The Consumer Financial Protection Bureau says that it will create a standard disclosure form that will make the real cost of college clear to prospective students. The model disclosure is designed to help students gain a sense of the costs of college. It does not break down the costs for individual schools but it does differentiate by the type of school.

College is increasingly become more of a financial risk. The cost of college is still going up, (more…)

The momentum against college enrollment spiked this week. Much of the fervor draws from Texas Governor Rick Perry’s State of the State address earlier in the year. Perry believes that college costs too much. He wants a new model that allows students to get a bachelor’s degree for less than $10,000. He also wants to address curriculum. He says that too many students graduate with a degree that does nothing to help their chances of participating in the workforce. Texas subsidizes the supply and demand sides of college education. Yet according to Perry, the benefits to Texas accrete through the (more…)

CompuCredit hires leading NC lobbyist to work with new CFPB: Former North Carolina Attorney General Rufus Edmisten was seen patrolling the hallways at this week’s State AG meeting in Charlotte. Edmisten was among a handful of lobbyists seeking to influence the ongoing work between the new CFPB and the State Attornies General. Interestingly, Edmisten is (more…)

Plenty of students are defaulting on their student loans, a worrisome problem that should make us reconsider the value of a four-year college degree.

I would like to preface my thoughts on how more skills training might improve returns on education with a short departure into student loans.  Unemployment is probably behind the high rate of student loan defaults and deferrals.  It could also reflect the changing economy.  Either way, we have a problem. We are encouraging students to pursue college degrees, even though many have to borrow to finance that opportunity.  The payoff, for many, never comes. They are left with debt that changes the course of their adult life.

Lenders are ready to turn off the spigot of student loan debt. High default rates on student loans might underscore the need for better underwriting.  Banks are sure to make good on that fact.  Indeed, new data contradicts the idea that student loans are a poor fit for risk-based pricing. Even these loans can be adequately gauged for performance with credit scoring. A new study says that a 670 credit score seems to mark the difference between making good on private student loans or not.  For borrowers with credit scores above 670, only 1.8 percent failed to pay their debt. Below that number, and the default rate soars to 16.8 percent.

That is pretty powerful data, and it contradicts doubts about credit scoring for these products. Many students seek loans at a point in their life when they have little or no credit history.

Accepting that, what does this tell us about how and why we promote college? A government economist thinks it might be worth a million dollars. The College Board concedes that it is somewhat less valuable.  In many instances, all of that school appears to be  worthless.

Banks may make the decision for us. Lenders, particularly private student loan companies, could (more…)

The Federal Trade Commission says it is prepared to hold for-profit universities and vocational schools accountable to their students.

A new draft, not yet law, has emerged from discussions on the negotiated rulemaking on Program Integrity. The new rule is focusing on how to define “gainful employment,” with the intent of making sure that consumers (students) are not given a false impression of the benefits of an education.  With that is a concrete provision to link the income of graduates with debt loads. The FTC, along with the Department of Education, are working to make sure that people are not graduating with more debt than they can reasonably afford on the income earned from their new degrees.

The idea is that debt service for recent graduates should not exceed 8 percent of income. There are a few caveats:

Repayment is calculated based on average salary. If Shaquille O’Neal is among your graduates (Univ. of Phoenix, MBA, 2005), then his salary could be counted. I say could be, because it would only count if you had a major offering in basketball. Graduates must be working in the field that they studied. Culinary students working in record shops are not relevant. MBA’s working in professional basketball – not relevant.

For example, if recent nurse assistant graduates earn an average of $30,000, then schools would be penalized if those graduates had an average debt load that was above $17,500 (assuming a 6.8 percent interest rate on unsubsidized Stafford loans) or $19,300 for subsidized Stafford loans (4.5 percent in 2010-11).

Schools were to demonstrate at least a 75 percent repayment rate on loans among graduates.

The rule only applies to graduates, and only to those students from a select set of institutions. Nonetheless, these for-profit and vocational schools are important.  The University of Phoenix is the largest college in the United States.  A recent estimates finds that it has approximately 500,000 students.  Even so, most of (more…)