Showing posts with label Robert Kelchen. Show all posts
Showing posts with label Robert Kelchen. Show all posts

Sunday, January 22, 2023

Robert Kelchen Calcuates Debt-to-Earnings Ratio For 45,000 Post-Secondary Programs: A Treasure Trove of Data

 As Education Secretary Miguel Cardona observed recently, college graduates, on average, make about one million dollars more over their working careers than people who only have high school credentials. 

I'm sure that's true, but that fact doesn't mean that all college programs lead to higher incomes or that all programs are reasonably priced.

Robert Kelchen, a professor at the University of Tennessee, Knoxville, performed a valuable service by creating a dataset that compares program-level debt with earnings outcomes for more than 45,000 postsecondary programs. This dataset calculates the debt-to-earnings ratio for students one year after they leave their respective institutions.

Obviously, this enormous dataset can be analyzed in many different ways. My brief analysis examined programs with the highest debt-to-earnings ratios--those that left former students with three times as much debt as their first-year earnings.

Forty programs are in this category, and all but six are graduate programs. Five Branches University, a private institution in California, tops the list with a debt-to-earnings ratio for its master's degree in Alternative and Complementary Medicine of more than nine to one. Its students leave the program with an average debt load of $144,276  and an average salary one year after leaving the school of only $16,011.

Second on the list, with a debt-to-earnings ratio of almost eight to one, is Bastyr University's program in Alternative and Complementary Medicine. One year after leaving the program, its former students have a median income of $22,411 and an average debt load of $175,690.

In fact, of the 40 programs with debt-to-earnings ratios of more than three to one, eleven are programs in alternative medicine, complementary medicine, or acupuncture.  

Film, fine arts, and drama are also well-represented among programs with high debt-to-earnings ratios. Of the 40 programs with debt-to-earnings ratios of more than three to one, thirteen are fine arts, film, or drama programs.

Professor Kelchen's database prompts this question.  How much should students borrow to fund their education? 

Camilo Maldonado, writing for Forbes, recommends a borrowing limit of no more than two-thirds of a graduate's expected starting salary. Thus, if you expect your starting salary to be $50,000, you should borrow at most about $33,000. 

Applying that formula to Professor Kelchen's database, students graduating from almost 4,000 academic programs are leaving school owing more money than they can comfortably pay back.

As Maldonado pointed out, the federal student loan system is designed to lend students potentially more money than they can repay. The colleges don't care how much debt their students amass to finance their studies.

On the contrary, students must decide for themselves how much college debt is prudent to accrue. Unfortunately, as Professor Kelchen's database makes clear, a great many students are not making that calculation. 

In his commentary, Maldonado reminds us that the price of a college education is increasing almost eight times faster than wages. Thus, Maldonado warns, "This means that overpaying for an education is becoming increasingly disastrous." 








Monday, January 16, 2017

The Department of Education ignores signs of an impending student loan meltdown: The Deepwater Horizon Syndrome

Deepwater Horizon, a giant offshore drilling rig in the Gulf of Mexico, blew out on April 20, 2010.  Eleven workers died, and more than 200 million gallons of crude oil spewed into the Gulf.

According to the recent film about the blowout, this catastrophe could have been prevented. Instruments on the rig alerted workers that pressure was building around the concrete core and that a blowout was imminent; but supervisors convinced themselves that the instruments were malfunctioning and everything was fine. (John Malkovich, the movie's villain, plays Don Vidrine, a fiendish British Petroleum technocrat.)

John Malkovich in Deepwater Horizon
Something similar is happening with the student loan crisis. DOE issued its College Scorecard in 2015, which reported the percentage of students who are in repayment and actually paying down their loans.  DOE reported that 61.1 percent of student borrowers had made some progress toward paying down their loan balances 5 years into repayment.

But a coding error led to an erroneous report. As Robert Kelchen, a professor at Seton Hall University explained in a recent blog posting, the picture is much bleaker than DOE portrayed.

Five years into repayment, less than half of student borrowers have made any progress toward paying off their student loans. Among borrowers who attended for-profit colleges, the numbers are even more startling.  Five years into repayment only about a third of for-profit students (35 percent) had reduced their loan balances by even one dollar!

People who don't reduce their loan balances five years after beginning repayment are not likely to pay off their student loans--ever. In fact, the Brookings Institution reported in 2015 that nearly half of for-profit borrowers in a recent cohort had defaulted on their loans within 5 years (47 percent).

In short, DOE is behaving just like John Malkovich's character in the movie Deepwater Horizon. The data warn of an impending blowout; but DOE keeps pumping money to the for-profit colleges. A disaster is inevitable; and there are already millions of casualties.



References

Paul Fain. Feds' data error inflated loan repayment rates on the College Scoreboard. Inside Higher Ed, January 16, 2017.

Robert Kelchen. How Much Did a Coding Error Affect Student Loan Repayment Rates? Kelchen on Education, January 12, 2017.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).

Michael Stratford. The New College Scorecard. Inside Higher Ed, September 14, 2015.

Tuesday, October 6, 2015

A Brookings Institution Blogger Asks a Very Good Question: "How well do default rates reflect student loan repayment?"

Robert Kelchen, posted a blog essay on the Brookings Institution's "Brown Center Chalkboard" that asks a very good question: "How well do default rates reflect student loan repayment?'

Kelchen pointed out that "just over half" of the $623 billion in Direct Loans made to students who have entered repayment are  current on their loan payments. Borrowers  with approximately $111 billion in student-loan debt are delinquent or in default.  And borrowers owing another $180 billion are in deferment or forbearance.  In other words, borrowers holding about 46 percent of outstanding Direct Loans aren't making payments.

People whose loans are  in deferment or forbearance aren't counted as defaulters.  But interest is accruing for most of these people, which means their loan balances are getting larger and more difficult to repay.

Kelchen makes several important points in his blog essay, but the most important point is this: "Cohort rates substantially underestimate the percent of students who have been unable to lower their loan balances." And here's the money quote:
Of the nearly 5,700 colleges with data on both [cohort default rates] and repayment rates, the median college had a 14.9 percent three-year [cohort default rate] while 40.8 percent of students did not repay any principal in the first three years after leaving college.  This means that one in four exiting students was not in default, yet did not make a dent in their loan balance in the first three years after entering repayment.
What does this mean?   First of all, a three-year default rate of nearly 15 percent is alarming in itself. But the fact that a quarter of non-defaulting student-loan borrowers did not reduce their loan balances by even a dollar three years after beginning the repayment phase is truly frightening. Those people are not counted as defaulters as long as they retain their  forbearance or deferment status,but their loan balances are getting bigger with each passing month. In short, a lot of people who are currently excused from making loan payments will never pay off their student loans.

When we reflect on the implications of Kelchen's essay along with an earlier Brookings Institution report showing that nearly half of people who attended for-profit colleges default within five years of beginning repayment, we get some sense of the magnitude of the student-loan crisis.

It's time for the Department of Education, Congress and the American public to face this fact: student-loan forbearance options, loan deferment options, and long-term income-based repayment plans are all ways to hide from reality, which is this: millions and millions of people are holding billions of dollars in student-loan debt, which they can't pay off.

And since the Bankruptcy Code makes loan forgiveness so onerous, millions of suffering people will be burdened with this debt for the rest of their lives.

Let's face it, 21st century America is not much different from 18th century England.  Our country doesn't put debtors in prison or deport them to Australia; it just lets them dangle on the outskirts of the American economy until the day they die.

Image result for unemployed


References

Robert Kelchen. How well do default rates reflect student loan repayment? Brookings Institution, The Brown Center Chalkboard, September 30, 2015. Accessible at: http://www.brookings.edu/blogs/brown-center-chalkboard/posts/2015/09/30-default-rates-student-loan-kelchen