In October, the National Center for Education Statistics (NCES), part of the independent research arm housed within the U.S. Department of Education, released a new report looking at the debt levels of bachelor’s degree recipients for the past two decades. Titled “Degrees of Debt,” it particularly focused on how student borrowers were doing with their debt one year after graduating. The report had some interesting statistics on things like the percentage of students that borrowed and the average amount of debt, but prompted little more than a few quick mentions in the trade press.
Surprisingly then, for-profit college advocates have jumped on one finding that did not even merit a call-out by the media to argue against further regulation of the sector by the Education Department. They claim that the report shows that unaffordable debt payments are such a problem throughout higher education that it’s unfair to have the gainful employment regulatory effort target high student debt relative to earnings only at career-oriented programs. This argument has now popped up from representatives of for-profit colleges during the last negotiation session around gainful employment, as well as in a Wall Street Journal op-ed written by a former senator and a board member of a publicly traded for-profit college company. UPDATE: This letter from Rep. Alcee Hastings (D-Fla.) and others has some of the right qualifiers, but then makes an incorrect comparison as well.
There’s just one problem. What’s cited as the Department’s own proof of faults in its gainful employment proposal is really a misleading apples-to-oranges comparison that’s hiding behind a lack of context to make its point.
The Talking Point
The finding cited by opponents of gainful employment relates to the ratio of student debt to earnings. That’s because the proposed gainful employment rules would hold programs accountable if the mean or median annual payments on student debt made by graduates of a program exceeds 8 percent of their mean or median earnings. Programs with an annual debt-to-earnings rate between 8 and 12 percent would get three consecutive chances to improve after the first time ending up in that range, while those above 12 percent would have one more chance.
But opponents object to those thresholds and how they are determined. They marshal several arguments, but one of them is that many traditional college programs not subject to the gainful employment measures would also fail these tests – proving that they are being unfairly singled out. They support this argument in part by citing Figure 8 on page 12 of the “Degrees of Debt” report, which is produced below. As the Wall Street Journal op-ed put it, this shows that “26% of graduates from four-year public colleges exceeded an even higher 12% debt-to-earnings ratio; at private institutions, it was 39% of alums.”
The NCES and Gainful Employment Calculations Are Very Different
While the op-ed characterization appears to match what’s in the figure above, it’s noticeably lacking in those oh-so-pesky things that tend to creep into complicated statistical descriptions: qualifiers. The figures above represent a very specific and narrowly defined group of students. For example, the figure is not of all graduates. It is bachelor’s degree graduates who borrowed for their education and were actively repaying them. And it doesn’t show how those people are doing several years into repayment; it’s a snapshot one-year out. Sure, that’s an annoying mouthful that would make your English teacher weep, but details matter.
Even with the proper qualifiers, using this study to quibble with gainful employment entails significant comparative problems. As presented in the table below, the students captured in the NCES study simply are not the same students who would have their debts and earnings measured for gainful employment purposes.
Comparison of Students Captured in NCES Study vs. Proposed Gainful Employment Debt-to-Earnings Rate
Gainful Employment Regulations
|Earnings Measurement Window||The first year after graduation||The third and fourth years after graduation|
|Income Source||Income from primary job||All income and jobs reported to the Social Security Administration|
|Credential Levels||Bachelor's degree||All types|
|Completion Status||Graduates only||Graduates only|
|Financial Aid Status||Student loan borrowers||Any students who received grants or student loans from the U.S. Department of Education|
|Exclusions||Students not paying their loans for any reason||Students in school or military service, or that are deceased|
Most significantly, the NCES study only looks at the status in 2009 of people who graduated in the 2007-08 academic year. That includes someone who has been in repayment for as little as six months and one day (since those in the six-month grace period are excluded). For someone just getting established in the workforce, that does not provide a particularly meaningful picture of their circumstances. By contrast, the gainful employment calculation looks at a combined cohort of students three and four years after graduating. For those in the third-year part of the cohort, gainful employment looks at what they earned in the year-long period between 18 and 30 months after graduating. For those in the four-year portion of the cohort, it reviews months 31 through 42.
Though the difference between seven and 18 months may not seem like a lot from an employment standpoint, it can make a world of difference for graduates. For people who are unemployed or underemployed, a year and a half is additional time to find a good job. For those who are working, 18 months is enough time for at least one performance review or salary adjustment before the measurement window starts and potentially another one or two during the actual period that earnings are measured. That time matters a lot because the rate of change in earnings is steepest in the first few years after leaving college, as the chart below shows. For some students, a change of a few hundred or thousand dollars in income may be sufficient to get them to a reasonable debt-to-earnings level.
It’s not uncommon for lower-wage workers to hold multiple jobs, especially if they are not employed on a full-time basis. But the NCES data used for the debt-to-earnings calculation only considers income from the job where someone worked the most hours (page 184). In many cases this does not matter, but 17 percent of those measured had more than one job, including 21 percent at private nonprofit 4-year institutions. Having multiple jobs is even more common among individuals with high debt-to-earnings rates in the NCES study. Nearly 25 percent of individuals with a monthly student loan payment above 12 percent of their primary income had more than one job. The chart below shows the percentage of individuals with more than one job, by sector and monthly debt to earnings rate. The income from these additional jobs could only serve to decrease the debt-to-earnings rate.
Percentage of Individuals with More Than One Job, by Monthly Debt-to-Earnings Rate
Monthly Debt-to-Earnings Rate is...
|Overall||0% to 8%||8% to 12%||Over 12%|
|Private Nonprofit 4-Year||20.7||17.2||14.3||27.6|
This single job exclusion would not be an issue in the gainful employment regulations. The earnings data there are drawn from all amounts reported to the Social Security Administration. So as long as an individual is complying with tax laws and reporting their income, it will be counted, regardless of whether it is from one job or 20.
Financial Aid Requirements
The last two distinctions are also important. The NCES study considers only bachelor’s degree recipients who borrowed, a formulation that automatically increases the average debt-to-earnings rates because people who don’t borrow at all have, by definition, a debt-to-earnings rate of 0. This is a significant exclusion—over one-third of graduates did not borrow. The table below shows the percentage of bachelor’s degree graduates not borrowing who would be excluded by this requirement:
Bachelor's Degree Recipients in 2007-08 That Did Not Borrow (%)
Bachelor's degree graduates that did not borrow (%)
|Private Nonprofit 4-Year||30.5|
These exclusions highlight the inaccuracy of a statement like “26% of graduates from four-year public colleges exceeded an even higher 12% debt-to-earnings ratio.” What the NCES figure shows is not that 26 percent of graduates have a high debt-to-earnings rate, but 26 percent of approximately 62 percent of graduates, or about 16 percent, may be in that situation. The problem just decreased by about 40 percent.
The gainful employment calculation is actually somewhere in between how NCES calculated the figure and the exercise above. It includes only students who received a federal student loan, a Pell Grant, or an award from one of the campus-based aid programs. That means students who have absolutely no federal support would be excluded. But look at that table above. For for-profit colleges, excluding federal borrowers only kicks out about 10 percent of students. (The actual exclusion would be more like 7 percent, because about 27 percent of for-profit bachelor’s degree students who did not borrow still received a Pell Grant and would thus be counted even though they have no loan debt.)
NCES’s exclusion of students who are not repaying their loans also undermines comparative possibilities by removing 40 percent of borrowers from its calculations. Of those with loans in the NCES data, 11.5 percent had paid them off or found some other way to make them no longer outstanding within one year. Those borrowers may otherwise drive down a debt-to-earnings rate if their incomes are large enough to retire all their debt in just a year. Another 10.5 percent of borrowers are excluded from the NCES report because their loans are still in the six-month grace period, which is not an issue in the gainful employment calculation (more on that in a moment). These borrowers could help increase or decrease the debt-to-earnings rate.
The remaining exclusions are trickier. The NCES data exclude borrowers in deferment or forbearance, some of whom would also be excluded in the gainful employment calculation if they are in that status due to military service or subsequent enrollment in a new college program. But someone who gets an economic hardship deferment would be excluded by NCES and included by gainful employment. The overall effect of these exclusions on the debt-to-earnings rate is unknown, but it further shows that the NCES study and the gainful employment rule aren’t looking at similar people in their cohorts.
Unfortunately, there is no way to generate a debt-to-earnings rate from the NCES data that would be comparable to the gainful employment data. Students were only tracked by NCES for one year after college, so there is no way to see earnings data over time. And even if we could, the types of students considered aren’t the same. All of that adds up to insurmountable road blocks to comparison. The NCES study is an interesting thought exercise, but one that is unfortunately incapable of informing the gainful employment debate as much as for-profit college advocates would like.
Of course, in a world where talking points and quick hits rule the day, and are likely to get worse as the gainful employment process goes on, what are a few significant caveats among friends?
There’s also a test that looks at discretionary income, but that’s not being considered here because a program only has to pass one test in order to pass and effectively nobody passes the discretionary test and fails the annual one.
To understand how this works, consider the following hypothetical. A borrower graduates on June 30, 2012. This means she graduated on the last day of the 2011-12 award year, which runs from July 1, 2011 to June 30, 2012. Her earnings will be measured as part of a cohort for the first time during the third award year after graduating, which is the 2014-15 award year (7/1/14 to 6/1/15). But the Social Security Administration (SSA) does not work on award years; it works on calendar years. So when the Department runs the data in mid-2015, SSA will return mean and median figures for the program’s graduates from the most recently finished calendar year, which is 2014. So for this student, the start of the 2014 calendar year is 18 months after her graduation and the end of it, 12 months later, is 30 months after graduation.
It’s worth noting that 18 months is the minimum measurement timeframe for a student. A student who finishes on July 2, 2011 would also be in the same award year. But for that person, calendar year 2014 starts two and a half years after they graduated.