In case you ever had any doubts about the inefficiencies of the Department of Education, look no further than the recent revelation that the agency has been vastly overestimating student loan repayment rates.
On the last day of the Obama administration’s tenure, the College Scorecard the department established has been quietly revealed to have serious flaws.
The Obama administration conceded coding errors found in the College Scorecard inflated college repayment rates, potentially misleading students. The Wall Street Journal went as far as to report that, “on closer inspection, the mistake doesn’t look innocent or innocuous.”
The College Scorecard was created to provide students with more information about their financial future when graduating college. Students who went on the College Scorecard website and found that a school had a relatively low student loan default rate might have been encouraged to attend that institution, making the decision that their financial investment in college would be a benefit to them in the future.
However, as The Wall Street Journal reported, the Department of Education overstated the three-year repayment rates of students—meaning, students who have paid at least $1 back on their student loans—by about 20 percentage points.
Perhaps more alarming is that with the new accurate repayment rate of 46 percent, this now means that most college graduates are not paying off their student loan debt at all.
When we lump this new information in with the recent Government Accountability Office finding that the taxpayers will forgive $108 billion in student loans over the next 10 years as a result of the public sector loan forgiveness provision, it is time for policymakers to take the financial mess of higher education seriously.
With college costs rising at a rate twice that of inflation and the unemployment rate of recent graduates rising, the higher education sector requires a dramatic policy redirection.
A recent paper released by the Mercatus Center adds to the body research suggesting that more federal involvement in higher education raises tuition costs.
Economists have noted for decades that as federal assistance for higher education has increased, so has the cost of college tuition. Authors Mark J. Warshawsky and Ross Marchand write, “According to the most recent empirical analyses, which exploit new data sets and better methodologies than do older studies, these two trends are closely related.”
While left-leaning policies such as loan forgiveness and free public college transfer these ever-increasing college costs to the American taxpayers (most of whom do not have bachelor’s degrees), there is a better path forward to lower college costs for everyone.
The first step would be to rein in the amount of lending controlled by the federal government to make space for private lenders, institutions, and philanthropy.
Next, policymakers should reform our accreditation system to allow non-traditional education models to flourish. While the Obama administration was heavily critical of for-profit colleges, we now know that its justification for placing heavy regulations on this sector—low repayment rates—applies to other types of institutions as well. As the Journal explained:
The other scandal is that the Obama administration used the inflated Scorecard repayment data as a pretext to single out for-profit colleges for punitive regulation. The punishment was tucked into a rule finalized in October allowing borrowers who claim their college defrauded them to discharge their debt. It requires for-profits in which 50 percent or fewer borrowers are paying down their principal to post the equivalent of a surgeon general’s warning in all promotional materials … If the regulation were applied evenly, a large number of nonprofit and public institutions would fail to meet the standard. But then the justification for the department’s selective regulation of for-profits would vanish.
The recent revelation of undercounting repayment rates on the scorecard—and those inflated repayment rates potentially having advantaged some schools over others on the scorecard—demonstrates why the federal government should not be in the business of scoring colleges.
The federal scorecard should go by the wayside, along with regulations finalized in October unfairly targeting for-profit institutions.
At the very least, the federal government should be neutral in its regulations on the higher education sector when they exist and allow students to decide which schools provide the education and skills they need to pursue their life and career goals.
Note: This article was updated to correct a misstatement about the administration’s overestimation of student loan repayment rates.
