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Report Shows Poor Rates of Grad Student Loan Repayment at HBCUs, For-Profits

Inside Higher Ed

By Andrew Kreighbaum

The Obama administration for years battled with the for-profit sector over a rule that would hold higher ed programs accountable for graduating students with debt they couldn’t repay.

That rule, known as gainful employment, applied to all career education and certificate programs, and the first set of ratings last year found most failing programs clustered in the for-profit sector.

But among graduate and professional schools — which had few programs outside of for-profits subject to the rule — a new report finds historically black colleges and universities have the highest shares of student borrowers who haven’t paid down any of their loan principal within a few years of entering repayment.

The report by Jason Delisle, a resident fellow at the American Enterprise Institute, examines federal data on graduate students who entered repayment in 2009 and tracks their progress on student loans through 2014. Notably, private nonprofit and for-profit institutions were heavily represented among grad schools with poor performance on loan repayment when adjusting for total student loan debt.

The findings reveal that the type of sector of a higher ed institution — public, private or for-profit — doesn’t necessarily determine whether graduates will have success paying down loan debt after leaving.

The data reflect institutional results only, meaning they don’t show how particular programs perform. And they exclude institutions with fewer than 100 students entering repayment. But the report is the first examination of graduate student progress on student loans.

Delisle said it’s important to note that because the federal government has made little data available on graduate student loan repayment, the information would be new to many institutions themselves.

“If policy makers want better outcomes, they’ve got to get better information to the schools,” he said. “This is probably news to them.”

Delisle found that among alumni of all graduate and professional schools, the median share of borrowers who had made no progress paying down their loan principal was 20 percent.

Graduate schools with a high proportion of borrowers whose loan debt grew faster than they could repay it — known as negative amortization — could present a consumer risk to students, Delisle said. But graduate institutions with high dollar amounts of student loan debt not being paid down could present a bigger risk to taxpayers even if they perform well on the negative amortization metric, he argued.

Eleven institutions in the data had 50 percent or more of borrowers fail to reduce their loan principal; seven were public historically black institutions. Those institutions included Mississippi Valley State University (where 65 percent of borrowers hadn’t reduced their loan principal by 2014), Southern University at New Orleans (62 percent) and Grambling State University (59 percent). Others with high shares of such borrowers included private for-profit Everest University (58 percent), nonprofit Metropolitan College of New York (53 percent) and the University of Texas at Brownsville (55 percent).

Harry L. Williams, president and CEO of the Thurgood Marshall College Fund, which represents public HBCUs, said those institutions have educated many students with significant financial need, including many first-generation college students. And he said the organization has taken steps such as supporting financial aid literacy education and building talent pipelines to employers so graduates can find well-paying jobs.

“The AEI report data is eye-opening and we support all efforts to make improvements in the lives of the nearly 300,000 students on our public HBCU campuses,” Williams said. “We will work with AEI and other partners to reduce all barriers to opportunity for success and financial independence so they can expeditiously pay back their loans and stay in the black.”

Among the institutions where the negative amortization rate outpaced the median for graduate schools and the 2009 graduate cohort’s debt was $100 million or more were private nonprofit New York University and for-profit Strayer University.

The report comes as the Department of Education prepares to issue a new gainful-employment rule after Secretary Betsy DeVos last year opted to overhaul the Obama regulation. The latest department proposal in a series of negotiated rule-making sessions would turn gainful employment — a potentially high-stakes accountability metric before — into a disclosure rule affecting all higher ed programs. But the proposal excluded graduate programs from disclosure requirements.

Delisle said the data in the report showed that’s a big mistake.

“Let’s get good, reliable information there,” he said. “That’s a great first step.”

But he said he was skeptical that accountability rules could effectively take account of risks to both students and the federal government.

Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities, said the report made clear that loan repayment for graduate students is not just a problem at for-profit institutions. But he said repayment outcomes won’t necessarily reflect the same underlying reasons for those outcomes.

“It could be that one group of students was ripped off and another was just weighed down by lack of resources for the undertaking,” he said.

He said the report showed the risk in choosing to exclude graduate programs from disclosure requirements.

Michael Itzkowitz, a former department official in the Obama administration and now a senior fellow at the think tank Third Way, said if the department expands gainful employment to cover more programs, graduate schools would be a good place to start.

“However, it’s also important that we hold these programs accountable for their outcomes,” he said. “If a graduate program is leaving most of its students owing more on their original loan even years after entering repayment, it may be too risky of a bet for students and taxpayers, alike.”