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Student loan repayment rates at Baylor and elsewhere continue to attract attention

As high-school seniors choose their colleges and college students consider graduate school, dozens of publications are releasing rankings – some on very specific topics and others focused on broader metrics. Increasingly, Student Debt metrics drive some of the rankings – and the decisions of many of those students.

Two experts (including one from Baylor) say that alumni across the country may be struggling to a greater degree than the numbers being used to rank schools would indicate.  For its part, Baylor Communications tends to shy away from this whole discussion – they did not respond to questions from the BAA over a two-week period – but there is some public data that indicates some improvement for at least a segment of the Baylor population.

In one such high-profile survey that puts a major emphasis on student debt, Baylor ranked 197th of 650 schools on Forbes’ list of America’s Top Colleges 2015, which was published in July.  Forbes partnered with the Washington, D.C.-based Center for College Affordability and Productivity (CCAP) for the list, which measures “output” over “input.” That means they care less about what gets a student into college and more about Return on Investment (what are students getting out of a college).

The staff at CCAP used 12 factors to calculate their rankings, with data falling into one of five categories: Student Satisfaction (25%), Post-Graduate Success (32.5%), Student Debt (25%), Graduation Rate (7.5%), and Academic Success (10%).

According to Forbes editor Caroline Howard, who described Baylor’s overall ranking as “pretty good,” Baylor had its highest rankings from a targeted student-satisfaction survey on Facebook and from the number of alumni who made an “America’s Leaders” list (22.5%) – that is, people who appeared on various Forbes lists plus Nobel and Pulitzer winners, Guggenheim and MacArthur Fellows, those elected to the National Academy of Sciences, and winners of an Academy Award, Emmy, Tony, or Grammy.

On the flip side, Baylor scored lowest on what Howard described as “institutional things” that included Retention Rate, Graduation Rate, and the category where it scored lowest — Debt Default Rate.  In each case, the rankings were based on reporting that Baylor submitted to third parties.

Baylor’s Debt Default rate scores were based on federal numbers for graduate students that show higher levels than many of the university’s peers in Texas.  The 3-year cohort default rate is the percentage of a school’s borrowers who enter repayment on certain Federal Family Education Loan (FFEL) Program or William D. Ford Federal Direct Loan (Direct Loan) Program loans during a particular federal fiscal year (FY), October 1 to September 30, and default or meet other specified conditions prior to the end of the second following fiscal year.

Baylor has historically declined to provide loan-default numbers for loans taken by its undergraduates, which many experts say trend higher at most institutions.  In Baylor’s case, these numbers are getting better, which bodes well for next year’s Forbes rankings, but the figures were based on only 2,615 students in repayment.  So would an improved ranking mean that Baylor alumni are having fewer struggles with their student debt across the board?

Baylor’s Robert Cloud and Richard Fossey from the University of Louisiana at Lafayette argue that the DOE three-year default rate is a poor measure for determining the percentage of students who are actually paying back their student loans.

So how big is the problem facing recent graduates?

“Millions of people have obtained economic-hardship deferments or loan-repayment forbearances that excuse them from making student-loan payments,” said Fossey. “These people are not counted as defaulters even though they are not making student-loan payments. Nevertheless, most people who select these options will see their loan balances go up due to accruing interest.”

Likewise, about 3.9 million people have signed up for long-term income-based repayment plans that lower their monthly loan payments but extend the repayment period from 10 years to as long as 25 years.  Again, most people in long-term repayments will see their loan balances go up because their monthly loan payments are not large enough to cover accruing interest.

“Forbearances, economic-hardship deferments and income-based repayment plans give student borrowers short-term relief from their student-loan burdens,” Fossey said. “Unfortunately, most borrowers who select these options will see their loan balances grow larger over time. In other words, their loans will negatively amortize.”

According to a recent Brookings Institution report, negative amortization has surged across all sectors of higher education in recent years. In fact, 57 percent of student-loan borrowers from the FY 2012 cohort saw their loan balances go up two years after beginning the repayment phase of their loans due to accruing interest (Table 8).  Among students who had attended “select” institutions like Baylor, about a third (36 percent) saw their loan balances go up two years after beginning the repayment phase of their loans.

But is that a temporary problem or something more?

The Department of Education recently released data through its interactive College Scorecard, which provides students and families with the critical information they need to make smart decisions about where to enroll for higher education.  Brookings used DOE data in its report, and you can find Baylor’s results here.

That database shows that 87.7% of Baylor alumni with federal student loans have not defaulted and have seen decreases in their loan balances over the first five years since entering repayment, and the number increases to 90.6% if you look at their payments over the first seven years after entering repayment.  The numbers exclude enrolled students and military deferment from calculation.

Repayment Rates and Median Starting Balances for Graduates

Five YearSeven YearStarting Balance
Dallas Baptist75.2%84.0%$23,430
Texas A&M91.8%94.4%$19,253

Source:  Starting Balance represents the original amount of the loan principal for students who completed their degree.

By comparison, the repayment rates for similar populations at SMU, Texas A&M, UT-Austin, and Texas Christian are slightly higher, and Rice alumni are repaying at a 96.2 and 97.2% rate, respectively.  Dallas Baptist alumni are repaying at a lower rate than the others.

Compounding that, the median amount of the loan principal upon entering repayment are higher for Baylor graduates ($25,281) compared with its peer schools in Texas, according to the DOE/College Scorecard data.

What is the significance of this development? Simply this: Although three-year default rates are going down for every sector of higher education, the number of students who are making no student-loan payments or payments too low to reduce accruing interest has gone up. All these people will find it more difficult to ultimately pay off their student loans because their loan balances are getting larger with each passing month—not smaller.

For its part, Baylor seems aware of the problem, as evidenced by the growth of its Baylor Bound partnerships that enable students to start at lower-cost community colleges and then transfer to Baylor.  In addition, Student Financial Services has a free financial education program called Financial Foundation to provide resources and coaching to Baylor students.  Unfortunately, the university chose not to respond to requests to outline what else it is doing to mitigate this problem.

What do you think?  Is this an issue that university administrators – at both Baylor and elsewhere — should be focusing more resources on, or is it an issue for families?

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