Will Data Error Threaten For-Profit Regulation?

For-profit-college advocates cite Obama administration data goof on loan repayment rates as justification for revisiting borrower-defense and gainful-employment rules.

February 15, 2017
 
U.S. Department of Education

A data mistake the U.S. Department of Education made last year has become a rallying cry for critics of regulations the Obama administration created to rein in for-profit colleges.

Just before President Trump’s inauguration, the department disclosed that a coding error in its College Scorecard had substantially inflated colleges’ student loan repayment rates. One expert estimated that when the correct data were considered, the national three-year repayment rate (meaning the proportion of borrowers who have repaid at least a dollar of their principal loan balance) fell to 41 percent from 61 percent.

While embarrassing, the department said its goof does not affect any of its other tools for measuring student loan repayment rates or other data in the Scorecard.

For-profit-college officials and several lawyers have a different take. They say the error calls into question a specific standard the department set for determining relatively low repayment rates under the borrower-defense rule, which is designed to help students who have been defrauded or misled by colleges have their federal loans forgiven. The rule requires for-profits (and only for-profits) to notify current and prospective students if they fall below the repayment-rate threshold.

More broadly, some critics say the department's mistake on the Scorecard undermines the Obama administration’s overall justification for its regulatory focus on for-profits through the borrower-defense and gainful-employment regulations.

Consumer groups, however, say the for-profit advocates are grasping at straws. They argue that the mistake is isolated to a corrected Scorecard metric and that for-profits look worse now that the numbers are accurate.

Both sides agree that the repayment-rate error is likely to be cited as a factor as congressional Republicans and the Trump administration seek to follow up on their promises to repeal or roll back gainful employment and borrower defense -- or to make those rules apply more evenly across all sectors of higher education.

Marc Jerome is president of Monroe College, a New York-based for-profit. He also participated in the federal rule-making committee that tried and failed to come to a consensus on a gainful-employment rule.

Jerome said he and other officials at Monroe quickly suspected something was wrong with the Scorecard’s repayment rate, in part because Monroe’s reported number was higher than the college’s own data showed.

During 2009 negotiations over proposed gainful-employment regulations, the department released an overall repayment rate of 25 percent for Monroe. That rate more than doubled, to 57 percent, on the Scorecard (and has subsequently been changed to 31 percent).

Last August Jerome submitted a formal comment to the Education Department to oppose the borrower-defense rule in which he questioned the repayment-rate discrepancy.

“When the department published the Scorecard repayment rates, Monroe College attempted to verify our published rate by replicating the data the department presented. To date, we have been unable to reproduce the department’s published rate,” he wrote, adding that “we are unsure of what accounts for the dramatic increase in published repayment rates.”

Flawed Assumptions?

While the department has fixed its mistake -- albeit months later -- Jerome said the feds’ sloppiness with the metric calls into question both borrower defense and gainful employment.

The Obama administration crafted its borrower-defense rule with the backing of Massachusetts Senator Elizabeth Warren and other Senate Democrats. The collapse of Corinthian Colleges and ITT Technical Institutes helped spur the creation of the complex rule, which replaced vague, rarely used federal guidelines.

During the rule’s rollout, department officials said it was aimed primarily at for-profits, in part because those institutions perform relatively poorly on loan-repayment rates.

“It really is the proprietary sector where most of the risk exists,” Ted Mitchell, the under secretary of education at the time, said during a June call with journalists.

As a result, the department included a requirement that for-profits with subpar loan-repayment rates must warn all current and prospective students about that deficiency. The threshold the department set for that requirement is a three-year repayment rate of less than 50 percent.

The department cited a preliminary analysis of the College Scorecard’s repayment rates in setting that threshold. The draft version of the rule said 70 percent of colleges with a five-year undergraduate repayment rate below the 50 percent mark were for-profits, and that 40 percent of for-profit institutions fall below that level.

The final version of the rule did not use Scorecard data to measure repayment rates. Even so, Jerome said the rule's repayment rates closely mirror those of the Scorecard. And, more importantly, he said the 50 percent threshold used for the for-profit repayment-rate notification was set using deeply flawed assumptions, as the national average for all colleges now falls below it.

“The error in the data on the Scorecard repayment rate should give everyone pause,” he said, adding that the department’s process with borrower defense was a “rush to achieve an outcome without paying enough attention to the data.”

Likewise, Jerome said flawed assumptions about the sector's relative shortcomings and inappropriate data also taint the gainful-employment rule.

“The best policy for students is one where outcomes are available for all programs across all sectors,” he said. “Neither the borrower-defense rule nor the gainful-employment rule follow that principle.”

Mike Goldstein is senior counsel and higher education practice leader at Cooley, a law firm based in Washington. He agreed with Jerome that the repayment-rate mistake bolsters the case against borrower defense and gainful employment.

Goldstein said the Obama administration’s focus on higher education performance metrics was needed and overdue. But he criticized its use of weak data that had not been well parsed to justify regulations that single out for-profits.

“The data have always been questionable,” Goldstein said, “so the underlying premise is also suspect.”

Several consumer advocates disagreed.

“This is the reddest of red herrings,” said Pauline Abernathy, executive vice president of the Institute for College Access & Success.

She called Jerome’s argument misleading and one “based on a coding error that has no bearing on the regulation.”

Repayment rates currently are not part of gainful employment’s enforcement mechanisms, she said, and the borrower-defense rule’s repayment metric is not related in any way to the corrected Scorecard rate.

“It’s lead and water,” she said, adding that to argue otherwise “makes no sense.”

Ben Miller, senior director for postsecondary education at the Center for American Progress and a department official during the Obama administration, said the repayment-rate error was a highly technical one that affected everyone equally.

“But it's important to remember what it showed. It is not that the Education Department was intentionally hiding good performance on repayment,” he said via email. “Rather, the results are way worse than any of us ever realized. That should speak even more to the need for students to know their odds of paying back their loans.”

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