In order to better position low-income or “disadvantaged” students to pay back their student loans, more should be done to shift such students — and the taxpayer money that is used to support them — away from low-quality institutions and toward institutions that have high “economic mobility.”
That is one of the key arguments of a new paper released Monday by the National Bureau of Economic Research.
The authors also argue that policymakers should shift the focus toward student loan repayment rates — and away from student loan default rates — to determine if colleges and universities are doing a good job of graduating students who earn enough to pay back their student loans.
The paper — titled “Measuring Loan Outcomes at Postsecondary Institutions: Cohort Repayment Rates as an Indicator of Student Success and Institutional Accountability” — was written by Tiffany Chou, an economist at the Office of Economic Policy in the U.S. Treasury Department; Adam Looney, former deputy assistant secretary at the U.S. Treasury Department; and Tara Watson, an economics professor at Williams College.
The authors argue that, as income-driven repayment programs, or IDRs — which allow monthly loan payment to fluctuate based on what borrowers earn — become more prevalent, that cohort default rates, or CDRs, will become “an increasingly ineffective tool to monitor institutional student loan performance.” The paper indicates that 24 percent of borrowers and 40 percent of outstanding direct loans are enrolled in IDR.
“Indeed, as more borrowers enroll in IDR plans, default rates will fall regardless of whether a school is offering economic opportunity to their students or whether those students will repay their loan obligations,” the paper states. “As a result, default-based metrics will no longer be a useful tool to hold institutions accountable for providing a quality product for their students with federal dollars.”
