THE PARTHENON GROUPBoston • London • Mumbai • San Francisco
rch
2011
Financing Indian Higher Education
Mar
By The Parthenon Group
PREPARED FOR THE EDGE 2011 CONFERENCE
THE PARTHENON GROUPAgenda THE PARTHENON GROUPAgenda
Expanding the Affordability of Tertiary Education
Lessons Learned from Student Financing in the USA
Holes in India’s Current Student Financing System
Conclusions
2
THE PARTHENON GROUP
Education and economic growth are critically intertwined THE PARTHENON GROUPintertwined
1 100%
Tertiary Enrolment Ratio vs. Income, 1980-2008
80
tio
USA
UK
2008
2008
24
40
60
ross
Enr
olm
ent R
at UK1980
3
20G
r
Brazil
India1980
2008
2008
30
0 10,000 20,000 30,000 40,000 50,000 60,000 $70,000
PPP adjusted GDP per Capita
19801980
3Source: World Bank
THE PARTHENON GROUP
Current projected economic growth implies the need to expand tertiary enrolment by 8.9M seats by 2016 THE PARTHENON GROUP2016
30MEnrolment Forecast for Indian Higher Education, 2004–2016F
30M
8.9M 24.9M 8%
('04-'10E)CAGR
8%
('10E-'16F)CAGR
8%
('04-'10E)CAGR
8%
('10E-'16F)CAGR
20
5.8M 16.1M
Stu
dent
s
Unmet Demand
1010.2M
Num
ber o
f
0
HigherEducationEnrolment
02004 Incremental
Enrolment2010E Incremental
Enrolment2016
$2.1K $5.7K$3.6KGDP/Capita(US$ PPP Adjusted)
11.6% 22.3%15.8%Gross Enrolment Ratio
$2.1K $5.7K$3.6KGDP/Capita(US$ PPP Adjusted)
11.6% 22.3%15.8%Gross Enrolment Ratio
4
6% 3%5 8%6% 3%5 8%
Source: MHRD; Global Insight; Parthenon Analysis
THE PARTHENON GROUP
Lowering the affordability threshold is an important component in expanding and equalizing educational access THE PARTHENON GROUPeducational access
Distribution of Household Income
India Brazil USA/UK
ouse
hold
s
As more households are able to afford As India’s income
distribution moves
Per
cent
of H
o
quality tertiary education for their
children, seat capacity in the system plays a
key role to sustain enrollment growth
distribution moves higher, a larger % of
its population can afford tertiary
education
P enrollment growth
Affordability Threshold
Household IncomeStudent financing has the ability to move the affordability threshold
backwards
5
yFor Tertiary Enrolment
THE PARTHENON GROUP
Given lower government appropriations, Indian institutions fund a larger percentage of their operations from tuition than USA institutions THE PARTHENON GROUPoperations from tuition than USA institutions
USA vs. India Government Expenditures O T ti Ed ti % f GDP 2009
Revenue Per Student B S f F d 2008
2.0%
1 7%
On Tertiary Education as % of GDP, 2009
100%
venu
e OtherRevenue
By Source of Funds, 2008
1.5
1.7%
80
Inco
me,
Oth
erR
ev
1.0
40
60
atio
ns,I
nves
tmen
t
Tuition/Fees
Tuition/Fees
0.5
0.3% 20
40
Gov
tApp
ropr
ia
Tuition/Fees
0.0USA India
0USA
Tuition/Fees
India
Fees
USA India
Public Sector Private Sector
6Note: Indian tuition data is for engineering courses (BTech)Source: NCES; BEA; Parthenon Survey of Higher Education Institutions in India; UNESCO
Public Sector Private Sector
THE PARTHENON GROUP
Today, tertiary education is less affordable in India than in the USA for every income bracket THE PARTHENON GROUPthan in the USA for every income bracket
Average College Tuition as % of Household Income
100%
g gby Income Quintile, USA vs. India, 2009
60
80 In the US, tuition represents only 5% of top quintile
households income, while in India tuition represents 11%
of top quintile household
40
60 of top quintile household income
20
0Income Quintile 5
(Highest)
IndiaUSA
Income Quintile 4 Income Quintile 3 Income Quintile 2 Income Quintile 1(Lowest)
7Source: U.S. Census Bureau; NCES; BLS; NSS
THE PARTHENON GROUP
Broad financing options in the USA help facilitate tertiary education access for low income students THE PARTHENON GROUPtertiary education access for low income students
USA and India Adult Population with Higher Education, by Income Quintile, 2008
100%
84% Indian Adult Population
USA Adult Population withHigher Education
Education, by Income Quintile, 2008
60
80
67%
60%
Indian Adult Populationwith Higher Education
40
60
46% 45%
20 17%
0Income Quintile 5
(Highest)Income Quintile 4
4%
Income Quintile 3
2%
Income Quintile 2
1%
Income Quintile 1(Lowest)
1%
8Source: U.S. Census Bureau; NCES; BLS; NSS
THE PARTHENON GROUP
Indian students primarily rely on family funds to pay for education, implying that many low-income students cannot afford to attend college THE PARTHENON GROUPstudents cannot afford to attend college
Indian Student Survey Responses: Source of Financing for Higher Education
100%
Self (savings)
Scholarship & Other FundingScholarship &Other Funding
80
No
Loans
40
60
Parents/FamilySelf (savings)
Self (job)
20
40
Parents/Family
57% Out Of PocketEven those students who took out loans financed 57% of the total cost with family
0Did Not Take Out a Loan Did You Take Out a Loan?
Yes
Took Out a Loan
money, savings, and job-related income
9Source: Parthenon student survey (N=205)
THE PARTHENON GROUP
Three broad options are available to increase access to tertiary education in India THE PARTHENON GROUPaccess to tertiary education in India
Use Capital Marketst F d C it E i
Subsidize Studentst I Aff d bilit
Subsidize Institutionst I Aff d bilitto Fund Capacity Expansion
• Facilitate private investment in tertiary education in order to increase capacity; this will help
to Increase Affordabilityto Increase Affordability
• Provide direct financial support to institutions so that students can pay tuition that is less than the cost of
• Provide aid directly to students in the form of loans and/or grants to attend an institution of their p y p
balance demand and supply
Brazil
• In 1996, Brazil deregulated its
education
UK and USA
• The UK provides significant funding
choosing
USA
• The USA provides students withIn 1996, Brazil deregulated its tertiary education system and opened its doors to private investment. As a result of this action, tertiary enrolment has grown three fold since 1997 (2M
The UK provides significant funding to institutions and limits the tuition they can charge students to a small % of the cost of education. The government is currently considering alternatives to this system due to its
The USA provides students with extensive financial aid options. These options include grants (mostly directed toward low-income students), and government-backed loans (available to all students)grown three-fold since 1997 (2M
to 6M)alternatives to this system due to its large burden on taxpayers
• The USA provides funding to many institutions in order to subsidize the tuition they charge students but
loans (available to all students). These funds make up a significant portion of overall tuition
tuition they charge students, but schools are free to set their own tuition levels
10
Potential Effective Option for India (in combination with private investment)
Requires Significant Government Expenditures
Discussed at 2010 EDGE Conference
Source: World Bank
THE PARTHENON GROUPAgenda THE PARTHENON GROUPAgenda
Expanding the Affordability of Tertiary Education
Lessons Learned from Student Financing in the USA
Holes in India’s Current Student Financing System
Conclusions
11
THE PARTHENON GROUP
There have been three significant periods of tertiary enrolment growth in the USA since 1955 THE PARTHENON GROUPenrolment growth in the USA since 1955
Total USA Tertiary Enrolment by Control of Institution, 1955-2008
20
25M
('95-'08)CAGR
Student Financing Reform(1955-1975)
CAGR = 7.5%
Capacity Expansion(1975-1995)
CAGR = 1.2%
Capacity Utilization(1995-2008)
CAGR = 2.3%
15
nrol
men
t
Private Sector
IndependentSector
15%( 95 08)
1965: Higher Ed Act of 1965 –authorized many of today’s student financial aid programs, including the Educational Opportunity Grant
10
Tota
l Fal
l E
Public Sector
ducat o a Oppo tu ty G a tProgram (Pell Grants) and the Guaranteed Student Loan Program (Stafford Loans)
0
5
01955 1961 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008
2% 3% 6% 8%0% 0% 0% 0% 0% 1% 2% 2%% Private
1.5% 1.5% 1.7% 1.7%0.4% 0.7% 0.9% 1.4% 1.5% 1.5% 1.4% 1.5%Gov't Spending on Tertiary Ed
12
yas % of GDP
Source: NCES; World Bank
THE PARTHENON GROUP
There have been three significant periods of tertiary enrolment growth in the USA since 1955 (continued) THE PARTHENON GROUP(continued)
Student Financing Reform(1955-1975)
CAGR = 7.5%
Capacity Utilization(1995-2008)
CAGR = 2.3%
Capacity Expansion(1975-1995)
CAGR = 1.2%
3%
Supply/Demand Illustrative Example
3%
USA Enrolment Growth vs. Growth in Number of Institutions, 1975-1995
USA Enrolment Growth vs. Growth in Number of Institutions, 1995-2008
2
2.3%Supply
2
Gov’t Subsidy
10.8%
New Demand
Pric
e S
choo
ls
Rec
eive
Pric
e S
tude
nts
Pay
1Average
1.4%1.2%
0Number of Institutions
AverageAnnualGrowth
Enrolment
Demand
New E ilib i
0Number of Institutions
gAnnualGrowth
Enrolment
Increase in enrolment
• GI Bill and similar government financial aid programs stimulated demand in the USA by lowering the effective price of education
Equilibrium Quantity
• Significant investment in the private sector to expand capacity and build scale
• Enrolment growth in the private sector continues its strong trend as the investment in capacity pays off
13
effective price of education
Source: NCES
THE PARTHENON GROUP
The development of a student financing system and investment in the private sector helped expand tertiary education access in the USA THE PARTHENON GROUPtertiary education access in the USA
USA Higher Education Enrolment USA Higher Education Enrolment
15%15%
4%
gGrowth by Income Quintile, 1995-2008
gGrowth by Institution Type, 1995-2008
10 GR
3
3.3%3.4%
Total 10
men
t Gro
wth
CAG
2
2.2%
1.7%
EnrolmentGrowth
5
Enro
lm
2% 2%
TotalEnrolmentGrowth
1
Gro
wth
CAG
R
1.4%
0Private Sector Public
Sector
2%
IndependentSector
2%
0Income
Quintile 5 (Highest)
Enr
olm
ent
Income Quintile 4
Income Quintile 3
Income Quintile 2
Income Quintile 1 (Lowest)
14
51% 28% 23%Low-incomeStudents %
( g ) ( )
Note: Low-income students represented as students below 150% of the federal poverty level Source: NCES
THE PARTHENON GROUP
Student loans are now a ubiquitous part of the tuition landscape in the USA THE PARTHENON GROUPtuition landscape in the USA
Components of Total Student Cost of Attendance by Institution Type in the USA, 2007-2008(Direct government subsidies not depicted)
$40K
$37K
30
Out-of-Pocket / Other
$28K
Out-of-Pocket / Other
Other Financial Aid
20
Grants
Private Loans
Other Financial AidGrants
Out-of-Pocket / Other
$19K
10
Private Loans
Federal-backed Loans
Private Loans
Federal-backed Loans
Grants
Private Loans
0Private Sector 4-Year Colleges Independent 4-Year Colleges Public Sector 4-Year Colleges
Federal-backed Loans
92% 65% 53%% Undergradwith Loans
15
with Loans
60% 36% 33%% FinancedThrough Loans
Source: BMO Capital Markets Education & Training Report, 2010
THE PARTHENON GROUP
Broad student financing, however, is not without its critics who have legitimate concerns THE PARTHENON GROUPcritics who have legitimate concerns
Tuition Prices• Providing students with greater access to funding has allowed schools to
increase tuition as a means of keeping up with rising education costs andTuition Prices increase tuition as a means of keeping up with rising education costs and students’ willingness to pay. Since 1980, real tuition levels in the USA have more than tripled.
Quality Concerns• Greater government funding, in addition to an influx of private investment, has
helped f el concerns that some schools are moti ated more b profits than bQuality Concerns helped fuel concerns that some schools are motivated more by profits than by student outcomes.
Role of • To deter this misalignment of incentives, the USA government has implemented
regulations to protect students and the industry (e g cohort default rates 90/10Oversight
regulations to protect students and the industry (e.g. cohort default rates, 90/10 rule). These rules limit which schools’ students are eligible to receive government funding and create extra compliance costs for institutions. They also make educational institutions partly responsible for their students’ repayment behavior by penalizing schools with a high percentage of students who default
16Source: Commonfund Institute 2009 HEPI Report
behavior, by penalizing schools with a high percentage of students who default on student loans.
THE PARTHENON GROUPAgenda THE PARTHENON GROUPAgenda
Expanding the Affordability of Tertiary Education
Lessons Learned from Student Financing in the USA
Holes in India’s Current Student Financing System
Conclusions
17
THE PARTHENON GROUP
Key factors for a successful student financing system THE PARTHENON GROUPsystem
Demand for Student Loans Supply of Student LoansDemand for Student Loans Supply of Student Loans
• Need – A sufficient number of students in need of funding for school
• Availability of Capital – An adequate supply of funds is available to meet the
• Wide Scale Availability – Loans are not limited to a sub-segment of the market; anyone can apply for these loans and approval rates are independent of
demand from students
• Recourse – Sufficient recourse in the event of non-payment so that it is difficult to get out of the obligation
program or degree type
• Awareness – Students are aware of their funding options, how to apply, and what to expect
• Government Backing – Loans are backed by the government to increase attractiveness to lenders by reducing risk
C titi M k t N li it ti
Successful Student
Financing S t
• Consumer Protection – Regulations help standardize student loans and protect the student; this ensures students trust the system
• Competitive Market – No limitation on entry to or exit from the market, or any other constraint on competition; this ensures students get the best possible deal
System
y
• Ease – Students can easily apply for these loans and no collateral is required
• Infrastructure – Data systems make it easy to track and process a high volume of student loans
18
THE PARTHENON GROUP
There are significant issues with the current student financing system in India THE PARTHENON GROUPstudent financing system in India
Percentage of Students Taking Out Student Loans, USA vs. India
Q: What is the primary reason why students (in general) do not take out student loans?
100% Other
Not AwareLoans AreAvailable
100%
Students NotCommentary
from the Banks
60
80
Do Not Need toTake Out Loan
Available
ComplicatedProcess/
Challenging toAccess60
80 Taking OutLoans forEducation
Students Not
• “Despite our best intentions, we have to be quite selective who we give the loans to because of the inherent risk. C tl it i hi h d
40
Access
40Students
Taking OutLoans forEducation
Currently it is our higher-end customers who benefit the most from student loans.” Private Bank official
20
Need to TakeOut Loan
UnfavorableLoan Terms
20
Taking OutLoans forEducation
0Overall Reasons For Not
Taking Loan
0U.S. India
Students Taking OutLoans for Education
19Source: Parthenon student survey (N=205); IBA; BMO Capital Markets Education & Training Report, 2010; Parthenon Analysis
Awareness, complexity of the application process , and loan terms are significant hurdles in India
THE PARTHENON GROUP
A significant percentage of students in India are unaware of student loan availability THE PARTHENON GROUPunaware of student loan availability
100%
Q: When you started at university, were you aware that you could access a student loan?
• “I figured that students in my program would not be eligible for these loans. I wish someone had told me about
Commentary from Students
80
I wish someone had told me about this option earlier.” – BCom Student, a private university in Southern India
• “These loans are typically available
60 Yes
y yonly to students who have close family ties to a bank, which excludes me.” – BBA Student, a college in Northern India
20
40• “Banks should advertise at colleges.
That is the only way students find out about the availability of loans.” – PGDM Student, a private college in W t I di
0Awareness of Loan Availability
No
Western India
20Source: Parthenon student survey (N=205); MHRD; Global Insight; Parthenon Analysis
THE PARTHENON GROUP
Lack of standardization makes the loan application process complex, long, and difficult THE PARTHENON GROUPprocess complex, long, and difficult
Excessive Paperwork
Excessive Loan Processing Time
Lack of Coordination Between Partiesp g
• “The paperwork required to process the loan should be reduced and it should be a more user-friendly process
• “The application process should be easy and transparent. It took me a long time to confirm that I would
• “It would be great to get the information about student loans from the university prospectus. Currently banksmore user friendly process
for both students and family.” MBA Student, a private university in Northern India
• “Repayment should be made
time to confirm that I would be getting a loan. During those weeks of waiting, I could not confirm to the university that I would be able to enroll in the course ”
prospectus. Currently banks and universities are generally not connected at all”. BTech Student, an engineering college in Western India
simpler and the paperwork required to apply should be minimal...” BCom Student, a college in Northern India
“It ld b i t
to enroll in the course. BTech Student, private university in Southern India
• “The student loan process should be made easy. The
• “Loans should be made available to a wider variety of courses that students take. Now only students from certain streams can avail the• “It would be very convenient
if the loan application process could be streamlined and if a list of all papers required was made known to the student at
should be made easy. The process should be quicker and banks should not stall if they are not willing to give a loan, as the case has been with some of my close
certain streams can avail the loan facility. Universities should be more proactive in making loans available for all kinds of courses.” BBA Student a private universitythe beginning of the process.
Often people have to go back to the bank multiple times to submit each and every paper ” MBA Student a
with some of my close relatives.” BTech Student, an engineering college in Northern India
Student, a private university in Northern India
21
paper. MBA Student, a private university in Southern India
Source: Parthenon student survey (N=205)
THE PARTHENON GROUP
Current terms make student loans inaccessible to low-income students and less valuable to any student THE PARTHENON GROUP
Average Student Loan Interest Rate Spreads Over Government Bond Yields, 2010
student
• “There’s a high mobility level of
Commentary from the Banks
5
6%There s a high mobility level of
students, including those who study abroad. Right now we target premium existing clients because it’s less risky. It’s difficult to find the right clients. The biggest challenge with
5.6%5.2%
4
clients. The biggest challenge with education loans is tracking loan payments.” – Private Bank official
• “Our biggest challenge is a growing 3.6%
4.2%
2
3
gg g g gnumber of non-performing assets, especially among the smaller (under Rs 4 Lakh category) of loans. Because these smaller loans are uncollateralized, students are more
1
likely to default.” Private Bank official
1.3%
0.3%Aligning Incentives
0USA Federal Student Loans
USA Private Student Loans
India
7% 3.5% 16 - 17%Avg Default RateAvg Repayment
0.3%• The U.S. government was able to
lower default rates on student loans throughout the 1990’s by making educational institutions partly responsible for the repayment
22
10-30 years 5-20 years 2-7 yearsAvg RepaymentPeriod
Note: Gov’t bond yields are based on 10 year bondsSource: Indian Banks Association; Reserve Bank of India; DOE; Finaid.org
responsible for the repayment behavior of their students.
THE PARTHENON GROUP
India still faces significant challenges in satisfying the key demand criteria needed for an efficient student financing system THE PARTHENON GROUPstudent financing system
Demand Factor USA Performance India DescriptionDemand Factor USA Performance Performance Description
Need Given the low tertiary gross enrolment ratio in India and the low income levels, there is a great need for student financing in India.
Wide Scale Availability Banks claim not to give preference to students from certain economic backgrounds, however in reality loan availability is skewed toward students from wealthier families. Additionally, loans are available only for professional coursesprofessional courses.
Awareness ~20% of current students are not aware that student loans are available to them. Additionally, many students are unaware of the recourse associated with defaulting on loans.g
Consumer Protection Student loans provided by banks have nominally standardized terms and conditions. Execution of these norms varies widely in reality.
Ease Students have to shop for a loan directly with banks, the applications are very long, and collateral is often required. The process is complex, cumbersome, and not standardized.
23
THE PARTHENON GROUP
India also faces significant challenges in satisfying the key supply criteria THE PARTHENON GROUP
Supply Factor USA Performance India P f Description
the key supply criteria
Supply Factor USA Performance Performance Description
Availability of Capital Student loans account for a small share of banks’ loan portfolios and banks are willing to grow that share going forward.
Recourse Population-tracking systems in India are not well-developed. A loan default is recorded in CIBIL and theoretically influences the student’s future potential to take out additional loans. However, this link is often missed due to the lack of a unique identificationmissed due to the lack of a unique identification number.
Government Backing Student loans are not backed by the government.
Competitive Market In India, participation of private banks in the student loan market is still very low.
Infrastructure The data systems currently in place to track borrowerInfrastructure The data systems currently in place to track borrower information are underdeveloped. Banks cannot always track students over the entire course of the loan, which limits potential recourse.
24
THE PARTHENON GROUPAgenda THE PARTHENON GROUPAgenda
Expanding the Affordability of Tertiary Education
Lessons Learned from Student Financing in the USA
Holes in India’s Current Student Financing System
Conclusions
25
THE PARTHENON GROUP
Multiple stakeholders play critical roles in improving India’s student financing system THE PARTHENON GROUPimproving India s student financing system
Banks
• Create streamlined student loan applicationsCreate streamlined student loan applications so that potential applicants are not scared off by the complexity of the process and/or the time required to apply
• Work with educational institutions to create a
Ed ti l I tit ti
better flow of information so that borrowers can be tracked over the course of their education and post-graduation
G t Educational Institutions
• Work with banks to make the loan application process more closely aligned with the school application process
Government
• Create a better information infrastructure (e.g. unique identification numbers) so that individuals can easily be tracked over time
Efficient Student
Financing System
• Improve back-end data systems in order to provide banks with accurate student data
• Focus on improving student awareness of student loans and the benefits/drawbacks
• Facilitate the flow of private capital into the country by creating a competitive market for lenders
• Regulate the criteria banks can use to student loans, and the benefits/drawbacks associated with these loans
• Regulate the criteria banks can use to approve/deny a student loan in order to ensure certain students are not discriminated against
• By creating rules that penalize educational institutions with a high percentage of students
26
g gwho default on loans, institutions will have an incentive to educate students on the dangers of default
THE PARTHENON GROUPAppendix THE PARTHENON GROUPAppendix
27
THE PARTHENON GROUPUSA performance on demand factors THE PARTHENON GROUPUSA performance on demand factors
Demand Factor USA Performance Description of USA PerformanceDemand Factor USA Performance Description of USA Performance
Need Average post-secondary tuition, room and board is ~$17K per year, while the median disposable income per capita is ~$33K. With a gross enrolment ratio near 80%, a significant number of students in the USA need fundingthe USA need funding.
Wide Scale Availability Student funding is available to all citizens regardless of sex, age, type of degree pursued, or type of institution attended.
Awareness Most prospective students are aware of the availability of student funding. Those that are not aware typically find out when they apply to school. Most students are also aware of the recourse associated with defaulting on a loan.
Consumer Protection Government-backed student loans have standardized terms and protections. Private student loans are not standardized and do not offer the same protections as federal loans. However, laws such as the Truth in Lending Act are in place to protect consumers against predatory lending.
Ease Many students only need to fill out a short, standardized form (FAFSA) to be eligible for student funding, after which the student’s institution will typically take care of coordinating the loan with the
28
yp y glender.
THE PARTHENON GROUPUSA performance on supply factors THE PARTHENON GROUPUSA performance on supply factors
Supply Factor USA Performance Description of USA Performance
Availability of Capital With the exception of the credit crunch in 2008 and 2009, there is almost always funding available for student loans. One of the factors responsible for this availability of capital has been lenders’ ability to securitize student loans.
Recourse There is a well-established credit market in the USA that penalizes students for defaulting on student loans. Those who default have a very difficult time getting any other type of loan until the loan is paid off.
Government Backing The majority of student loans are backed by the government, which prevents the need for collateral or a cosigner. Private student loans are not backed by the government and so a cosigner is often required.
Competitive Market Lenders are free to enter and exit the USA private student loan market. They can set their own loan terms, but they must abide by certain consumer protection regulations that prohibit terms that are considered “predatory”. Only certain lenders are certified to originate/service federal student loans and more recently the USAoriginate/service federal student loans, and more recently the USA government has begun issuing these loans directly to students, cutting out the middleman.
Infrastructure Social security numbers exist as unique identifiers for all USA citizens. Lenders, educational institutions, and the government can
29
use these numbers to freely share information about students and to track students over time.
THE PARTHENON GROUP
The USA implemented several regulations to better align schools’ incentives with student outcomes THE PARTHENON GROUPalign schools incentives with student outcomes
Summary of Recent Regulatory Activity in the USA
Cohort Default Rates 90/10 Rule Gainful Employment(Pending Regulation)
FFEL Loans and Direct Lending Programs
• Established maximum • Requires institutions to • Pending regulation to • The government began
crip
tion
Established maximum threshold for cohort default rates (CDRs) on student loans
– 25% for 3 consecutive 40% f 1
Requires institutions to generate at least 10% of their revenue from non-federal funding sources
• Institutions whose 90/10 t i d 90% i k
Pending regulation to establish a maximum debt-to-income ratio for graduates on a programmatic basis
I tit ti th t
The government began transitioning student loans to direct lending only (and elimination of FFEL program), despite evidence of the effectiveness of
Des
c years or 40% for 1 year
• Institutions whose CDRs exceed these limits loose federal funding
metric exceeds 90% risk loosing federal funding
• Institutions or programs that exceed the ceiling would suffer the loss of federal funding
o t e e ect e ess oFederal loans with intermediaries in producing repayment
onal
e
• High default rates indicate a low-quality institution that is not delivering on its promise of quality job placement
• Students with “skin in the game” are more discerning consumers and thus ensure quality through their
• The USA Department of Education would be able to prevent institutions from preying on students and
• Eliminating the “middleman” (third party loan providers) will save taxpayers $4B a year, which the government
Rat
i selection of a particular institution
saddling them with debt by establishing “debt caps”
can reinvest in aid to students
30Source: US ED; New America Foundation; Library of Congress; Career Education Review; CCA; NASFAA; NAICU; FinAid; Career College Central; Chronicle of Higher Education; Inside Higher Ed; Deutsche Bank; William Blair