total price of atten- dance and includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneous, or per- sonal, expenses. Grant aid includes grants, scholarships, tuition waivers, and other gift aid that does not need to be repaid. The net price after grants is calculated for all students, regardless of whether or notthey received any grant aid. Family income categories were based upon parents' annual income in 2006. Dollar cutoffs are based on the distribution among all dependent undergraduates: "low-income" was the lowest 25th percentile (less than $36, 100); "low middle-income"was the 26tll to 50th percentile ($36, 100-$66,600); "High middle-income was the 51st to 75th percentile ($66,60Q- $104,6001; and "High-income" was the highest 25th percentile ($104,600 or more). ' Full-time, full-yea(' is defined as having been enrolled in one postsecondary institution for9 months or more full time. Estimates Include students enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. Standard error tables are available at http://nct>5.ed.gov/dasllibrarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics. 2007-08 National Postsecondary Student Aid Study (NPSAS:OS). 9 The average out-of-pocket net price, on the other hand, shows a slightly dif- ferent pattern (figure 6). After borrow- ing, low-income and low middle- income undergraduates enrolled at for- prof it institutions continued to have the highest average out-of-pocket net price, when compared with those at other institutions. However, among those with incomes above t he median (i.e., high middle-income and high- income students), the average out-of- pocket net price was highest for those enrolled at private nonprofit 4-year in- stitutions. FIGURE 6. OUT -OF-POCKET NET PRICE BY INCOME for full-time, full-year dependent undergraduates, by family il)come: 2007- 08 Price $40,000 30,000 20,000 10,000 0 Low income Average out-of-pocket net price Low middle-income High middle-income Highincome Public 2year 0 Public 4year For-profit IJ Private nonprofit 4-year NOTE: The "out-of-pocket net price is the price of attending a post5econdaryinstitution after all aid has been received. This amount is calculated by subtracting total financial aid from the sticker price. The sticker price is the total price of at tendance and includes tuition and fees, books and supplies, housing, meals, transportation, and other miscellaneoos, or personal, expenses. Financial aid includes grants, student loans, Parent PLUS loans, work-study, employer aid, job training benefi\5, veterans benefits, and any other type of aid.lhe ootof-pocket net price is calculated for all students, regardless of whether or not they received any aid. Family income categories were based upon parents' annual income in 2006. Dollar cutoffs are based on the distribution among all dependent undergraduates: "low-income was the lowest 25th percentile (less than $3-6,100); "low middle-income was the 26th to 50th percentile ($36, 106-$66,600); "High middle-income" was the 51st to 75th peJcentile ($66,600-$104,600); and''Higlrincome was the highest 25th percentile ($104,600 or more). "Full-time, full-year" is defined as having been enrolled in one postsecondary instirution for 9 months or more full time. Estimates include studen\5 enrolled in Trtle IV eligible postsecondary institutions in the 50 states, OC, and Puerto Rico. Standard error tables are available at htto:l/nm.ed.gov/das/librarv/reports.asp. SOURCE: U.S. Department of Education, National Center for Education Statistics, 2007-08 National Post5econdary Student Aid Study (NPSAS:OS). 10 SUPPLEMENTAL TABLES TABLE 1. UNDERGRADUATE ENROLLMENT, TUITION, AND STICKER PRICE for all undergraduates and full-time, full-year undergraduates, by type of institution attended: 2007- 08 All undergraduates Full-time, Percent Average Percent Average distribution Average sticker distribution Average sticker enrolled tuition' price' enrolled tuition' price 1 Total 100.0 $5,800 $14,000 100.0 $10,300 $22,400 Type of institution Public 2-year 40.0 1,200 7,000 17.8 2,400 12,600 Public 4-year 29.2 5,500 15,200 42.7 7,100 18,900 Private nonprofit 4-year 13.0 17,800 28,200 20.6 23,400 35,500 For-profit 9.0 10,200 20,600 8.5 11,900 28,600 Other, or more than one institution 8.8 4,800 12,300 10.5 7,000 18,000 TABLE 2. FINANCIAL AID for all undergraduates and full-time, full-year undergraduates, by type of institution attended: 2007- 08 1 Average tuition and average sticker price estimates are shown for those attending one lnstiwtlon only. NOTE: "full-time, full-year is defined as having been enrolled in a postsecondary institution for 9 months or more full time. "Tuition includes all tllition and fees. "Stkker price" is thetotal price of attendance which includes tllition and fees, books and supplies, housing, meals, transportation, and other miscella- neous, or personal, expenses. Estimates include stu- dents enrolled in Title IV eligible postsecondary institutions in the 50 states, DC, and Puerto Rico. De- tail may not sum to totals because of rounding. Stan dard error tables are available at
SOURCE: U.S. Department of Education, National Cen- ter for Education Statistics, 2007- 08 National Postse condary Student Ai d Study (NPSAS:OS). Any grants Any loans Any work-study Any aid NOTE:"Grants" include scholarships Average Average Average Average and tuition waiver;. "Loans" Include Percent amount Percent amount Percent amount Percent amount federal, state, institutional, or private student loans, excluding Parent PLUS loans. rota!" aid includes grants, All undergraduates 51.7 $4,900 38.5 $7,100 7.4 $2,400 65.6 $9,100 loans, job training, veterans benefits, employer aid, and Parent PLUS loans. "All undergraduates" include those Type of institution attending more than one institution. "Full-time, full-yea(' is defined as Public 2-year 39.6 2,200 13.2 4,100 3.3 3,000 47.6 3,400 having been enrolled in one postse- Public4-year 52.9 5,200 46.2 6,600 7.7 2,500 71.3 9.400 condary institution for 9 months or more full time. Average aid amounts Private nonprofit 4-year 73.6 10,200 58.9 9,100 23.2 2,100 84.7 17,400 are calculated only for students re- For-profit 70.4 3,200 91.6 8,100 2.0 3,500 96.3 10,800 ceiving a particular type of aid. Those not receiving a specific type of aid (i.e., zero values) are not included in Full-time, full-year 65.3 7,200 53.1 8,000 13.7 2,300 80.1 12,900 theaverageforthat aid. Estimates include students enrolled in mle IV eligible pnstsecondary institutions in Type of institution the 50 states, DC, and Puerto Rico. Standard error tables are available at Public 2-year 55.7 3.700 22.5 4,900 6.9 2,600 65.7 5,400 Public4-year 60.4 6,100 52.7 7,100 10.5 2,400 78.3 11,000
SOURCE: U.S. Oepartmem ofEducation, Private nonprofit 4-year 81.2 12,300 65.0 9,800 31.5 2,100 89.4 21,100 National Ceoter for fducation Statistics, For-profit 71.9 4,000 91.6 9,600 2.0 3,600 96.7 13,100 2007-08 National Postsecondary Stu dent Aid Study (NPSAS:08). 1l FIND OUT MORE For questions about content, ordering additional copies of this Statistics in Brief, or to view this report online, go to: http://nces.ed.gov/insert-url/ More detailed information on the price of undergra- duate education and undergraduate financing can be found in Web Tables produced by the National Center for Education Statistics (NCES) using the 2007-08 Na- tional Postsecondary Student Aid Study (NPSAS:08) data. These Web Tables are a comprehensive source of information on financial aid awarded to undergra- duate students during the 2007-08 academic year. In- cluded are estimates of tuition, price of attendance, and financial aid. Additional information on the de- mographic characteristics of 2007- 08 undergraduates can be found in a second set of Web Tables. Web Tables-Student Financing of Undergraduate Edu- cation: 2007-08 (NCES 2010-162). (link will be added) Web Tables-Profile of Undergraduate Students in U.S. Postsecondary Institutions: 2007- 08 (NCES 2010-205). (link will be added) Readers may also be interested in the following NCES products related to the topic of this Statistics in Brief: 2007-08 National Postsecondary Student Aid Study (NPSAS:08): Student Financial Aid Estimates: First Look (NCES 2009-166). http://nces.ed.gov /pu bs2009 /2009166.pdf Undergraduate Financial Aid Estimates by Type of Insti- tution in 2007-08 (NCES 2009-201). http://nces.ed.gov/pubs2009/2009201.pdf -------------------------------------- 12 -------------------------------------- TECHNICAL NOTES Survey Methodology The statistics provided in this Statistics in Brief are based on data collected through the 2007- 08 National Postse- condary Student Aid Study (NPSAS:08). NPSAS:08 is the seventh administration of NPSAS, which has been conducted every 3 to 4 years since 1986-87. The NPSAS:08 target population includes all eligible students enrolled in Title IV institutions in the United States at any time between July 1, 2007 and June 30, 2008, representing about 21 million undergraduates and 3 million graduate students enrolled in over 6,000 institu- tions. The institution sampling frame for NPSAS:08 was constructed from the 2004-05 and 2005-061nstitutional Characteristics, Fall Enrollment, and Completions files of the Integrated Postsecondary Education Data System (IPEDS). The sampling design consisted of first selecting eligible institutions, from which students were sampled in the second stage. Institutions were se- lected with probabilities proportional to a composite measure of size based on expected enrollment. Approximate- ly 1,700 institutions participated in the study, yielding an unweighted re- sponse rate of 89 percent. Approx- imately 114,000 undergraduates and 14,000 graduate students were study respondents, yielding an unweighted response rate of 96 percent. Estimates were weighted to adjust for the un- equal probability of selection into the sample and for nonresponse. NPSAS covers broad topics concerning student enrollment in postsecondary education and how students, and their families, finance their education. Res- pondents provided data through in- struments administered over the Internet, by telephone, or in person. In addition to respondent-provided data, data on respondents were collected from other relevant databases, includ- ing U.S. Department of Education records on student loan and grant pro- grams and student financial aid appli- cations. VARIABLES USED Two broad categories of error occur in estimates generated from surveys: sampling and nonsampling errors. Sampling errors occur when observa- tions are based on samples rather than on entire populations. Nonsampling errors can be attributed to several sources: incomplete information about all respondents (e.g., some students or institutions refused to participate, or students participated but answered only certain items); differences among respondents in question interpretation; inability or unwillingness to give cor- All estimates presented in this Statistics in Brief were produced using the Data Analysis System (DAS). See "Run Your Own Analysis" for more informa- tion on the DAS and other web-based software applications that enable us- ers to generate tables for most of the postsecondary surveys conducted by NCES. The program files that generated the statistics presented here can be found at [insert-uri-here}. The variables used in these analyses include the following: Label Attendance status Family income for dependent students Federal grants Institutional grants Net price after grants Non-tuition expenses Out-of-pocket net price Private grants State grants Sticker price Total financial aid Total grants Total student loans Tuition Type of aid package Type of institution Work-study Name ATINSTAT PGDEP TFEDGRT INGRTAMT NETCST3 BUDNONAJ NETCSTl PRIVAID STGTAMT BUDGETAJ TOT AID TOTGRT TOTLOAN TUITION2 AIDTYPE SEGOR4 TOTWKST -------------------------------------- 13 -------------------------------------- rect information; mistakes in recording or coding data; and other errors of col- lecting, processing, sampling, and im- puting missing data. For more information on NPSA$:08 me- thodology, see 2007-08 National Post- secondary Student Aid Study (NPSAS:08) Full-scale Methodology Report (NCES 201 0-1 88) (forthcoming). Item Response Rates NCES Statistical Standard 4-4-1 states that " [a)ny survey stage of data collec- tion with a unit or item response rate less than 85 percent must be evaluated for the potential magnitude of nonres- ponse bias before the data or any anal- REFERENCES The College Board (2009). Trends in College Pricing 2009. Retrieved on February 11,2010, from http://www.trends-col legeboard. com/college pricing/pdf/ 2009 Trends College Pricing.pdf. The College Board (2008). Fulfilling the Commitment: Recommendations for Reforming Federal Student Aid: TheRe- port from the Rethinking Student Aid Study Group. Retrieved on January 15, 201 0, from .!:!.llQ.;LL professionals.collegeboard.com/ profdownload/rethinking-stu-aid- fulfilling-commitment- recom mendations.pdf. Harvey, J., Williams, R.M., Kirshstein, RJ., O'Malley, A.S., and Wellman, J.V. ( 1998). Straight Talk About College Costs and Prices. Report of the National Commission on the Cost of Higher Edu- cation. Phoenix, AZ: Oryx Press. ysis using the data may be released" (U.S. Department of Education 2003). Several derived variables used in this report were comprised of variables that had response rates of less than 85 per- cent before imputation. EMPLYAM1 and EMPL YAM2 (measures of employer aid received, and components of TOTGRT) had response rates of 79 per- cent and 80 percent, respectively. Non- response bias analyses showed that for EMPL YAM 1, there was statistically sig- nificant bias on 87 percent of the cha- racteristics analyzed, and for EMPLYAM2, there was significant bias on 76 percent of all characteristics. PRIVLOAN (private loans received, and lmmerwahr, J., Johnson, J., Gasbarra, P., Ott, A., and Rochkind, J. (2009). Squeeze Play 2009: The Public's Views on College Costs Today. New York and San Jose, CA: Public Agenda and The National Center for Public Policy and Higher Education. Lewin, T. (2009, October 20). College Costs Keep Rising, Report Says. The New York Times. Marchand, A. (201 0, January 21 ). Cost of College Is a Big Worry of Freshmen in National Survey. The Chronicle of High- er Education. Pryor, J.H., Hurtado, S., DeAngelo, L., Pa- lucki Blake, l., and Tran, S. (2009). The American Freshman: National Norms Fall2009. Los Angeles: Higher Educa- tion Research Instit ute, University of California, Los Angeles. a component ofTOTLOAN) had a re- sponse rate of 67 percent. The nonres- ponse bias analysis for this variable showed that respondent s and nonres- pondents were significantly different on 80 percent of all analyzed characte- ristics. PCTDEP had a response rate of 56 percent, and the non response bias analysis also showed significant bias on 80 percent of all characteristics. For more detailed information on nonres- ponse bias analysis and an overview of the survey methodology, see 2007-08 National Postsecondary Student Aid Study (NPSAS:08) Full-scale Methodology Report (NCES 201 0-188) (forthcoming). Staklis, S. (forthcoming). Web Tables- Profile of Undergraduate Students: 2007-08 (NCES 2010-205). National Center for Education Statistics, Insti- tute of Education Sciences, U.S. De- partment of Education. Washington, DC. U.S. Department of Education, National Center for Education Statistics. (2003). NCES Statistical Standards (NCES 2003- 601 ). Washington, DC. Wei, C. (forthcoming). Web Tables- Student Financing of Undergraduate Education: 2007- 08 (NCES 201 0-162). National Center for Education Statis- tics, Institute of Education Sciences, U.S. Department of Education. Wash- ington, DC. -------------------------------------- 14 -------------------------------------- RUN YOUR OWN ANALYSIS WITH DATALAB You can replicate or expand upon the figures and tables in this report, or even create your own. Data lab has several different tools that allow you to customize and generate output from a variety of different survey datasets. Visit Data Lab at: QuickS tats Create a simple table quickly View )'O'Jr cutp-..rt as a chart or table Choose from many data sets each with about one hundred Y!lriables Select from postsecondary surmes Cover artwork iStockphoto.<Om!centauria. http:/ /nces.ed.gov/datalab/ Dotolab PowerS tats Produee- complex tables Run linear and logistic
Choose from many data sets each with thousands of variabl&s library Search existing tables and figures to find to your questions Vistt NCES Tables sod Figures Comr119 soon Thousands of pubhshed tables using Po,verStats and OuickStats Help Need Ccntact John Vuicka MPR Assoc.iatas Inc. d3tala!rhelp@mpnrte com Aurora D'Amico. NCES Au.ora gcw Need access to restncted data? Learn more on The Restnctedll se Data Procedures Manual -------------------------------------- 15 -------------------------------------- www.ed.gov ies.ed.gov l(b)(5) -----Original Message----- From: Gomez, Gabriella Sent: Friday, April30, 2010 9:22AM From: Kanter Martha To.: Yuan. Georgia CC: Date: 4/30/2010 9:52:48 AM Subject: FW: Transcript of Shjreman speech To: Rogers, Margot; Kanter, Martha; Miller, Tony; Rose, Charlie; Cunningham, Peter; Martin, Carmel Subject: FW: Transcript of Shireman speech (b)(5) Robert Shireman Speech to NASASPS ApriJ 28, 2010 Transcript provided by the Career Education Review Michael J. Cooney, Editor mcooney@workforce-com.com . .. And I had forgotten to put the FAFSA simplification applause line into my actual remarks so I have applaud when he said it so it never fails and of course- it's not often- sometimes it's the thing I get questions about but more often its about things like two Pell awards, two programs in an award year, things more detailed like that. But thank you so much for that introduction. Two and a half or three years ago, we started to see a serious economic slide downward in this country, credit markets had seized up, the sub prime mortgage issue was a major cause of that and we stmied seeing ppllosing their jobs. We saw ppl in their jobs feeling much more insecure, much less secure about their ability to invest in higher education, their ability to buy a home w the collapse of the credit markets and the way to solve that - long term- is to invest in improving our nations economy, to invest in the kind of innovation that comes from education, the productivity increases that come from job training. Jn order to follow up on that President Obama laid out a bold goal for he country, he said that by 2002 we want to regain our place as the number one country in the world in terms of adults with post sec credentials, college degrees, certificates and other job training programs. In the recovery legislation, now about a yr and a half ago, that included an expansion of the tax credits that [x] hoping to create in the 90s, an expansion of that tax credit to $2500, making it for 4 yrs and actually covering more of the types of expenses that students and families have for higher education. Increases in Pell grants- the usual approach and what you have seen in your own states, are in an econ downtum, more ppl are poor, more ppl want to go to school , but instead of following up on that need by putting more money onto the grant and scholarship programs actually less money goes into the grant and scholarship programs be of the state budgets. Fed govt took the opposite approach really, what needs to be countercyclical spending that helps- like unemployment insurance- spending that needs to follow up on and help to address the new gaps that families are seeing - so the tax credits were part of that, the increases in Pell grants are not only meeting the new demand for Pell grant dollars but actually increasing he size of the Pell grants and proving those increases into the future with the follow up legislation passed a few weeks ago. Also restoring some certainty to the student loan program, and making sure that no one has any reason to doubt whether they will be able to get the federal student loans that they need, again with the refmms that were implemented a few weeks ago. I mentioned that when people are losing their jobs, when ppl become insecure in their jobs, they look for higher education, they look to find what kind of job training can I get, what kind of skills can I add to my repertoire, what are the skills that I have, how can I make them better so that ill keep my job, so that ifl lose my job I'll have options. And at the same t ime, while we saw this increase in demand, which is helpful and useful given what the President had to say about the need to train our population, we saw state tax revenue declining in all but a few states, we saw resulting cuts in the budgets of state colleges and universities and community colleges, resulting in a combination of very large increases in tuition in some cases and reduced enrollments, fewer seats. So increased demand - ppl wanting more education and training, and public institution either had fewer seats and charging more tuition or might not declare going to be enrolling fewer ppl but their course offerings are cut, fewer kinds of course offerings, so the result is they are not able to demand for higher education. Tuition-driven institutions didn't react that way because they're tuition-driven institutions, and the non-profit institutions have done pretty well despite significant declines in their endowments because there continued to be significant demand for higher education. The public., the non profit private colleges did well and in particular the for profit institutions have come in with investors making sure that there was capacity to be able to serve additional students, and they knew that those students would come with those federal dollars, Pell grants, student loans, tax credits and that hat would help them to not only be consumers who want higher ed but consumers who can pay for that higher education with that federal support so the for-profit industry, more than any other in this economic difficult times, has responded. I want to give you some specific numbers, we now post now on one of the [X] websites, the quarterly numbers ofPell grants by different kinds of schools s I looked at what the first 3 quarters- the total of the first 3 quarters of this award year compared to the last award year for some of the schools that I knew would be here today. So for example, Corinthian Colleges- 38% increase for first 3 quarters this year compared to last year for a total of $800M DeVry- a couple people here from DeVry?- 42% increase up to $1.78 ITT- you guys here? A 44% increase up to $623M Strayer- still here? Is that you? Well this one- 95% increase, may be something about the quarters, but up to $414M APE!- Wally here? And Russell? 94% increase up to $44M Kaplan- they here? So this total is actually all the Washington Post owned entities, 33% increase up to $909M, and again this is the first 3 quarters of the year so the totals for the year are obviously more than that Career Education Corporation- 29% increase up to $1B this first three quarters EDMC- several folks here; a 16% increase, $1.1B Capella- over there? 40% increase to $378M And I think I've just got a couple of others: Grand Canyon- 55% increase to $260M And University of phoenix- you there?- 9% increase but obviously that's on a larger base. So probably that increase is as much as a lot of others' total dollars, and that increase is $2.7b total And Bridgepoint- you guys here? - 6 l% increase, $393M I think those were all that I had numbers for, obviously I know that there's a few others here as well. So I wanted to begin just by thanking the for-profit industry for responding to the critical demands from ppl out there who need higher education. I'd like everybody to give them a hand. Now, others of us in the room have the responsibility for making sure those federal funds I just listed, for education and training, that it's all totally above board. That those significant increases in fed spending for higher education- loans, grants- are serving students and tax payers as well as they possibly can. and that is what the Triad is about- and I know I can say triad in front of this audience because I heard somebody say it earlier. I want to talk for a second about some things going on in Washington right now, and I don't mean negotiated rulemaking- I will get to that in a few minutes, but there is a wall street reform debate going on right now in Washington. What happened in that credit crisis a couple of years ago had something to do with credit rating agencies- agencies like S&P, Fitch, other agencies that were responsible for rating instruments- :financial instruments, looking at what is the quality of these things that have names that cause people's eyes to roll over- things like collateralized debt obligations, and other kinds of securitizations- so what is the quality of the loans, mortgages, are they going to be repaid, how likely are theses loans to be repaid so that an investor purchasing this, how confident can they be that when they purchase, when they invest in this particular instrument, that they will get the money back that they are expecting. The business model for these rating agencies has come under fire in these meetings in Washington, part of this has to do with the business model of the rating agencies, on the one hand, their responsibility, their job, the core of their business was to make sure they did a good job providing an honest rating tor the instrument that they were analyzing. On the other hand, they relied on the income from the companies who asked them to rate the instrument, and ill read to you from- a NYTimes- some of the emails that have been coming out recently. In 2004, well before wall street's bets on subprime mortgages became widely known, employees at Standard & Poor's credit rating agency were feeling pressure to expand the business. One employee warned in an internal email that the company would lose business if it failed to give high enough ratings to collateralized debt obligations, the investments that later emerged at the heart of the financial crisis. Quote, " we are meeting with your group this week to discuss adjusting criteria for rating CDOs of Real estate assets be of the ongoing threat of losing deals. Lose the CDO and lose the base business. A self reinforcing loop" In other words, if we don't loosen up, we don't loosen up in our assessment of these instruments, nobody is going to come have their instruments assessed by us anymore. And this created a conflict which led to instruments that should have been questioned not being questioned, and [leading] over to the financial crisis that we have been suffering from for the past couple of years. The other issue besides the business model was the complexity and fast growth of diff kinds of instruments and ill read from another of the recent articles. "Email. documents and other messages suggested that executives and analysts at ratings agencies embraced new business from Wall Street even though they recognized that they couldn't properly analyze all of the banks' products. And one of the other quotes ends with, "we were so overwhelmed." So I want to actually ask, on that issue, the complexity and growth, and I know we're feeling this with publicly traded corporations and purchases going this way and that way, and we're trying to figure out what's going on . Are there regulators in the room who feel like you DO have the analytical firepower you need to assess what is going on with the entities you regulate in higher education? Those who do feel you have the firepower you need? I don't think we feel we have the firepower we need. So the reform back on the financial instrument side of the equation, what they're really talking about now in Washington on financial reform, one analyst- an academic looking at what's going on, said it only tinkers with the workings of the ratings agency, it doesn't end the inherent conflicts of interest, those cont1icts of interest where the ppl who do the rating are paid for by those who do the ratings. This whole situation w credit agencies, credit rating agencies, is, as I see it, very similar to the way accrediting agencies work in this country. The same kind of inherent conflict of interest. Albeit accrediting agencies are nonprofit and on top of that, what would this crisis look like ifthe banks had actually been the ones running the credit agencies and were doing a peer review kind of model, which is the model we have in accreditation, where it is the regulated who are really looking at each other rather than an outside entity. So to borrow from Winston Churchill, accreditation, as a part of that triad, in terms of a way of assessing quality in higher education, is the worst form of accountability except for all of the others. What Winston Churchill actually said was, democracy is the worst form of government, except for all the others. So I am bringing up this issue of accreditation not to say that we should back away from it or change it, 1 actually don't have a better system for us for assessing quality in higher education. But it is problematic and we need to remember that as the other two pieces of the triad, as we figure out how we can do the best job possible in our responsibilities. Federal and state governments cannot rely on accreditation to insure that consumers and taxpayers are protected t the full extent that they need to be- all three legs of that three legged stool need to be working and working well. There are a number ofthings that we're doing, you've heard about some ofthem- elevating, monitoring and enforcement, we're working with the inspector general at the department of education, taking a much closer look at data than ever before to help guide our selection for program reviews and investigations when necessary by the inspector general, working with he federal trade commission to join their consumer complaint system so complaints they get and other agencies that are on their consumer sentinel, working on the issue of how we can look more at issues of misrepresentation as we do program reviews and other kinds of monitoring. A second area besides the monitoring and enforcement is improving consumer information. We have put graduation rates, retention rates and transfer rates right on the F AFSA form when students are choosing colleges, the rates are right there as a reminder to students that they should do some good shopping, look at various kinds of data that might help them to compare schools. We're also providing them with a more detailed financial aid estimate in terms of the financial aid that they can get and this is partly to make sure that people know they can get that aid wherever they go. Sometimes students think, oh I can get that $12K because the school costs $12K, and I would only get $3k at a community college that only cost $3K, not realizing hat in fact if they wanted to get more than what tuition costs at that community college so that they can focus on their studies instead of working excessive hours, that that is something that they can have available to them. And starting this summer, as a result of a regulatory process that has already completed, schools will have to begin providing placement information and where the have placement rates, they actually will need to make students aware on their websites of placement rates they have for programs that they are offering. Uh coordination and sharing, I head some of the discussion in prior sessions and I look forward to this af-temoons discussion. Within the federal government, we are working with the Fed trade commission, the veterans administration around the GI bill , the SEC because of the involvement of publicly traded institutions, states we have encouraged involvement in this group and are looking for other ways that we can help. Happy to discuss that in q&a here as well as this afternoon because we really need to become good partners if we' re going to do best by taxpayers and students. And accreditors, there are some new requirements, we're working on sharing some draft guidance related to all of the requirements for accreditors and again building that triad and all working together. In fact, I was actually on the internet looking for a three legged stool to see if [ could bring one for this, and [ noticed one of the three legged stools had a, not only the three legs, but it had this connecting piece of wood that held the three legs together, and I thought, well that would be the perfect prop, because that would demonstrate it's a strong stool if that connecting- that connector is there, making it as strong as possible. Also, may of you have heard, reviewing the rules and regulations and where appropriate revising, in the process of revising those rules. Let me take a I ittle bit of time to tell you about some of those. We started about a year ago, doing public hearings where we basically said, we want to know whether we need to in1prove program integrity, are thee things we need to be doing? Here's a list of some areas, misrepresentation- definition of credit hour, state authorization, other kinds of things, and we saw input. We did 3 public hearings, ppl were able to submit items over the internet, through email, and we got a lot of input about great schools out there, students who were having a good experience, people who attended the schools, got a job, had a great experience. We also heard from forn1er students who felt that they were misled, legal aid attorneys who had clients whose stories were cause for concern. That was followed up by- we asked for nominations for ppl to serve on committees- the way this whole process works is that we do our best to work through possible rule changes with a committee of stakeholders, recommended, nominated by interested parties, states, various institutions, student organizations, legal aid.tr 3 weeklong sessions, December, January and February went through each of 14 issues talking about, changes that might make sense. One of them, misrepresentation, clarification really against misrepresentation by schools. High school diploma- one of those things that you take to somebody and think, how hard can it be to know if a high school dimple is valid?? As you know, not that easy and many of you are at the state level so you know that the state isn't necessarily declaring who is good or bad. And the issue of the federal government declaring what is a valid HS education, for example, gets into areas where the def government isn't supposed to be declaring such things, so I think a more complicated issue than I think a lot of ppl expected. We are making - at least in NegReg session - reached some tentative agreement around the definition. I would say the most significant thing we are doing is looking at- and I think this is now a likelihood, when people apply on the F AFSA and it asks for a HS diploma, a list will actually pop up and they can enter what that high school is, the name of that high school based on some feral lists we have. It wont necessarily mean that it will be a valid high school, but it does give us and you the ability to, if for example a suspected diploma mill, we would be able to see who are, where are the students going who are using this particular high school as the place they say they get their diploma from. And if we find that its some particular colleges, that means that it might b encouraging ppl to go and use and diploma mill. So it will be a useful took for us and you as well. , and that's the most important change we'll be making there. Incentive compensation was a major issue, the issue of paid recruiters. A number of years ago, a number of safe harbors were created and there was a lot of indication that they were wider loopholes than are appropriate given the wording of the actual law that prohibits payment of actual compensation based on enrollment. So that's another one that we are working on. State authorization, I heard California mentioned and it was a surprise to me when I came to Washington and asked about California to discover that a legal interpretation of the Dept of Ed, well if the school is not not authorized, then it is authorized. So this a raised question that came up in NegReg about what is at least some minimum standard about what kind of authorization should count in terms of the state role in that Triad. Satisfactory academic progress is another area taking attendance. What] used to call R2D2, return to tile 4. and I'm not mentioning all of the issues, but the final one I will talk some about is Gainful Employment, and this is the one that's been in the news a lot. It seems that every time I speak somewhere, something thinks I said something new and calls a stock analyst who then reports it causing the stocks to go up or down or whatever, and I assure you I am not going to say anything new. If you are a stock analyst or you know a stock analyst, the answer when they ask you, What did Shireman say? You say nothing new. So the statute, the federal law requires that in order for some programs to be eligible for federal financial aid, they have to lead to gainful employment in a recognized occupation. This applies to non degree programs at any type of school and it applies to most programs at for-profit schools, really all except some BA, liberal arts programs through an exception, a recently enacted exception, that actually begins this July 1 51 but for the most part, a for-profit institution, in order to be eligible for federal financial aid, has to show that the program leads to gainful employment or prepares the student for gainful employment in a recognized occupation. So a year ago, we began asking the question, what is the definition, what should db e the definition of gainful employment in a recognized occupation. We had hoped that perhaps some schools would come forward and say, well when we start a program, here's how we determine whether or not it complies .. we didn't get that kind of information. We brought it up in NegReg and made some suggestions for discussion. We suggested, maybe there should be some relationship to the debt levels that students are taking on and the expected earnings that they may have from the occupations that you have identified that you are preparing people for. We also suggested that perhaps a loan repayment rate approach could be devised where we would be able to see that federal loans are actually being repaid at a rate that makes sense if ppl were actually gainfully employed. We looked at the provision and current regulation that currently applies to very short programs, the 70/70 mle. So 70% completion rate, 70% placement rate, and asked should something like that be part of the definition of gainful employment? And then for new programs, we suggested maybe there should be something from an employer, who employs ppl in the occupations that the program is preparing people for, that at least asserts that yes, the cuiTiculum, the program that ive seen at this school is designed in a way where it would prepare people for the jobs that I have in my particular business, so we suggested that for new programs. Now in evety other issue in negreg, we got pretty good discussion at the table, sometimes we actually got consensus from the group on what we should actually, how regulation should actually be worked out. But for some reason on the gainful employment issue, we didn't get the kind of discussion that would at least help to guide in a very constructive way the direction, and to know well, this would be okay with certain kinds of schools but wouldn't be okay with other kinds of schools. Instead the reaction from, in particular those who were representing the for-profit colleges, was you cant do this, you cant define this term, why are you doing this, and that continued even after the NegReg sessions. We continued to meet, we have gotten improved input, improved feedback. And where things stand now with whole regulatory packed, so everything I've just discussed now including the gainful employment, is that in the next few weeks there will be proposed rule published in the federal register. There will be a comment period after that proposed rule is published. That will be the appropriate time to suggest changes or express support for provisions, suggest alternatives, and then a final mle, our goal would be to publish a final rule by November I 51 For rules to take effect in general. next year from this July, they need to be published by November 1 51 So that's where we will be, that's the tin1eline for the rule going forward. I wanted to conclude my remarks before going to some Q&A and some discussion with a piece that Thomas Frank wrote in the WSJ. The title ofthe article is, "Obama and the Regulat01y Capture," and it is again, back about the financial regulation. "It was not merely stmctural problems that led certain regulators to nap through the crisis. The people who filled regulatory jobs in the past administration were asleep at the switch because they were supposed to be. It was as though they had been hired for their extraordinary powers of drowsiness. The reason for that is simple: There are powerful institutions that don't like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented." So, he follows that up with one more line here, "And it created a situation where banking regulators posed for pictures with banking lobbyists while putting a chainsaw to a pile of regulations. Smiles all around. Let the fellows at IndyMac do whatever they want." So my closing words, is, we should take the photos, we should smile, but lets not shirk our responsibility for regulating the industry. The schools will make plenty of money and students and taxpayers will be better off if we do our jobs as best as we can. Thank you very much. Host - Some time for questions and answers, and I know gainful employment will come up, but first I want to just make a comment. I think most of the states, clearly the states in the room, because the ones that aren't in the room, there might not be a cognizant agency that actually is involved in the regulation, if it's a registration with the secretary of state or what-have-you, but fortunately, there is another state within our state that someone can go get a better rate at or what have you. So I think that's clearly one thing that I was thinking about. There is an alternative on per se that the school has if they want to be serving your students, they want to be in your state. They have a set of laws, a little bit different, but 1 certainly appreciate the parallel, and I think important to add- Shireman- I was really more talking about the parallel with accrediting and it's not as much of an issue with states Host- right so you know, 1 sympathize with that, good parallel. Did the Dept, was there any discussion when gainful employment issue was being looked at, to say, can somehow the Dept tap into infom1ation at the Dept of Labor or at the prior [X]. I understand there may be some challenges there, but we're trying to measure whether or not this individual is 1, either employed or perhaps employed and had benefited because of the education or training that they had received and somehow reached their salary or what have you. Was there any discussion around that area, because it seems like there may be some ways of doing that? Shireman -Yes, one of the areas of discussion, so part of the areas we are looking at.; some of the criticism that has been out there has been about the use of averages or 25lh percentile of BLS occupational data. And the reason we suggested use of BLS was not as - it was actually as a way to reduce the work that would need to be done by whoever is coming up with the income information. So for example, it's going to be the schools having to figure out what their graduates eamed, we figured why not just have a level that's an average based on the industry that will eliminate a lot of the school's need to follow up and look at their own graduates. In other words, if it meets- if the debt I income ratio is fine given the earnings in the occupation generally, you don't need to worry about it as a school. Just look at your debt and if it's okay, flne. You only need to look more detailed if you don't, if it doesn't beat it that way, because maybe your graduates are earning something more. It was really to try to reduce the number that would have to go through a process, either using IRS data or a state data system. States like FL are in a much better position to be able to look individual programs and have this kind of information using their U[, unemployment insurance, database. So there's a lot that can be done there, and the discussion at and since negotiated rulemaking has helped us to think through those issues. Host- know there's going to be some questions ... Michael Cooney- Bob, [patt] of your presentation is, do you believe that for profit institutions are serving their students well? Shireman -1 think they have to be given their demand, given the number of people that are going to for-profit institutions, I think it's, I think they are, absolutely. All of them for all students, I think that's where our role comes in Cooney- following up on that, then your gainful employment provisions as we understand it, according to CCA would approximate 300K students from the possibilities of receiving an education. Is that an unintended consequence or are you all cognizant of that? Shireman - there isn't a proposal, and my argument with the- and ive had these conversations directly with CCA, is work with us about what the definition should be. So we can get in- what they've done is say, 8% pure labor statistics, these folks are crazy! But the reality is, thee only way to get to a rule that makes sense, and we need to have a definition, is to get down in the weeds and start working out the details. And they and others have come back with, id say some more constructive thoughts in recent weeks, and those will be considered in the proposed rule, and then they' ll be further input that I hope we' ll get in a final rule. [Ken Miller] -Mr. Shireman, im concerned about national averages. Some states are in much better shape employment-wise than others. I'm fiom Ohio, a county in Ohio that has 17% unemployment. Question - how can you adjust this rule, this definition, for those kinds of anomalies between states, and should you? Shireman -So using actual data from students as was suggested would deal with that completely. The BLS data actually is available on a state basis so that could potentially be another option. So this is where we are, we're open to suggestion and ideas about what would be the best way, or whether it should be various possibilities that a school might have an option to use. This is that input-seeking process for what would be the right kind of approach. Again, part ofthe reason we just used the national average was because, to eliminate a whole lot of work so that fewer needed to look in a more detailed way, and in some ways I suppose if we had not suggested an approach to reducing work, we wouldn't have had the BLS stuff on the table and wouldn't have the criticism, but I think it does make sense, because it was a reasonable, work-reducing item that we put on the table during negotiated rulemaking. [Tom CasseJJ(?)] -have you looked at the idea of a value added concept in the definition? Gainful to me means you've gained, improved. So if we looked at our students and where they came to us and what their earni ngs were afterwards, a measurement of change of gain as the definition? Shireman - so specific suggestions about that proposal and how to do it, we welcome that, I mean that's very useful. So in the proposed rule period, that's especially timely. Make sure, Especially from this point forward, make sure that ideas are considered, that comment period after we publish the proposed rules. That's the kind of thing that would be great to work out the details and suggest it during that comment period. [Keith Boss (?), Northwest Technical Institute) - layers of control can sometimes create layers of bureaucracy as you well know, you've got to struggle with that. There's al ready of default rate, and we're very proud of our very low default rate, was it ever considered that that 's enough control to see that students have the ability to pay offtheir student loans and why would there need to be more layers of control, more bureaucracy than that? Shireman- the discussion at the table around default rate had to do with the fact that the federal government has made sure that ppl who take out at least federal student loans aren't put in a situation where it's a choice between food on the table and paying rent and paying off your student loan. So we have things like forbearance, and if you ask for forbearance, you could make no payments at all and you're not in default, there's income based prepayment where you may be making nothing or next to nothing, but if you're on income-based prepayment, there's very low repayment or maybe nothing at all and you're not in default. So default rate doesn't measure whether or not people are actually earning any money. [Ray]- one of the problems ppl have come to wrestle with this concept is that any fommla that is derived that results in the elimination of eligibility for a program has the potential to have a school on the NE corner vs. a school n the SE corner delivering the same program at the same level of efficiency and quality, but merely because of the borrowing characteristics of their student population, one school's program could be declared ineligible while the other school's program continues ... further, as you go through this and eliminate program eligibility, the students don't go away, they seek out, in many cases, the same education, in another institution. You could end up with a deluge in the public institutions because they're not subject to the sanctions of a loss of eligibility and yet, so it's okay to continue to train that person and for them to continue to have debt and for state dollars to continue to subsidize their education at a public institution but meanwhile the resulting product is the same? Shireman- so what's your suggestion for a definition of gainful employment? [Ray]- well I don't know- I always thought it was defined in the IRS code, the Social Security admin .... Shireman- I need a citation, tell me what we can do, as the US Dept of Ed, to detennine whether a program is in or out. [Ray]- I honestly don't know Shireman- this is the problem. If you cant give me a definition, we're not making any progress. So anything- I can respond to the details of your question, things like the 90/10 rule - any time you draw a line, there will be people right on one side and people on the other side of the line that are very similarly situated. But that's what lines are about, so your suggestions about what would be, and I think asking your colleagues, your own institution, how do we decide, how do we know our programs are eligible for finical aid, would help for you to develop some suggestions for us. Host- see I knew we should have had a workshop on gainful employment.. we've all sat around trying to figure it out. .. we have some good thinkers in the room .. Russell - APEI -I have sort of a detailed question im going to pose for you. You mentioned earlier [xx] with regard to title IV funds, but those fund are not necessatily earmarked specifically for education costs, or direct education costs, and I think we all recognize the reality is that many student do in fact realize substantial amount of money for impotent, incidental spending, a new car, walking around, whatever. My question is, lets take a scenario where an individual sent to community college for a couple years borrows $35-40k, then that graduate comes to APEI system, where it will cost you $30k to get a BA degree from start to finish, we inherit $35-40K worth of debt and add it to the $30k the student incurs with us, we've got $75-80k of debt. Is that going to count against us for the purposes of calculating gainful employment? Shireman -we haven't proposed a rule yet but what we discussed a the table in negotiated rulemaking, the answer would be no. That's because we proposed using the median, and using the median means that all those outliers don't pull up the average. It's the median, schools don't generally have more than half of their students coming in with huge amounts of debt from someplace else. Now there's also the option in the rule of saying, it's only debt you incur at the institution, so in the proposed rule in the comment period will be the time to look back to a particular issue. There's debt/ income ratio in the rule, and you can provide commentary. Again this is the kind ofthing, the kind of discussion we needed a year ago and have begun to get recently and I really do appreciate because they're useful and constructive discussions to have. Russell - well the reason, ifl can just add another comment to that, I think it's important to have [other debt] considered because if you take that approach that im only accountable for my own debt- Sh.ireman- Right, so to be clear, it's just a proposed rule. Comment period, final rule. So we've gotten this kind of input, they'll be a proposed rule. If we haven't addressed this issue and it needs to be addressed further in your view, there will be another opportunity for you beyond the opportunities you've had in the last several weeks. Russell - The one thing I would like not to see happen is that for admissions staff to say we don't want to admit you because you've got debt. Shireman - understood. [NA] - can you tell me how this would apply to a public university or state college? Shireman- well what we discussed at the table, in negotiated rulemaking- and I keep repeating that because the "this"- we haven't proposed anything, we brought discussion items to the table during Negotiated rulemaking, but it would mean that for shorter tem1 certificate programs, if more than half of the completers had debt, then the median debt level of all completers, in other words not just the debt level of those who borrowed, but the median debt level of all the people who complete the program, that would be the debt level that would be compared against the expected earnings in the occupation the program is preparing people for or the set of occupations. And then the discussion earlier was about well, do you use actual earnings for people who are in the program or do you use averages or 25th percentile with BLS so there's that question about what the measures of income should be, so that would be - the concept was that as a standard. And again, at the table we also had other suggestions for an institution if they didn't meet that particular measure like graduation placement rates and loan prepayment rate. LNAJ -so are you going to be asking them to post their placement rates as well/ Shireman- well placement rates have to be posted starting this July anyway, or placement information. if you have rates, rates need to be posted. LNA ) -so if they don't do it now, if they don't have placement info now . .. Shireman - placement information was done as part of a rule done in - Congress required all schools to post placement information in the Higher Education Opportunity Act, and that goes into effect under the rule that was adopted last year so that goes into effect this July. [John Weir(?)] -from a state regulatory perspective, appreciate the Dept's effort to try to address the cost issue, and one of the things that we've found at the state level is that students don't seem to be price conscious when it comes to education. And what do you think we can do at the state level to help make students better consumers, particularly as to the cost issue? Shireman- I think we've seen some improvement in that because of the economic downturn, are seeing families chop more and really look at, does it really make sense for me to spend $30-40K a year, what about the state university ... what about other options? So I think it has improved somewhat, but more needs to be done. There will be, again because of the Higher Education Opportunity Act, starting I believe this summer, schools will now post net tuition - I cant remember if it's net tuition or net cost of attendance- anyway some net figures by income bands so people will actually be able to go and say, for someone in my fami ly income background, it's more common to pay this price rather than the other price. And starting in, I think it' s a year and a half, all colleges will have to have a net cost calculator, where a person can put in their income and other basic information and get a basic sense of what their net cost would be. So that helps to deal with some of the issues, we've provided some more tools to help people get more information and to help them also deal with reality that sometimes a college that looks really expensive based on its sticker price for a particular family, especially lower income, may not actually be that expensive. So there's some new tools coming forward. I do worry that just more information on the internet doesn't really help that much, and that figuring out who we can provide tools more directly to teachers, counselors, people at one stop job training centers. You know, our website, when people are actually applying, finding those moments, those teachable moments when people are actually thinking through these issues, so suggestions you have about the ways that we can do that, Pell programs, state programs- we're certainly interested in ideas. It's important and not easy to figure out how you teach the vast public things that aren't simple. [Julie]- I guess this is more of a comment, but im somewhat concerned about the potential for consumer confusion with the net cost calculator and different types of disclosers about tuition. I know at the state, I'm in Tennessee, we've required that our enrollment agreements contain the total cost of the program for a very long time. We now require that the tuition rate be posted on the internet, we've required disclosure of completion, referral rate, placement rates for a good while. We now do in depth audits of placement data, so if student looks at our website, it's likely the numbers that they'll see are going to be very difierent from maybe what they see on the F AFSA or some other disclosure on the federal side. So how do we address the very likely possibility of confusion, not knowing different methodologies and standards? Shireman- I think you're right, there is going to be confusion. And even me, when I :first started talking about net tuition, I couldn't remember, is it net tuition, is it net cost? What's included in the definition? And I think there will be confusion, I guess the positive side of that is, usually when you take a step and it creates those problems, it then forces us all to sit down and say, how can we improve on what we had come up with originally? Sort of like, data that's not perfect. Like, we cant post that data, it's not totally clean. But the way to get people to clean their data is, you post it. And when we started posting the student debt data that universities had reported to US News & World Report, and universities would call and say, well that's not our figure and we'd say, well that's what you reported to US News. And they'd go back, and sure enough, somebody had reported something wrong, s I think that you're right, there will be some confusion but that will probably force the issue to some degree. But id also welcome- I mean I'd love to look at what Tennessee does and take it to some of our folks and ask about what we can do, A lot of- for some reason Congress in the education space, especially the higher education space, gets very detailed in the legislation's actual statutory language, which then makes it very difficult for us in the implementation to do things differently that what they had prescribed. So we may not have a lot of flexibility in terms of our implementation but maybe there's some suggestions we could make back to Congress by pointing out to them these issues for particular states. [Ray]- there seemed to be a reluctance on the part of Dept officials as well as most people in the room during the NegReg process to talk about the troublesome aspect of schools not being able to limit student borrowing,. It seems that we have a statute, a rule that leaves the amount that students borrow entirely up to them. It's based on fom1ulas, numbers across[] program lengths are mandated by state laws in many fields of training, [licensure], all these things are out ofthe control of the institution, they cannot seem to limit the amount that students borrow except in very specific case-by-case basis, and then they subject themselves to lawsuits by students claiming they were discriminated against. Might there be any opportunity to open up and look at some of those rules so that we might be able to avoid some serious unintended consequences of a formula that could cause havoc? Shireman- student loan program and the Pell grant program are entitlements. They are entitlements for covering tuition, fees, books, supplies, room & board, and to restrict an entitlement program is a pretty big deal, and that's why it's difficult for us to do in tem1s of regulations. Now you do have the ability, if you believe someone would default on their loan, I think that's the ability that the fin aid administrators have ... you're also able to establish what you feel to be reasonable expenses including in the room & board space. But restricting loans beyond that would likely be something Congress would need to consider, and I think part of the reason Congress has had a hard t ime thinking this one through is higher education has benefitted enormously from Pell grants and student loans, Pell grants working like an entitlement program on an annual basis, and student loan programs being an entitlement program. And going down the road of starting to restrict the entitlement, I think is something to do very cautiously if we want to make sure people get the need they are eligible for. END. (b)(5) Harold From: Shireman, Bob Sent: Thursday, January 07, 2010 1:09PM To: Jenkins, Harold Subject: UOP meeting Importance: High (b)(5) From: Julie Shroyer To: Shireman, Bob Sent: Thu Jan 07 11:54:23 2010 Subject: Hello and Meeting Request Dear Bob, From: Jenkins Harold To: Marinucci. Fred Wolff Russell Woodward, Jennifer Finley Steve Sann, RDnald CC: Date: l/7/20102:16:50PM Subject: FW: UOP meeting I hope the new year is treating you well. Just left you a voice mail message but realize it may be easier to send you a note via email. I Nonresponsive I I"'"'"'''"''" As I indicated in my voice mail, I would also like to submit a fonnal meeting request for Apollo. We are hoping that you may have time in your schedule sometime over the next few weeks. Here are the specifics: Meeting Partic1pants: Greg Cappelli, CEO, Apollo Terri Bishop, Director/Vice President External Affairs, Apollo Julie Shroyer, Sr VP, Wheat Government Relations (consultant to Apollo/University ofPhoenix) Purpose: To discuss ideas for implementing various student/consumer protections (e.g., related to borrowing practices, disclosures, etc.) and the technology that Apollo is developing to support compliance and academic quality and innovation. When: Preferably as soon as possible or within the next few weeks. Thank you so much for your consideration of the request. I look forward to hearing from you and seeing you soon. Best, Julie Julie E. Shroyer SeniorVP Wheat Government Relations 1201 S. Eads Street, Suite Two Arlington, VA 22202 (703) 271-8760 j shroyer@wheatgr.com (b)(S) -----Original Message----- From: Mitchelson, Mary Sent: Friday, September 03, 2010 3:34PM To: Holland, Linda; Minor, Robin Subject: RE: Visit with Bill (b)(5) -----Original Message----- From: Holland, Linda Sent: Friday, September 03, 2010 2:46PM To: Minor, Robin; Mitchelson, Mary Subject: FW: Visit with Bill (b)(S) -----Original Message----- From: Holland, Linda To.: Yuan. Georgia CC: Date: 9/3/2010 3:35:02 PM Subject: FW: Visit with Bill From: Joseph D'Amico [mailto:joe.darnico@apollogrp.edu] Sent: Tuesday, August 24, 2010 8:05PM To: Holland, Linda Cc: Gregory Cappelli Subject: Visit with Bill Hi Linda .. .I hope you are well. Our Co CEO, Greg Cappelli, who Bill has met, and I would like to set up an appointment to meet with Bill and review with him some of the things we are doing to address the GAO report and related matters. If we can get an hour of his time, we would really appreciate it and I know it would be of value to him, especially with all that is going on in the sector. We will do our best to meet his dates. Thanks and look forward to seemg you soon. Warm regards, Joe Sent from my iPad This message is private and confidential. If you have received it in error, please notify the sender and remove it from your system. (b)(5) G -----Original Message----- From: Holland, Linda Sent: Friday, September 03, 2010 3:35PM To: Yuan, Georgia Subject: FW: Visit with Bill (b)(5) -----Original Message----- From: Mitchelson, Mary Sent: Friday, September 03, 2010 3:34PM To: Holland, L i n d a ~ Minor, Robin Subject: RE: Visit with Bill (b)(5) -----Original Message----- From: Holland, Linda Sent: Friday, September 03, 2010 2:46 PM To: Minor, Robin; Mitchelson, Mary Subject: FW: Visit with Bill (b)(5) -----Original Message----- F.-om: Yuan Georgia To: Wolfi Russell CC: Date: 9/3/2010 5:33:16 PM Subject: FW: Visit with Bill From: Joseph D'Amico [ mailto:j oe.damico@apollogrp.edu] Sent: Tuesday, August 24, 2010 8:05 PM To: Holland, Linda Cc: Gregory Cappelli Subject: Visit with Bill Hi Linda .. .I hope you are well. Our Co CEO, Greg Cappelli, who Bill has met, and I would like to set up an appointment to meet with Bill and review with him some of the things we are doing to address the GAO report and related matters. If we can get an hour of his time, we would really appreciate it and I know it would be of value to him, especially with all that is going on in the sector. We will do our best to meet his dates. Thanks and look forward to seemg you soon. Warm regards, Joe Sent from my iPad This message is private and contidential. If you have received it in error, please notify the sender and remove it from your system. From: Wolff, Russell To.: Woodward, Jennifer CC: Date: 9/13/2010 4:52:08 PM Subject: FW: Visit with Bill (b)(5) -----Ori gi nat Message----- From: Holland, Linda Sent Monday, September 13, 2010 4:36 PM To: Wolff, Russell Subject: RE: Visit with Bill I will let you know a couple of dates, and check your availability. -----Original Message----- From: Holland, Linda Sent Monday, September 13, 2010 4:30 PM To: Wolff, Russell Subject: FW: Visit with Bill (b)(5) -----Original Message----- From: Joseph D'Amico [mailto:joe.damico@apollogrp.edu] Sent Tuesday, August 24, 2010 8:05PM To: Holland, Linda Cc: Gregory Cappelli Subject: Visit with Bill Hi Linda .. .I hope you are welt. Our Co CEO, Greg Cappelli, who Bill has met, and I would li ke to set up an appointment to meet with Bill and review with him some of the things we are doing to address the GAO report and related matters. If we can get an hour of his time, we would really appreciate it and I know it would be of value to him, especially with all that is going on in the sector. We will do our best to meet his dates. Thanks and look forward to seeing you soon. Warm regards, Joe Sent from my iPad This message is private and confidential. If you have received it in error, please notify the sender and remove it from your system. From: Kanter Martha To: Yum Georgia CC: Shireman. Bob Date: 4/12/2010 1:54:54 PM Subject: Fwd: Kaplan, DeVry, EDMC Letter to Dep. Sec. Miller (b){S) Martha Kanter Under Secretary U.S. Department ofEducation "The future belongs to those who believe in the beauty of their dreams!" --Eleanor Roosevelt Begin forwarded message: From: "AndrewS. Rosen" To: "Miller, Tony" Cc: "Kanter, Martha", "Shireman, Bob" , "Fine, Stephanie" , "Rebecca Campoverde" Subject: Kaplan, DeVry, EDMC Letter to Dep. Sec. Miller Dear Tony: Attached, in advance of our meeting on Thursday, is a letter on behalf ofKaplan, DeVry and Education Management Corp. in response to your request for suggestions regarding the issue of excessive student debt. We look forward to discussing these and other issues when we meet. Best regards, Andy [ cid :image003 .j pg@O 1 C9E81E.F A05B230] Andrew S. Rosen Chairman and CEO Kaplan, Inc. 6301 Kaplan University Avenue Fort Lauderdale, Florida 33309 (954) 515-3888 www.kaplan.com The Honorable Anthony Wilder Miller Deputy Secretary U.S. Department of Education 400 Maryland A venue, SW Washington, DC 20202 Dear Secretary Miller: April 12, 2010 Thank you for soliciting input on the Department of Education's (ED) proposed Gainful Employment (GE) regulation at our recent meetings. We are writing on behalf of our institutions (Kaplan, DeVry, and Education Management Corporation), which together offer opportunities for over three hundred thousand students to attend college annually. We are deeply committed to educating and preparing our students for the new jobs of the 21st century, and to ensuring that our students receive high-quality, results-oriented education, without being burdened by excessive debt. We understand and support what you are trying to accomplish. We believe that together we can flnd a solution that addresses student debt and simultaneously enables the Administration to achieve its goals of expanding access to quality higher education, particularly among non- traditional students. We believe both sets of goals are achievable. We thought it would be most helpful to (a) describe the contribution of the private sector in achieving the Administration's goals, (b) explain the impact of the latest GE proposal made public, and (c) offer a constructive alternative to this GE proposal that would address the ED's concerns without restricting students' access to college opportunities. Quality Private Sector Colleges Play A Critical Role in Achieving Administration Goals President Obama has said he wants America to have the highest percentage of college graduates in the world by 2020. This goal will require educating millions of additional college students at a cost of many billions of dollars and cannot be met without the participation of quality private sector colleges like ours. The private sector currently educates some 2.7 million students a year and has the resources to help alleviate the fmancial burden of achieving the Administration's goal. Moreover, the private sector attracts more non-traditional students - a critical requirement to increasing the number of college graduates. The Honorable Anthony Wilder Miller Aprill2, 2010 Page2 Not only do private sector colleges attract more non-traditional students, but we also help them graduate and achieve gainful employment at significantly higher rates. A recent report by The Parthenon Group, using ED data for public and private two-year and less institutions, shows that students at private sector colleges graduate at rates roughly 50 percent higher than public schools. The study further shows that private sector college students achieve higher percentage wage increases (54% vs. 36%) after completing their education. 1 The Current GE Proposal Would Dramatically Limit Students, College Opportunities Kaplan, DeVry, and EDMC share the ED's goal of ensuring that students receive a quality education and enter programs with a full understanding of the costs, without incurring excessive debt. We would support regulation that appropriately addresses over-borrowing while enabling high-quality institutions to continue their good work of building capacity and innovation in higher education. The GE criteria proposed by the ED at the end of the most recent Negotiated Rulemaking session attempt to define "gainful employment" by establishing an 8 percent debt-service-to- income threshold based on median student debt for college graduates. Income would be based either on the Bureau of Labor Statistics (BLS) 25th percentile wage data, or actual earnings of college graduates. Loan payments would be based on a 10-year repayment plan. This proposal as written would have a number of unintended consequences. A recent study by Mark Kantrowitz, a respected independent authority on financial aid, concludes: "The 8% debt-service-to-income threshold is so strict that it would preclude for-profit colleges from offering Bachelor's degree programs. It would also eliminate many Associate 's degree programs at for-profit colleges. Even non-frofit colleges would find it difficult to satisfy this standard if they were subjected to it. " Kantrowitz further found that: "The proposed use of Bureau of Labor Statistics wage data ... will disproportionately harm minority and female students. " 3 Kantrowitz also points out that the proposed GE rule tasks institutions with a job without providing the tools necessary to complete the job: 1 Parthenon Perspectives on Private Sector Post-Secondary Schools, February 24, 2010, by Robert Lytle, Roger Brinner and Chris Ross; p. 8; Source: NCES BPS 2004-2006. 2 What is Gainful Employment? What Is Affordable Debt?, Mark Kantrowitz, March 1, 201 0, p. 1. 3 Ibid. The Honorable Anthony Wilder Miller April 12,2010 Page 3 "The debt-service-to-income threshold effectively establishes borrowing limits based on field of study and degree programs, but does not give colleges the controls needed to enforce these limits. Current sub-regulatory guidance precludes colleges from establishing lower loan limits. " 4 Another study conducted by Charles River Associates reaches similar conclusions, estimating that 18 percent of private sector programs will be disqualified from participation in Title IV programs and that this would impact one-third of private sector students. This means that hundreds of thousands of entering students would be displaced annually from private sector colleges. 5 By 2020, approximately 5.4 million students who otherwise would be on track to attend college would be denied access by the proposed GE regulation. 6 Finally, the GE proposal would result in significant job loss among the hundreds of thousands of faculty members, administrators, and staff who work in the private post-secondary sector, and in non-degree programs in public sector and independent schools as well. Students Will Be Protected by Transparent Cost and Debt Information. We remain concerned that defining "gainful employment" by student debt levels is beyond Congressional intent. We believe that the necessary data to both defme the problem and support a sufficient and informed policy have not yet been compiled and analyzed. We are certain there are numerous consequences of the GE proposal that are not currently contemplated by the ED. For these reasons, we propose that student debt concerns be addressed by mandating that all institutions disclose to students the information students need to make informed decisions prior to taking on student debt, as well as warn students about programs that fail to meet a minimum debt-service-to-income ratio under a new student consumer "lemon law." Prospective students who receive sufficient information at the time of enrollment are in the best position to make an informed decision regarding whether or not to attend an institution. We believe the information students need to make decisions concerning the appropriate amount of debt to incur for a given program should be provided in a disclosure form to students. The form would include: (a) the cost of the program of study, (b) a reasonable projection of potential earnings in the students' chosen field upon graduation and throughout the life of their employment in that field, (c) a reasonable estimate of the debt students typically incur to complete their program, and (d) students' repayment plan options. A proposed disclosure form 4 Ibid. p. 2. 5 Report on Gainful Employment, Charles Rivers Associates, April2, 2010, prepared by Jonathan Guryan, PhD, and Matthew Thompson, PhD, p. 38. 6 Executive Summary to Report on Gainful Employment, Charles Rivers Associates, April 2, 2010, prepared by Jonathan Guryan, PhD, and Matthew Thompson, PhD, p. I. The Honorable Anthony Wilder Miller April12, 2010 Page4 is attached as Appendix 1. The accuracy of the information contained in the disclosure form would be ensured by the misrepresentation prohibition that received tentative agreement at the last Negotiated Rulemaking session. The proposed misrepresentation prohibition provides, among other things, that: If the Secretary determines an institution has engaged in substantial misrepresentation, the Secretary may revoke or limit that institution's participation in the Title IV programs. Misrepresentation is defined as any false, erroneous or misleading statement an institution makes directly or indirectly to a student, prospective student, or any member of the public, an accrediting agency, State agency, or the Secretary. A misleading statement includes any statement that has the capacity, likelihood, or tendency to deceive or confuse. The omission of information may also be interpreted as a misrepresentation. In addition to this disclosure, schools would be required to warn students prior to enrollment of any program that fails to meet a debt-service-to-income ratio test. The debt-service-to-income ratio would be based on the approach recently proposed by the ED, with appropriate modifications discussed below. Institutions offering programs that fail the test would be required to warn students in appropriate marketing materials, and in a written disclosure signed by the student prior to enrollment, that (a) the program has failed a debt-service-to-income- ratio test, and (b) student borrowers enrolling in the program should expect to have difficulty meeting their repayment obligations upon graduation. To ensure that the debt-service-to-income ratio is appropriately directed at identifying "outlier" programs we propose that the ratio currently contained in the GE proposal be adjusted as follows: Formula applied to non-degree programs only. )> Degree programs confer lifetime benefits that don't correlate easily to specific job codes, such as higher lifetime earnings, higher income growth rates, greater employability, better career advancement and job stability. 7 In addition, degree holders tend to change jobs and pursue careers seemingly unrelated to the degrees, but using the skills they developed in college. Including degrees in the ratio definition would dramatically undervalue these programs. )> By applying the formula only to non-degree programs, both private and public institutions are impacted in the same manner. A debt-service-to-income threshold of 15 percent, based on median student debt for college graduates, and assuming a current unsubsidized Stafford loan interest rate of 6.8% to calculate the annual repayment amount. 'Kantrowitz, pp. 20-21. The Honorable Anthony Wilder Miller April 12,2010 Page 5 };;> The 15 percent debt-service-to-income threshold is referenced in the Kantrowitz study as a well as a recent study published by the College Board, 8 and is within the range generally used by personal financial counseling professionals. Income based either on the BLS 50th percentile wage data, or actual earnings of graduates if the latter are higher than the BLS 50th percentile. };;> The 50th percentile of the BLS wage data more accurately reflects the long- term potential earnings of a graduate. Moreover, there is no reason to assume that non-degree program graduates, regardless of their backgrounds, would be unable to achieve average earnings. Loan payments based on a 20-year repayment plan. };;> The 20-year loan repayment plan is also referenced in the Kantrowitz study and supported by the fact that borrowers are permitted to, and do, choose repayment plans covering a period of up to 25 years. Exclude prior school debt from the calculation and provide institutions the regulatory ability to control student borrowing, thereby enabling compliance with ratio and 90/ 1 0 requirements. };;> Absent the regulatory ability to control student borrowing, the GE calculation should be based only on direct cost of education. Eliminate the ED pre-approval requirement for new programs. };;> State regulatory bodies and accrediting agencies already require approval of all new programs. We also recommend that the ED consider alternative routes to compliance with the debt- service-to-income ratio test, specifically by establishing: (1) target graduate cohort default rates (GCDRs) (e.g., 12.5% GCDR on a two-year calculation; 15% on a three-year calculation), (2) targets for actual post-graduation salaries that include a multiplier of 1.5x to recognize the fact that lifetime earnings are significantly higher than BLS rates, and (3) thresholds for post- graduate employment rates. We believe that the proposal contained in this letter provides an innovative and effective way to protect students from institutions that over promise and under deliver to students, thus leaving students with too much debt and not enough return on investment. 8 How Much Debt Is Too Much, Sandy Baum and Saul Schwartz, The College Board, 2006, p. 12. The Honorable Anthony Wilder Miller April 12,2010 Page6 We appreciate the opportunity to provide this input and we look forward to sitting down with you soon to discuss these matters further. Yours Truly, Andrew S. Rosen Chairman and CEO, Kaplan, Inc. Daniel Hamburger President and CEO, DeVry Inc. Todd S. Nelson CEO, Education Management Corporation Enclosures cc: The Honorable Martha J. Kanter Mr. Robert Shireman APPENDIX 1 INSTITUTIONAL DISCLOSURES RELATED TO EXPECTED EARNINGS AND DEBT You have requested information about our _....;.A=c=co=u=n"'-'t=in"""'g.__ ___ program Program Level: D Associates [g)Bachelors 0 Masters Ocertificate/Diploma Here are some important disclosures for the award year ending June 30, 2010 During the year ended June 30, 2009 , 75.8 %of students enrolled in this program graduated or continue to be actively enrolled at the institution while 24.2 % ceased enrollment. Of the students who graduated, 88.6 % were employed in their field of study, or a related field, within six months of graduation with an average annual salary of approximately$ 46,300 per year. This academic program corresponds to the following Standard Occupational Classification (SOC) codes as reported by the Bureau of Labor Statistics (BLS): 13-2011 . The weighted annual salaries for these SOC codes at the 25th and 75th percentiles are $ 45,900 and $ 78,210 , respectively. For information related to salaries from these and other occupations, please visit http://www.bls.gov/oes/current/oes_nat.htm. The cost of this program of study for a student enrolled full-time and with no transfer credits is $ 62,040 . The average annual tuition increase for the most recently concluded three years was 4.6 % The average education loan debt of students incurred at this institution and who graduated from this program during the prior award year was $ 33.100 . This amount includes $ 30,900 of federal student loan debt and $ 2,200 of institutional loan debt. This does not include any debt incurred while attending another institution. Additionally, 4.6 %of graduates obtained private student loans from third parties. If this average education loan debt was 100% federal loans with an average interest rate of 6.8% and you chose to repay using a 10 year standard repayment term, the annual total of 12 monthly payments would be $ 4,571.04 . If you chose to pay using a graduated repayment plan (over 10 years), the total of your first 12 monthly payments would be$ 3,138.60 . For more information concerning repayment options on federal loans, please visit https:/ /studentloans.gov/myDirectLoan/index.action. The latest official Cohort Default Rate (FY07) from the US Department of Education indicates that 1.7 % of graduates in thi s program defaulted on their federal loans. PLEASE NOTE THAT YOUR ACTUAL EXPERIENCE MAY BE DIFFERENT THAN THE AVERAGES AND STATISTICS PRESENTED ABOVE. From: Kanter Martha To: Weiss, Joanne CC: Martin, Carmel Yuan Georgia Rose Charlie Gomez_ Gabriella Ochoa Eduardo Miller Tony
Date: 9/2/2010 10:24:24.PM Subject: FYI: A Message from Dr. John Sperling, Founder- University of Phoenix September 2, 2010 Attn. Legislative Director Dear Congress Member, As founder of the University of Phoenix, I am writing to you and to every Member of Congress concerning recent actions by the U.S. Department ofEducation and the Senate Committee on Health, Education, Labor and Pensions. The Department ofEducation, seconded by the HELP Committee, has proposed new rules that will seriously undercut the ability of the nation to remain globally competitive by undermining a vital sector of our higher education system-for- profit colleges and universities. I am writing to you because I am confident that every Member of Congress, whether or not they are a member of a committee that deals with higher education, would like quality higher education to be available to every American who seeks to earn a college degree. That is the stated goal of President Obama. However, we will not be able to reach the President's goals without for-profit colleges. The states do not have the funding needed to increase capacity whereas private sector colleges like ours can provide the necessary capacity. For-profit colleges already provide flexibility and access for millions ofunderserved and nontraditional students who could not complete their education in a traditional institution. The attached power point has been prepared by NEXUS, a research and policy institute whose primary focus is the for- profit sector of higher education. Given its commitment to fact based research, not special pleading, the power point presents a rationale for the need to rethink the reforms proposed by USDOE and the HELP Committee using as an example the case of the University ofPhoenix, whose massive database on its operations and its academics has been made available to NEXUS researchers. As the largest institution in the sector-465,000 students with 90,000 graduates last year-the University ofPhoenix illustrates the strengths and weaknesses of for-profit colleges and universities. The NEXUS study documents the financial system that sustains it, the quality of the University' s programs, the innovations it has brought to higher education and where it has failed to meet regulatory standards and its own code of conduct It also documents the steps the University has taken to insure future compliance with all regulatory standards. Perhaps the most important finding of the case study is the fact that for-profit institutions operate at no cost to taxpayers because the interest students pay on their federal loans plus the taxes paid by the institutions is greater than the Pell Grants and all of the other state and federal subsidies received by the students and the institutions. Further, the study shows that not only will the proposed reforms require a mYor increase in Department of Education oversight staff, they will greatly lower the efficiency and raise the costs of the institutions in the sector-all at the expense of taxpayers. It would seem wiser to restore the status quo ante when the Department ofEducation was pursuing a reform that would truly benefit taxpayers, namely to require all institutions of higher education to measure the learning outcomes of their students and to publish those results on an annual basis. Overseeing the measurement protocols used by institutions in order to expose cheating on the tests, would be a far more productive use of Department of Education resources than what is presently contemplated. Only when learning outcomes are measured and published will taxpayers know what they are getting for their money and the "bad actors" be easily identified-namely the institutions whose students are low performers. When you have finished reviewing the power point, we hope you will be persuaded that for-profit colleges and universities are a vi tal sector of the American higher education system that deserve the support of the Department of Education and the Congress, along with responsible oversight, rather than a set of regulations that will instead inhibit their efficiency, their growth, their culture of innovation and, most importantly, their ability to deliver a quality education to millions of! ow-income Americans now denied access to the education they need to give them a chance to join the middle class. The worst of these regulations concerns the definition of"gainful employmenf' and a new regulation that sets the minimum rates at which students in a program must be repaying on the principal of their student loans. The new definition of gainful employment is so onerous it would make it impossible for the sector to offer many programs that prepare students for certification in such occupations as teachers, nurses, counselors and public safety officers. The repayment percentage requirements, apparently arrived at with insufficient attention to their potential negative consequences, would have a devastating impact on institutions that enroll low-income students who often require several years in the workforce before they can begin repaying the principal on their student loans. For example, if these requirements were applied to Historically Black Colleges and Universities, over 90% of them would have to close their doors. Representative Robert Andrews (New Jersey - 01) has proposed a definition of gainful employment that would correct the many faults of the definition proposed by the Department ofEducation. He has written to Education Secretary Arne Duncan setting forth the negative consequences resulting from the Department's definition while proposing an alternative which would remove these negative consequences and still gain the same objectives. Many of the institutions in the for- profit sector support Congressman Andrews' s initiative and we are asking all Members of the Congress to lend their supp01t as well. I have attached a draft of a letter of support which we hope you wilt use as a model for a letter from you to Secretary Duncan with copies to Speaker Nancy Pelosi and to Congressman Andrews. The University and every institution in the sector would very much appreciate your support. Thank you for your time and consideration of this important issue. [ cid:imageOO l.gif] John G. Sperling Founder University ofPhoenix From: Kanter, Martha Sent: Saturday, April 03, 2010 6:03PM To: Private- Duncan, Arne Subject: FW: updated memo (b)(5) Martha Georgia Yuan Deputy General Counsel Postsecondary and Regulatory SeiVice LBJ 6E341 202- 401-6399 From: Kanter Martha To.: Yuan. Georgia CC: Date: 4/3/2010 6:04:36 PM Subject: FYI: updated memo Gainful Employment (b)(S) 1 (b)(5) 1 (b)(5) 1 (b)(5) ~ ~ ~ - ~ . ~ ~ ~ . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - : 1 - - - - - - ~ (b)(5) 1 (b)(5) 1 (b){S) 1 (b)(5) 1 (b)(5) 1 (b){S) 1 (b)(5) 1 (b)(5) thanks From: K vaal James To: .N.filler, Tony Weiss, Joanne Rose. Charlie Cunningham Peter Gomez Gabriella Yuan Georgia CC: Kanter, Martha Ochoa, Eduardo Date: 9/3/2010 6:37:10 PM Subject: gainful employment (b)(S) Richard -----Original Message----- From: Scott, Byron Sent Wednesday, April14, 2010 10:37 AM To: Nelson, Richard; Hale, Milton Subject: RE: From: Nelson, Richard To.: Finley, Steve CC: Scott, Byron Hale, Milton Date: 4/14/2010 1:40:58 PM Sub.iect: Gainful Employment Proposal My goodness, Credit Suisse seems to have a very good source. I wonder who that might be? (b)(S) -----Original Message----- From: Nelson, Richard Sent: Wednesday, Apri l 14, 2010 12:02 PM To: Hale, Milton; Scott, Byron Subject: FW: Do either of you know anything about the Department's "Gainful Employment" proposal? See the attached PDF file. -----Original Message----- From: James, Bob Sent: Tuesday, April 13, 2010 3:25PM To: Nelson, Richard Subject: Robert H. James Liaison for Career Institutions of Higher Education US Department ofEducation FAX: 317-257-2098 Call first Cell Phone #202-557-5835 D.C.# 202-377-4301 Indianapolis Office 317-257-2098 8527 Quail Hollow Road Indianapol is. IN 46260-2208 CREDIT SUISSE Research Analysts Kelly Flynn, CFA 617 556 5752 13 April 2010 Americas/United States Equity Research Education Services (Business & Professional Services) I MARKET WEIGHT Education Services = UPGRADE RATING keny.nynn@credit-suisse.com Upgrade DeVry and ITT On New Gainful Patrick Elgrably, CFA E I I . h 312 750 2974 mp oyment ns1g ts patrick.elgrably@ credit-suisse .com Adam Shatek, CPA We are upgrading ITT (ticker ESI) and DeVry (ticker DV) to Outperform from 312 750 3317 Neutral due to new insights on the DOE's Gainful Employment stance. We adam.shatek@credit-suisse.com are raising our ITI price target to $135 from $105 and our DeVry price target to $75 from $55 as DCF discount rate reductions reflect perceived decreased Gainful Employment risks. We detail our DCF analysis assumptions for DV and ESI below. We are restricted on EDMC. All other Neutral ratings are unchanged (see next page for details}. We believe DOE's latest GE proposal leaves 8%110 year parameters unchanged. Following discussions with industry contacts last night, we believe that the Department of Education on Friday submitted its Gainful Employment and other program integrity proposed language to the Office Of Management and Budget (the OMB) for vetting. We believe the goal is to publish the Notice of Proposed Rule Making by May 15, or June 1 at the latest, and to publish final regulations by November 1. We also believe the 8% debt-service-to-income ratio and 10 percent repayment period inputs remain unchanged as of now and that the "90% of graduates in repayment" exemption remains unchanged. But, we believe DOE added a 50% completion exemption. Based on our discussions, we believe one big change in the new draft proposal is the add back of the "exemption" (that was removed in January after appearing in the initial draft language) for schools with certain student completion and job placement rates. We believe the completion rate cut off is now a more generous 50% (versus 70% included in initial draft) and the placement rate cut-off is 70% (same as in initial draft language; we believe most companies with placement rates have rates above 70%). We think 50% completion rate exemption would help ESI, DV, & EDMC regulatory positioning the most. We believe the 50% exemption, although not eliminating Gainful Employment risks, would most significantly improve the positioning for companies with placement rates at or close to 50% that would, without an exemption, have potentially seen earnings prospects decimated by a new Gainful Employment regulation; DeVry, ITT and Education Management fit this profile. Although none of these companies release completion rates, the DOE data (which likely understates actual completion rates because it only includes first-time, full time students and not transfers or part time students) is close enough to 50% to make us think these companies likely have 50% completion rates or could achieve them in coming years without decimating earnings prospects; most recent DOE completion rate data points are -39% for ESI (ESI also said on recent call that 60% make it through first year), - 31% for DV and -41 % for EDMC's Art Institute (-56% of company's students). Further, we believe ESI's valuation, and DeVry's to a lesser extent, have been among those most negatively impacted by Gainful Employment concerns. DOE flexibility may also fuel more investor optimism. We also acknowledge that the 50% completion rate change, if in fact it occurs, could fuel investor optimism that the DOE could ease its stance further in coming months in response to more pressure that may arise after the NPRM is posted. DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity ot this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE Sector Implications/Thesis Update Countercyclicality and other sector regulatory concerns remain; other ratings unchanged. We continue to worry that countercyclicality will hurt growth in coming quarters and we believe that. even if the Gainful Employment proposal is eased somewhat. the broader regulatory landscape is likely to remain challenging for the foreseeable future; we expect the DOE to tighten the Incentive Compensation rule and to generally seek to crack down on schools' recruiting underqualified, under-informed students. Further, our thesis on other companies under coverage is not changed significantly by our changing view on Gainful Employment. Our concerns about APEI , APOL, COCO, LINC and UTI are largely unrelated to Gainful Employment. CPLA, STRA and LOPE trade at premium valuations already, and we are not confident they would make the cut on the 50% completion or graduation loan repayment Gainful Employment exemptions. For BPI and CECO, although shares look cheap, we are also not confident Gainful Employment exemptions apply, and we believe these companies also face other significant regulatory risks. We are restricted on EDMC. Valuation Our price target changes largely reflect decreases in our discount rate used in the DCF analyses due to lower perceived Gainful Employment risks, in our view. Our $135 ESI price target is derived from our DCF analysis. We summarize our DCF assumptions below: 2010-2020 revenue Compound Annual Growth Rate (CAGR) of 4.9%. 2009 operating margin of 37.9% going to 39.2% by 2020. A Weighted Average Cost of Capital (WACC) of 16%. Terminal free cash flow growth of 3%. Working capital changes and capital expenditures that remain in-line with historical ratios. Our $75 DV price target is derived from our DCF analysis. We summarize our DCF assumptions below: 2010-2020 revenue Compound Annual Growth Rate (CAGR) of 10.7%. 2009 operating margin of 19.7% going to 20.2% by 2020. A Weighted Average Cost of Capital (WACC) of 14%. Terminal free cash flow growth of 3%. Working capital changes and capital expenditures that remain in-line with historical ratios. Price Price Rating Target Price Year' EPS EPS FY1E Company ccy 09 Apr 10 Prev. Cur. Prev. Cur. End Ccy Prev. Cur. DeVry Inc. (DV) US$ 65.06 N 0 55.00 75.00 Jun 09 uss - 3.41 ITI Educational Services (ESI US$ 108.78 N 0 JVI 105.00 135.00 Dec09 US$ - 10.50 13 April 2010 EPS FY2E EPS FY3E Prev. Cur. Prev. Cur. - 4.05 - 4.65 - 11.69 - 12.63 o- Outperform, N- Neutral, u- Underperform, R- Restricted Source: Company data, Credit Suisse estimates. [VJ = StOCk considered volatile (see DISclosure Appendix). Education Services 2 CREDIT SUISSE 13 April 2010 Companies Mentioned (Price as of 09 Apr 10) American Public Education, Inc. (APE!, $46.03, NEUTRAL, TP $41.00) Apollo Group Inc. (APOL, $63.14, NEUTRAL [V], TP $65.00) Bridgepoint Education (BPI, $23.60, NEUTRAL [V], TP $18.00) Capella Education Company (CPLA, $90.90, NEUTRAL, TP $72.00) Career Education Corp. (CECO, $31.70, NEUTRAL [V], TP $28.00) Corinthian Colleges, Inc. (COCO, $17.51 , NEUTRAL [V], TP $14.00) DeVry Inc. (DV, $65.06, OUTPERFORM, TP $75.00) Education Management Corporation (EDMC, $22.60, RESTRICTED [V]) Grand Canyon Education (LOPE, $25.68, NEUTRAL, TP $21.00) ITT Educational Services, Inc. (ESI, $108.78, OUTPERFORM [V], TP $135.00) Lincoln Educational Services (LINC, $25.70, NEUTRAL [V], TP $21.00) Strayer Education, Inc. (STRA, $238.70, NEUTRAL, TP $195.00) Universal Technical Institute (UTI, $23.05, NEUTRAL [V], TP $19.00) Disclosure Appendix Important Global Disclosures I, Kelly Flynn, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for DV DV Closing Target Price Price Initiation/ Date {USS) {USS) Ratins Assumetion 4/27/07 34.52 29 6/18/07 35.22 NC 2/21/08 43.86 65 0 X 6/20/08 58.54 N 7/30/08 56.75 R 10/8/08 45.19 52 N 12/5/08 58.37 53 4/21/09 42.12 44 8/14/09 51.89 50 10/28/09 56.13 52 1/27/10 63.32 55 67 62 51 52 47 42 37 32
- aosngPae& TaJQet Pri:e Rating O:Oulperlo<m; f'I=Ne.rtral; U:Unde<pertotm; R:Restrcled; NR:Nol Rated; NC:NOI Co.eted 3-Year Price, Target Price and Rating Change History Chart for ESI ESI Closing Target 165 ----------------------------11!i-llf------------------- Price Date (USS) 4/27/07 97.9 6/18/07 113.52 2/21/08 60.17 2/25/08 54.02 6/20/08 88.4 10/24/08 74.1 2/2109 129.43 4/21/09 101.31 Price Initiation/ (USS) Ratins Assumeti on 110 65 61 81 84 165 105 NC N 0 N X 145 ------------------------------------------------- - OosilgPae& Rating O:Outperlo<m: f'I=Ne.rtral; U=Underpertotm: R=Restri:led: NR=Nol Ra1ed: NC:Nol Co.ered The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Suisse's investment banking activities. Analysts' stock ratings are defined as follows: Outperform (0): The stock's total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk} over the next 12 months. Neutral (N): The stock's total return is expected to be in line with the relevant benchmark* (range of 1 0-15%} over the next 12 months. Education Services 3 CREDIT SUISSE 13 April 2010 Underperform (U): The stock's total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months. *Relevant benchmark by region: As of 2gh May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock's absolute total return potential to its current share price and (2) the relative attractiveness of a stock's total return potential within an analyst's coverage universe .. , with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may tall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock's total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock's total return relative to the analyst's coverage universe ... For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts' perceived risk. The 22% and 12% thresholds replace the + 1 015% and -1 015% levels in the Neutral stock rating definition, respectively, subject to analysts' perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. 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Price Target: (12 months) for (DV) Method: Our $75 target price for DV is derived from our Discounted Cash Flow (DCF)based model. Our target price is based on the following assumptions: 2010-20 revenue CAGR (compound annual growth rate} of 10.7%, 2010 operating margin of 19.7% going to 20.3% by 2020, a WACC (weighted average cost of capital) of 14% and terminal free cash flow growth of 3%. Risks: The following factors may affect our projected results and $75target price for DeVry: its heavy reliance on IT-related education which could hurt results if IT spending declines, an economic recovery which could curt countercyclical post-secondary education companies, changes in the regulatory and accreditory environments, and the impact of a downturn in the student lending environment which could threaten the magnitude of federal loans to DeVry's students. Price Target: (12 months) for (ESI} Method: Our $135 target price for ESI is derived from our Discounted Cash Flow (DCF)-based model. Our base case DCF has the following assumptions: 200919 revenue CAGR of 4.9%, operating margins going from 37.9% to 39.2% from 2010-20, a WACC of 16%, and terminal free cash flow growth of 3%. Risks: The following factors may affect our projected results for ESI and our $135 price target: its heavy reliance on IT-related education which could hurt results when IT spending declines, an economic recovery which has the potential to negatively impact countercyclical post-secondary education services companies, impact of greater regulatory and accrediting agency requirements and the recent downturn in the student lending environment, which impacts the magnitude of federal loans provided to ITI students. Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections. 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CREDIT SUISSE SECURITIES (USA) LLC United States of America: + 1 (212) 325-2000 ITT and DV Upgrade.doc From: Jenkins, Harold To: Yum Georgia CC: Marinucci Fred Date: 4/13/2010 1:47:18 PM Subject: Gainful employment--lr.: (b-.-: )(7- Sl--------------, (b)(5) Harold -----Original Message----- From: Finley, Steve Sent: Tuesday, April 13, 2010 10:21 AM To: Jenkins, Harold; Marinucci, Fred; Wolff, Russell; Sann, Ronald; Yuan, Georgia Subject: FW: Signal Hill- Post-Secondary Education: Relief: Gainful Employment Gains Alternative Measure (b)(5) Business Services- Education Services Industry Update April 13, 2010 Relief: Gainful Employment Gains Alternative Measure Trace Urdan 415.364.0365 turdan@signalhill.com Our Call: As anticipated, Department ofEducation (USDOE) draft regulations went to the Office ofManagement & Budget (OMB) last Friday 4/9 for review prior to their publication in the Federal Register --likely 5/15. A credible source close to OMB te11s us that while the 8% median debt/income measure, and the 90% student loan repayment measures appear to be essential! y unchanged from the tenus presented by the USDOE in January, a third alternative measure has been added. This measure would allow programs with a graduation rate of 50% or better and a subsequent job placement (in the relevant field) of 70% or better to qualify out of the other two measures. Though the devil will certainly be in the details, including how these items are to be considered for students that are transferring credits and may be already employed, the new measure effectively removes the significant threat the rules had created for nationally-accredited degree programs with typically high default rates. The new measure, in fact, seems to closely resemble rules already imposed by national accrediting bodies. And while we might anticipate that the tenus could be stricter in USDOE's conception, they should be eminently achievable with minimal disruption for all programs. According to USDOE analysis, (in process of being reviewed by OMB,) the rules themselves would only affect 6-8% of all for-profit programs, with culinary, automotive tech, and nursing programs hardest hit. (yVe note that this seems out of keeping with our knowledge of these programs as represented by publicly-traded schools, but nevertheless appears to represent a conclusion reached by USDOE.) Our contact indicated that the University of Phoenix (NASDAQ: APOL; Buy) was not seen as affected at all in the USDOE analysis. While we expect all post-secondary school stocks to benefit from the news, we believe that the those names that had been most challenged by the existing tenus are likely to see the biggest benefit as a result of the change. These include m Educational Services (NYSE: ESI; Buy), Corinthian Colleges (NASDAQ: COCO; Buy), and Career Education (NASDAQ: CECO; Buy) which recently heralded graduation rates comfortably above 50%. Though some individual programs may still fail all three tests, we believe these are likely to be isolated, rare and fixable. We view this apparent concession as evidence of a desire by Secretary Duncan to defuse what was promising to be an area of real contention, as evidenced by House Republicans, members of the Congressional Black Caucus, and Senator Lamar Alexander all calling out the Secretary on this issue. Secretary Duncan needs, in our opinion, a diverse coalition of supporters to pass his signature issue: K-12 education refonn. Because the Secretary's K-12 proposals do not easily fall within typical party boundaries, he really does need a bipartisan coalition in both the House and Senate education committees to pass his version ofESEA (NCLB). No concession at all would have kicked off a loud and publicized summer of public commentary. Because it is very difficult to argue that a 50% graduation rate and a 70% employment rate is an onerous burden, we think USDOE has effectively neutered the campaign to ditch the rule entirely. We still expect industry to challenge the rule in public and likely later in court, but based on our reliable source, we believe investors need no longer fear that significant revenues could be at risk in the event that the rules are passed. Please see end of this report for important disclosure(s) Investment Analysis: Important Disclosures Analyst Certification I, Trace Urdan, hereby certify that all of the views expressed in this research repmt accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Signal Hill does not compensate its equity research analysts based on specific investment banking transactions. Signal Hill Equity research analysts receive compensation based on several factors, including overall profitability and revenues of the finn, which include investment banking revenues. Meaning ofRatings Signal Hill uses a three-tiered rating system defined as follows: BUY: We expect this stock to outperform its peers over the next 12 months: HOLD: We expect this stock to perfom1 in line with its peers over the next 12 months: SELL: We expect this stock to underperfonn its peers over the next 12 months: Distribution ofRatings/JB Services Signal Hill 1B Serv./Past 12 Mos. Rating Count Percent Count Percent BUY(BUY) 77 61.6 72 93.5 HOLD(HOLD) 47 37.6 38 80.9 SELL(SELL) 1 0.8 1 100.0 Disclaimer This report has been prepared using sources we deem to be reliable but we do not guarantee its accuracy and it does not purport to be complete. This report is published solely for information purposes and is not intended to be used as the primary basis for making investment decisions, which should reflect the investment objectives and financial situation of the investor. The opinions expressed herein are subject to change without notice. This report is not an offer or the solicitation of an offer to buy or sell securities. Additional information is available upon request. DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT MEMORANDUM (b)(5) 6 DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT (b)(5) 6 (b)(S) DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT 6 DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT (b)(5) 6 (b)(5) DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT 6 (b)(5) DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT 6 (b)(5) DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT 6 DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT (b)(5) 6 DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT (b)(5) 6 DRAFT PRIVILEGED DOCUMENT ATTORNEY WORK PRODUCT (b)(5) 6 April 13, 2010 Trace Urdan turdan@signalhill.com 415.364.0365 Business Services - Education Services Industry Update Relief: Gainful Employment Gains Alternative Measure Our Call: As anticipated, Department of Education (USDOE) draft regulations went to the Office of Management & Budget (OMB) last Friday 4/9 for review prior to their publication in the Federal Register -- likely 5/15. A credible source close to OMB tells us that while the 8% median debt/income measure, and the 90% student loan repayment measures appear to be essentially unchanged from the terms presented by the USDOE in January, a third alternative measure has been added. This measure would allow programs with a graduation rate of 50% or better and a subsequent job placement (in the relevant field) of 70% or better to qualify out of the other two measures. Though the devil will certainly be in the details, including how these items are to be considered for students that are transferring credits and may be already employed, the new measure effectively removes the significant threat the rules had created for nationally-accredited degree programs with typically high default rates. The new measure, in fact, seems to closely resemble rules already imposed by national accrediting bodies. And while we might anticipate that the terms could be stricter in USDOE's conception, they should be eminently achievable with minimal disruption for all programs. According to USDOE analysis, (in process of being reviewed by OMB,) the rules themselves would only affect 6-8% of all for-profit programs, with culinary, automotive tech, and nursing programs hardest hit. (We note that this seems out of keeping with our knowledge of these programs as represented by publicly-traded schools, but nevertheless appears to represent a conclusion reached by USDOE.) Our contact indicated that the University of Phoenix (NASDAQ: APOL; Buy) was not seen as affected at all in the USDOE analysis. While we expect all post-secondary school stocks to benefit from the news, we believe that the those names that had been most challenged by the existing terms are likely to see the biggest benefit as a result of the change. These include ITT Educational Services (NYSE: ESI ; Buy) , Corinthian Colleges (NASDAQ: COCO; Buy), and Career Education (NASDAQ: CECO; Buy) which recently heralded graduation rates comfortably above 50%. Though some individual programs may still fail all three tests, we believe these are likely to be isolated, rare and fixable. We view this apparent concession as evidence of a desire by Secretary Duncan to defuse what was promising to be an area of real contention, as evidenced by House Republicans, members of the Congressional Black Caucus, and Senator Lamar Alexander all calling out the Secretary on this issue. Secretary Duncan needs, in our opinion, a diverse coalition of supporters to pass his signature issue: K-12 education reform. Because the Secretary's K-12 proposals do not easily fall within typical party boundaries, he really does need a bipartisan coalition in both the House and Senate education committees to pass his version of ESEA (NCLB) . No concession at all would have kicked off a loud and publicized summer of public commentary. Because it is very difficult to argue that a 50% graduation rate and a 70% employment rate is an onerous burden, we think USDOE has effectively neutered the campaign to ditch the rule entirely. We still expect industry to challenge the rule in public and likely later in court, but based on our reli able source, we believe investors need no longer fear that significant revenues could be at risk in the event that the rules are passed. Please see important disclosure information on page 2 of this report. April13, 2010 Important Disclosures Analyst Certification I, Trace Urdan, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.Signal Hill does not compensate its equity research analysts based on specific investment banking transactions. Signal Hill Equity research analysts receive compensation based on several factors, including overall profitability and revenues of the firm, which include investment banking revenues. Meaning of Ratings Signal Hill uses a three-tiered rating system defined as follows: BUY: We expect this stock to outperform its peers over the next 12 months: HOLD: We expect this stock to perform in line with its peers over the next 12 months: SELL: We expect this stock to underperform its peers over the next 12 months: Rating BUY HOLD SELL Disclaimer Distribution of Ratings/IS Services Signal Hill Count 77 47 1 Percent 61.6 37.6 0.8 18 Serv./Past 12 Mos. Count 72 38 Percent 93.5 80.9 100.0 This report has been prepared using sources we deem to be reliable but we do not guarantee its accuracy and it does not purport to be complete. This report is published solely for information purposes and is not intended to be used as the primary basis for making investment decisions, which should reflect the investment objectives and financial situation of the investor: The opinions expressed herein are subject to change without notice. This report is not an offer or the solicitation of an offer to buy or sell securities. Additional information is available upon request. Post-Secondary Education 2 From: Shireman, Bob To: Yuan. Georgia Manheimer Ann Arsenault, Leigh CC: Date: 4/4/2010 12:07:28 PM Subject: GE deck-- Confidential DELIBERATIVE PROCESS Attachments: GE 1 .ppt (b)( 5) Robert Shireman Deputy Undersecretary U.S. Department ofEducation (202) 260-0101 (b)(5) From: K vaal James To: Bergeron. David Yuan, Georgia Martin. Phil Arsenault L e i ~ h CC: Date: 7/20/2010 8:42:52 PM Subject: GE document control (b)(S) (b)(5) (b)(5) (b)(5) (b)(S) (b)(S) From: Kanter, Martha To.: Rose, Charlie Weiss. Joanne Cunningham, Peter Mattin, Cannel Gomez. Gabriella Yuan Georgia CC: Kvaal James Date: 9/13/2010 10:45:02 PM Subject: GE documents Attachments: 090910 lobbying and repay rates 2 ppt (b)(5) Martha From: Kvaal, James Sent Monday, September 13, 2010 6: 12 PM To: Miller, Tony Cc: Kanter, Martha Subject: FW: GE documents Tony, (b)(5) Thanks James DRAFT* PRELIMINARY * PREDECISIONAL INTERNAL DRAFT (b)(5) (b)(5) lNTERNAL DRAFT (b)(S) From: Arsenault Leigh To: Bergeron. David Yuan, Georgia Martin. Phil Kvaal James CC: Date: 7/21/2010 11:21:08 AM Subject: GE documents, revised All, thanks for your feedback and comments. Attached are the cleaned-up documents. Thanks! Leigh (b)(5) 1 (b)(5) 1 (b)(S)
(b)(5) (b)(S) (b)(5)
From: Yuan Georgia To: K vaal, James Weiss. Joanne CC: Bergeron. David Rose Charlie Date: 9/24/2010 5:35:08 PM Subject: GE- Meetings- Attorney-Client Privileged and Confidential James and Joanne (b){5) Georgia Georgia Yuan Deputy General Counsel Postsecondary and Regulatory Service LBJ 6E341 202-40] -63 99 (b)(S) DRAFT 4 *INTERNAL DOCUMENT* DELIBERATIVE PROCESS CONFIDENTIAL 2 (b)(5) (b)(5) 2 (b)(5) Charli e Sent using BlackBerry From: Rose Charlie To.: Yuan. Georgia CC: Borders. Tia Date: 3/3112010 5:56:34PM Subject: Kaplan and devry meeting