‘Dropout Factories’ Should Lose Federal Student Aid, Study Says

As the Education Department grapples with a proposal to rate U.S. colleges, a nonprofit group is recommending cutting aid to schools that fail to improve on metrics such as completion rates and loan repayment.

The government should leverage student aid and tax benefits to protect students and keep taxpayer dollars from underperforming schools, according to a report released today by the Washington-based Education Trust.

About $180 billion annually flows from the government to thousands of colleges, from the highest-performing to the lowest, with almost no consideration for performance, acceptance of low-income students, graduation rates, or student-loan repayment measures, according to Michael Dannenberg, a co-author of the report and the group’s director of higher education and finance policy.

“When we look at the data, similar students with similar characteristics get different results and some institutions get especially poor results, and that’s not acceptable,” Dannenberg said in an interview. “Colleges are supposed to correct socioeconomic inequities. Too often, there are institutions that are calcifying them.”

The Obama administration announced last August its intention to create a college-rating system to give families enough information to determine good value. Potential measurable data include completion rates and student debt. Education Department officials have held more than 80 meetings with stakeholders including college leaders and students, according to the department’s website. Many college leaders have publicly expressed their concern about such a system, and a draft proposal is expected this fall.

Dropout Factories

“We are trying to cut to the chase of what the President is trying to do for every college,” Dannenberg said. “We’re proposing what we think is a fair way to identify bad institutions who are demonstrating not doing well based on current data and encouraging them to improve over time with dedicated support.”

More than $15 billion in federal student aid funds four-year “college dropout factories” with six-year graduation rates below 15 percent and “diploma mills” where almost 30 percent of students who leave with debt are unable to repay their loans, according to the report, called “Tough Love: Bottom Line Quality Standards for Colleges.”

The Education Trust’s proposed standards include minimum rates for college completion and establishing minimum repayment rates to determine which graduates are making payments on their loans instead of relying on the department’s three-year default rate.

The default rate doesn’t account for borrowers who are struggling and is a “suboptimal metric that has been gamed by institutions of higher education in the past,” Dannenberg said.

The group also recommended that more highly selective institutions with low numbers of Pell grant recipients boost enrollment of those low-income students.

To contact the reporter on this story: Janet Lorin in New York at jlorin@bloomberg.net

To contact the editors responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net Chris Staiti, Niamh Ring

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.