Repaying More Aid When Students Drop Out

The Kentucky Community and Technical College System invests serious resources into student supports during the first four weeks of a semester -- the period in which at-risk students are most likely to drop out.

Jay Box, the system's president, said its 16 colleges make student retention a top focus throughout the semester. Yet because of student withdrawals during a recent fall semester, the system still had to return about $2.6 million in student aid to the federal government.

Under a GOP proposal in the U.S. House of Representatives, however, the system projects its bill would hit $8.1 million for that semester alone.

“It’s really not a good deal for us,” Box said.

That proposal, part of House legislation to reauthorize the Higher Education Act, would apply to all colleges and universities. But it would hit open-access institutions like community colleges particularly hard.

Republican authors of the PROSPER Act, as the bill is dubbed, described the overhaul of aid repayments as a risk-sharing measure that would compel colleges to produce better outcomes. Critics of the GOP approach said the proposal identifies a real problem while offering a solution that’s even more troublesome.

Federal law requires colleges to pay back a portion of aid students receive if they drop out before a term is completed. Under the system, which is called Return to Title IV, the amount colleges must pay back is prorated and depends on when students drop out or withdraw. When a student has attended 60 percent of the term, the college does not have to return any aid.

The current approach has drawn frequent complaints from college administrators for being overly complex -- to start off with, it can be difficult to determine exactly when a student officially “dropped out.” The PROSPER Act would replace the current process with several tiers for length of attendance to determine how much colleges must repay the federal government. When students attend for a quarter of a term before withdrawing, for example, colleges would keep 25 percent of federal aid money; if they attend for half the term, 50 percent; and so on.

The problem for colleges is that they would keep no federal aid money under the formula if a student withdraws before a quarter of the term is over. And there is no point before the end of the semester in which a student would be considered to have “earned” all of their federal aid.

So institutions get a simpler repayment system but one that could leave them shouldering more of the costs for late-semester withdrawals and all of the costs when a student withdraws early in the semester. That’s troublesome for colleges because there are still plenty of expenses associated with running a classroom that don’t go away if a student drops midsemester.

Community colleges have offered projections showing they’d be on the hook for millions more in repayments if the PROSPER Act goes through without changes.

Over a full academic year, Box said, the Kentucky system would face $16-17 million in repayments thanks to the provision. The system, meanwhile, has repeatedly fended off proposals in recent years to cut its state appropriations or eliminate individual courses of study.

Likewise, the Ivy Tech Community College System, which operates 30 campuses across Indiana, would see a $4.2 million increase in payments from last fall, said Sue Ellspermann, the system's president.

“Given the potential loss of dollars, we would hope that philanthropy and grants would pick up all or a portion of the Title IV loss for proven retention programs like these and others,” she said via email. “However, there is a real risk that they won’t and we could be forced to reduce services offered.”

Community college lobby groups said their members have projected repayments under the House plan to be two to three times their most recent numbers. 

The Republican lawmakers who crafted the PROSPER Act talked explicitly about Title IV repayments as a form of “risk sharing” -- an increasingly popular idea among policy makers who want colleges to take on more of the financial stakes for student outcomes like completion. If faced with the loss of federal dollars, the thinking goes, colleges would do more to make sure students finish a semester.

But community college leaders said they’re already doing a lot to improve student completion rates. Ivy Tech, for example, uses predictive analytics to identify students who are likely to drop out. One project using that analysis and targeted outreach has improved retention of at-risk students by more than 3 percent each semester since it was launched.

And the Kentucky system already invests a huge amount of resources in getting students through the first four weeks of classes, the milestone after which its data show students are much more likely to complete the academic term. Demanding that colleges do more to keep federal funds, Box said, ignores the reality that community colleges are already doing everything they can to get students to complete the semester.

“The No. 1 reason students withdraw from us is that life gets in the way,” he said. “Meaning that all the sudden they have a family crisis; they’ve got to work to support their family or support themselves.”

When those outside pressures push students out, he said, colleges have a limited ability to keep students in class.

Form of Risk Sharing

Asked about complaints from community college leaders regarding the Title IV repayments, a spokesman for Representative Virginia Foxx, the Republican from North Carolina who is chairwoman of the House Education and the Workforce Committee, referred to the committee report on the bill.

“We’re in frequent contact with the community college groups, and are well aware about [what] they are for and against in PROSPER,” the spokesman said. “No one understands the views of the community colleges more than the chairwoman since she was a former community college president.”

Community college leaders have sought to have the PROSPER Act modified, even as they convey their alarm to Senate lawmakers who are crafting their own higher ed bill. Box said he’s communicated his concerns to lawmakers on the committee and to the Kentucky congressional delegation during multiple trips to Washington.

“I’m hopeful,” he said. “I won’t say that we’ve completely turned the corner on it. But I'm hopeful they have heard us and see the impact that this will cause.”

For-profit colleges, which serve similar groups of students as community colleges, share the same complaints about Title IV repayments in the PROSPER Act.

"We do have similar populations and therefore similar reservations about the direction that they’re potentially going on risk sharing," said Tom Netting, a lobbyist at Akerman LLP who represents clients in the for-profit college sector.

Netting said a number of programs at proprietary institutions, such as cosmetology, have significant up-front costs for items like tool kits. And their students are most likely to drop out early in the academic term, as they are at community colleges. Under the PROSPER Act, for-profits would shoulder all of those high up-front costs, Netting said.

Getting a tweak to the new formula could be an uphill battle for colleges, as Republican sponsors likely will be reluctant to add to the cost of the bill. The Congressional Budget Office last month estimated that PROSPER would reduce federal spending by $14.6 billion over 10 years. About $419 million in savings would be due to the Return to Title IV changes, the CBO estimated. (Two conservative analysts have argued the bill would actually increase spending thanks to higher discretionary spending on Pell Grants.)

The change to Title IV repayments also would have serious effects not just for colleges but for students themselves by changing the order in which federal aid is returned. Currently, colleges return student loan funds first when a student withdraws, then returns “no strings attached” aid like Pell Grants. The PROSPER Act dictates that colleges return grant aid first, then loans. That means more students who drop out could face the prospect of paying back loans they took out to attend before withdrawing. Federal data indicate that the students who are likeliest to default on their loans are those who left college with a small amount of debt but no degree.

“Given that one of the correlating factors predicting default is withdrawal, there's some more analysis that needs to be done there,” said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators.

Barmak Nassirian, one of the sharpest critics of the PROSPER Act, said the bill identifies a real problem -- an overly complicated process for returning federal student aid funds -- but offers an even more harmful response.

“Like so many other provisions of the PROSPER Act it exemplifies, [the proposal] makes an astute identification of a real policy issue and provides a completely unworkable and extremist resolution.”