Let me also recommend Erin Dillon and Robin Smiles’ new report on how a group of HBCUs successfully and dramatically reduced student loan default rates. There’s an important lesson here about incentives and public accountability.
The story begins in 1990, when the federal government cracked down on thousands of fly-by-night colleges that were defrauding the government by signing up students for bogus loans. The national loan default rate peaked at 22.4 percent that year, costing taxpayers billions. Congress responded by banning any college where more than 25 percent of borrowers defaulted for three consecutive years from the program. The law was a spectacular success–over 1,000 colleges were kicked out and the national default rate dropped to the mid-single digits.
Most legitimate colleges were unaffected by the 25 percent standard. But a few–primarily those that served low-income and first-generation students–end up under the gun. Unsurprisingly, given their historical mission, this group included a number of HBCUs. Initially, HBCUs were exempted from the 25 percent rule. But when the federal Higher Education Act was reauthorized in 1998, the exemption was lifted. Because so many of their students relied on federal grants and loan, this was akin to the death penalty. A number of the threatened HBCUs were in Texas. They banded together to share resources and strategies. And it worked! The chart below tells the tale.
