College Scorecard Data Show High Rates of Non-Repayment on Federal Student Loans and Signs of Forbearance Abuse
By: Nancy Wong
The latest updates to the College Scorecard include new institution and program-level information on recent students and their ability to successfully repay their federal loans, including the proportion of borrowers who are not currently making payments on all student loans because their loans are in default, delinquency, forbearance, or deferment one year and two years after entering repayment.[1] Having better data on borrowers who are unable to make loan payments (but not necessarily in default) is critical, since almost half of undergraduate borrowers (46%) missed payments on at least one loan two years out of college.
Sixty Percent of Undergraduate Non-Completers Do Not Make Loan Payments Two Years After College
Similar to findings in our previous blog that indicated disparities in loan repayment by credential completion status, these rates of non-repayment are much higher for non-completers than completers. About 60 percent of non-completers did not make loan payments, compared to 32 percent of completers.[2] Among borrowers who left for-profit colleges, almost half (47%) of graduates and over two-thirds (70%) of non-completers did not make payments on their loans. The extent of non-repayment among borrowers underscores the importance of looking at broader measures of borrower distress, than default or repayment rates alone, to understand the severity of borrower struggles after college.
Forbearance Is the Most Common Status Among Borrowers Who Do Not Make Loan Payments
These new data provide some of the strongest evidence yet that some colleges, especially for-profit colleges, may divert struggling borrowers into forbearance to avoid the worst outcome of default. Forbearances provide borrowers with temporary payment to help them in times of financial distress, but they add to the cost of the loans, and do not help students access longer term supports like income-based repayment plans. Within the two-year repayment cohort, forbearance is the most common status among those missing loan payments. Among completers and non-completers respectively, 16 percent and 25 percent of borrowers were in forbearance.[3] Forbearance was even more common at for-profit colleges, where roughly one-third of borrowers were in forbearance (29% for completers and 33% for non-completers). Borrowers in forbearance are highly concentrated at for-profit colleges with 27 percent of borrowers in forbearance having attended these schools, compared to only 7 percent of all undergraduates who attended for-profits in 2018.
High rates of forbearance add to longstanding concerns that some colleges may be abusing forbearance protections to avoid accountability. The U.S. Department of Education holds colleges accountable for the share of their federal student loan borrowers who end up in default shortly after entering repayment, cutting off colleges, where too many students end up in default, from receiving additional federal financial aid. In response to these accountability measures, some colleges use forbearances to postpone students’ default — rather than engage longer-term strategies to help them avoid it — in order to keep their default rates low and federal aid flowing. The U.S. Government Accountability Office has found that such efforts undermine schools’ accountability for defaults and increases costs to students.
Across all colleges, 20 percent of borrowers were in forbearance two years after entering repayment. However, at 356 colleges, which collectively represent eight percent of all borrowers, at least one-third of borrowers are in forbearance.[4] Of these 356 outliers, 77 percent are for-profit colleges. Among those with the most borrowers in forbearance[5] are Florida Career College, United Education Institute, Grantham University, and Strayer University. Several “nonprofit” colleges on the list have converted from for-profit status in the past, including Center for Excellence in Higher Education-owned Stevens-Henager College and Independence University, Ultimate Medical Academy, and Altierus Career College, formerly Everest, sold by Corinthian Colleges before its eventual collapse. Soon after the onset of the COVID-19 pandemic, many of these schools were relying upon lead generators to exploit prospective students’ interest in online education. For a list of the top fifteen colleges with at least a third of borrowers or more in forbearance, visit our website here.
Supporting Students’ Loan Repayment and Closing Loopholes on Forbearance Abuse
As did our last post, these findings underscore the need to invest in strategies to increase college completion in service of successful loan repayment, and to install guardrails, like the federal gainful employment rule, that keep colleges focused on student success. But they also speak to the need to ensure colleges are not evading accountability by focusing on short-term solutions for struggling borrowers rather than longer-term ones. Borrowers in forbearance continue to accrue interest that capitalizes on their original loan balance, which can increase borrowers’ risk of future default.[6] While forbearance can be a useful tool to support borrowers in the short-term, it should not be used as a long-term solution. Changes to federal rules defining college Cohort Default Rates (CDRs) would curb rule evasion, and improvements to income-driven repayment (IDR) plan design and administration would better support students in getting the longer-term solutions they need.
For more information, see TICAS’s fact sheet on Gainful Employment, our recommendations for addressing Forbearance Abuse and improving IDR, and our proposal to scale student success efforts.
Nancy Wong is a senior research associate for The Institute for College Access & Success
Originally published at https://ticas.org on March 9, 2021.
[1] Default, delinquency, forbearance, or deferment represent four of the loan statuses, while the remaining four repayment statuses are not making progress, making progress, paid in full, and discharged.
[2] Figures throughout this blog exclude borrowers with missing or unknown loan status, which comprised about five percent of all borrowers in the repayment cohort nationally.
[3] Calculations by TICAS using data from the U.S. Department of Education’s College Scorecard. Borrower-based loan status rates are calculated on a two-year pooled cohort of undergraduate students who borrowed federal student loans and separated from college during award years 2013–2015.
[4] These figures do not exclude missing data reported by colleges.
[5] Among these colleges, we list seven for-profit colleges that rank among the top ten with the most borrowers in forbearance. Of the three colleges not listed, one is another for-profit college and the remaining two are public community colleges. While these two community colleges are listed among the top ten, only six percent of public community colleges have a third, or greater than a third of their borrowers in forbearance.
[6] The Institute for College Access and Success. 2019. Driving Down Default, How to Strengthen the Cohort Default Rate to Further Reduce Federal Student Loan Default Risk. https://ticas.org/wp-content/uploads/2019/11/Driving-Down-Default.pdf
