Today my colleagues Erin Dillon and Robin Smiles published a new report detailing how a group of HBCU’s successfully and dramatically reduced student-loan default rates (Chronicle coverage here). It offers an important lesson about incentives and public accountability.
The story begins in 1990, when the federal government cracked down on thousands of fly-by-night colleges that were defrauding the government by signing up students for bogus loans. The national loan default rate peaked at 22.4 percent that year, costing taxpayers billions. Congress responded by banning any college where more than 25 percent of borrowers defaulted for three consecutive years from the program. The law was a spectacular success — over 1,000 colleges were kicked out and the national default rate dropped to the mid-single digits.
Most legitimate colleges were unaffected by the 25 percent standard. But a few — primarily those that served low-income and first-generation students — ended up under the gun. Unsurprisingly, given their historical mission, this group included a number of HBCU’s. Initially, HBCU’s were exempted from the 25-percent rule. But when the federal Higher Education Act was reauthorized in 1998, the exemption was lifted. Because so many of their students relied on federal grants and loans, this was akin to the death penalty. A number of the threatened HBCU’s were in Texas. They banded together to share resources and strategies. And it worked! The chart below tells the tale.
The two lines on the chart show historical default rates for the Texas HBCU’s and another group of HBCU’s that also had high default rates but weren’t part of the coalition. Because it takes two years to calculate a two-year default rate, the three most recent default rates in 1998 were for the 1994, 1995, and 1996 cohorts. As the chart shows, default rates for these institutions averaged over 30 percent in those years, and had been at similar levels for some time.
Then the law changed, effectively creating a federal accountability system for student-loan default rates. Suddenly, the colleges had strong incentives to improve that hadn’t existed before. And in response, default rates immediately began to decline, with rates for the Texas consortium declining the fastest. Rates held steady between 10 and 15 percent before starting to creep up again a decade later — perhaps, as the report notes, because the initial focus had worn off and the accountability system was based on only a single measure: above or below 25 percent.
In short, colleges respond to incentives. Higher education accountability works. If Congress hadn’t exempted HBCU’s in 1990, it would have worked earlier. Gentle suggestions that autonomous institutions make difficult changes tend not to be very effective. Nor is it enough to simply report information. The default rates in question had been public knowledge for years. It wasn’t until Congress actually attached consequences to the numbers that the colleges sat up and took notice.
And once they took notice, they did all kinds of smart things. College leaders sent a clear message that default aversion was a campuswide priority. Admissions, student affairs, financial aid, academic affairs, and alumni affairs officers worked together in (relative) harmony. The colleges began paying much more attention to their students, watching them for warning signs of dropping out (a major risk factor for default) and staying in close contact after graduation. Financial-aid policies were altered to reduce excess borrowing. New student tracking systems were built. Colleges pooled resources to hire outside help that none could have afforded to pay for on their own.
What they didn’t do was stop enrolling students who needed student loans. Strong public accountability is somewhat of an alien concept to higher education, and opponents are always quick to play the “unintended consequences” card, e.g. “If you try to raise graduation rates colleges will just lower academic standards.” I’m always amazed at how colleges are so quick to argue from their own lack of academic integrity (“Don’t push me or I’ll start churning out worthless degrees!”), but in any event the case of the Texas HBCU’s suggests otherwise. Colleges respond to incentives just like any other organization. The challenge is to have more, stronger incentives that are aligned with the best interests of students and the public at large.
The report also serves as an important counterweight to the narrative being peddled by the Career College Association, which has strongly opposed new federal provisions that tighten default-rate standards on the nonsensical (and again, weirdly self-nullifying) grounds that colleges have no impact whatsoever on whether or not their students graduate and earn enough money to pay back their loans. Asked to comment on the report, CCA president Harris Miller said that while the CCA “did not have time to review the Education Sector report’s methodology to decide “whether we agree with the conclusions about how much default variance is explained by external factors (e.g., nature of student population, state of economy) as compared to factors over which an institution has more control.” Miller’s “initial reaction,” he said “is that the analysis underplays the significance of the student risk factors of students who attend community colleges, minority serving institutions, and career colleges.”
This is a key lesson for those of you interested in pursuing careers as well-paid lobbyists for corporate trade associations — it’s crucial that you be able to say, on the record and with a straight face, “I have not read the report but nonetheless disagree with its findings.”
7 Responses to Mirabile Dictu, Higher-Education Accountability Works
goxewu - February 24, 2010 at 8:47 am
“‘If you try to raise graduation rates colleges will just lower academic standards.’ I’m always amazed at how colleges are so quick to argue from their own lack of academic integrity (‘Don’t push me or I’ll start churning out worthless degrees!’)”For further enlightenment on this point, I recommend an essay entitled, “How I Aced College–and Why I Now Regret It,” by this fellow named Kevin Carey, published in something called the Chronicle of Higher Education way back in January of 2010. In it, Mr. Carey details how he gamed the system to earn a bachelor’s degree without actually, in substance at least, earning a bachelor’s degree.Mr. Carey’s essay furnishes yet another example of supply (in this case, the requirements for earning a bachelor’s degree) morphing itself downward in quality to meet demand (a student’s desire to “earn” a bachelor’s degree without inconveniencing his carefree dude’s life). Apparently Mr. Carey’s limited memory, coupled with a rather Panglossian view of institutional behavior, allow him to believe that the same would never, ever happen with colleges. Heavens forfend that colleges would ever morph downward the requirements for earning a bachelor’s degree from them in order to achieve a graduation rate that would allow them to continue to issue government-guaranteed student loans!
cbr79 - February 24, 2010 at 11:09 am
How can someone be so obtuse? About three months ago Carey called for eliminating the federal student loan program that made much of this work at these institutions possible–not all of it, of course. The schools did a lot of the heavy lifting. But with support and services from a FFELP guaranty agency. DId anyone notice that the U.S. Department of Education, which penalizes schools for high default rates, didn’t lift a finger to help any of these colleges? For decades the U.S. Department of Education has had the opportunity to step forward and implement serious default prevention initiatives. It chose not to. Private organizations in a competitive student loan marketplace stepped into the breach, via FFELP.
kevincarey1 - February 24, 2010 at 12:02 pm
goxewu – I didn’t say that colleges never lower their academic standards. I said that I’m amazed they’re so willing to make such threats, and noted that no such untoward behavior occurred in the case of the studied HBCUs. More to the point, Binghamton didn’t adopt the policies I described in response to any sort of accountability pressure. They did it (I assume) because it was convenient and easier for students, faculty, and administrators alike. But if colleges want to argue that they’ll betray their core academic values at the drop of a hat, I suppose they’re free to do so. I don’t, however, think this will prove to be a particularly fruitful long-term strategy for garnering public support.
goxewu - February 24, 2010 at 1:20 pm
True, my parallel was not quite parallel. But Mr. Carey did game the system and there’s no reason to expect that colleges won’t game the system in the other direction. Anyway, HBCU’s are more vulnerable–poorer and, let’s face it, less prestigious–than most four-year colleges. They can be strongarm…OK, “influenced”…more easily. And Mr. Carey’s undergraduate strategy, as he himself notes, didn’t hurt him in the long term–unless one considers working for one of those education think tanks less than reputable. (No comment.)The whole thing is a specific application of a Peter Principle. There are others, e.g., as a wise professor once noted, “Requiring a book for tenure doesn’t get better tenured faculty, it only gets more bad books published.” And grade inflation–is that because today’s students, like those in Lake Wobegon, are all above average?Schools won’t exactly “betray” their “core academic values,” and they won’t do it at “the drop of a hat.” They certainly won’t announce it. In order to improve graduation rates they’ll just gradually make it EASIER TO GRADUATE. In the increasingly corporatized world of higher education, the bottom line is the bottom line. Do we think, for example, that the adjunctification of faculties owes to adjuncts being so much more particularized in their expertise, flexible in their schedules, etc. Or could it be because they’re CHEAPER? And making it easier to graduate by lowering standards is a lot kinder to the bottom line than raising students up to standards. It’s just like getting a bachelor’s degree by tending as minimally as possible to the letter of the requirements is easier–and sometimes kinder to the student’s bottom line–than adhering to the spirit of the requirements even though it’s harder.
intered - February 24, 2010 at 4:06 pm
Stripped of the particulars, I see a number of empirically plausible courses of action when financial incentives and disincentives are associated to retention in a not-for-profit institution of higher education. The arguments above seem to center on the extremes as the only possibilities. Incentives will affect retention statistics and when we look inside these statistics, we are likely to see a number of causal paths in addition to those properly described as “gaming the system” which implies explicit, intentional action on the part of the institution. When a college president calls for increased retention to graduation rates, especially if he is a persuasive leader, I can imagine a number of actions wherein department heads and instructors will look for “sticking spots” in the program path. A research sequence may suffer from insufficient quantitative lab support. A project course may be so inauthentic as to fail to capture the imagination and motivation of students. Notice that there is a plausible basis for arguing that quality increases in the case of these two of many possible examples.My bottom line here, however, is that we have set our sights on a chimerical variable. Not a single one of these institutions can reasonably speak of “quality” in anything other than a vague literary sense. None of them conceptualize, measure, or manage quality in a way that meets minimal modern definitions of the construct. Most often, the term is a shibboleth. Since we have no scientifically valid aggregate picture of what happens to “quality” when we push on graduation rates, my call would be to push graduation rates anyway and hope for the best. We’re used to flying IFR in higher education and getting rates up is a better bet than waiting for higher education to come to terms with the notion of quality.———————-Robert W TuckerPresidentInterEd, Inc.www.InterEd.com
kevincarey1 - February 24, 2010 at 5:39 pm
goxewu – You say that “In order to improve graduation rates they’ll just gradually make it EASIER TO GRADUATE.” Do you have any evidence to back that up? A number states hold public colleges and universities accountable for graduation rates to various degrees (See http://bit.ly/c3HpZo for a list). Is there any evidence that academic standards have been compromised as a result of these policies? It’s worth noting that many of the institutional strategies that have been successful improving retention and graduation–structured first-year experiences, learning communities, early-warning systems, more active counseling, summer bridge programs, etc.–implicitly or explicitly demand *more* from students, not less. The idea that graduation rates vary inversely with academic rigor is commensensical but in my view actually quite wrong.
jffoster - February 24, 2010 at 7:27 pm
Mr. Carey says in 6 that “structured first-year experiences, learning communities, …, counseling, summer bridge programs, etc.–implicitly or explicitly demand *more* from students.” The ellipses are mine. They comprised “early-warning systems, more active counseling” to which I have no objection, But except for these, More what do these other things demand from students? More hoops? More coddling? More being hovered over by helicopters, now not just parents but associate deans, “first year experience directresses (we cant say “freshmen”– that might hurt their self esteem)? If this is higher education, higher than what? It’s more high schooley than my high school was.