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New report shows assumed value in a college degree can be deceiving

A new index from a leading education policy group allows parents and students to assess a college’s “borrowing-to-credential ratio,” combining newly available U.S. Department of Education data that considers a school’s graduation rate and the debt its students accrue throughout the matriculation period.

Released by Education Sector, writers Kevin Carey and Erin Dillon took two large data sets spanning the 2006–07, 2007–08 and 2008–09 academic years to arrive at their simple, but revealing, calculations. They used annual completion survey on certificates issued to students by institutions collected by the U.S. Department of Education’s Integrated Postsecondary Education Data System (IPED), dividing the outcomes of the roughly 9 million encompassed by borrowing data of higher education students assembled by the Dept. of Education. For-profit colleges, along with two-year and four-year institutions, were examined by Education Sector.

The study, according to Dillon, helps parents and students by allowing them to see which schools, have “a high tuition price and [students who] borrow a lot … but have more students graduating and vise versa—if a school has low debt levels but very low graduation rates,” she told The American Independent in an interview.

Since tuition prices have been inching upward for two decades, rising at a rate of three percent above inflation, the authors of the study hope their research can better inform families on the value of a specific school. While the report doesn’t look at potential earnings graduates can look forward to, Dillon says graduating is one of the leading indicators in predicting whether a person will fall into delinquency or default on college loans.

The study identifies four main trends in national borrowing to credential calculations:

• Nationwide, the overall borrowing to credential ratio has risen sharply in recent years.

• Certain segments of the higher education industry — in particular, for-profit colleges — are racking up far more student debt per degree than others.

• State policies matter a great deal, with seemingly similar public university systems achieving widely varying results for students.

• Among elite colleges and universities, some are making good on their pledge to help low- and middle-income students graduate without major financial burdens while others are riding a wave of student debt to fame and fortune.

California leads the country with the most equitable borrowing to credentials ratio at $6,008. The writers note the Golden State has a long tradition of keeping tuition prices deflated, though the flagship University of California and larger California State University systems have lost billions in funding due to budget cuts since 2008-2009. Community college costs in the state are only $26 per credit hour, however, students of two-year and for-profit schools are less likely to graduate than those at traditional four-year institutions. Florida, with its debt to graduation ratio at $6,636, trails only California in Education Sector’s index.

Two New England states, Vermont and New Hampshire, lead the country with ratios of $25,461 and $21,060, respectively. “Not surprisingly, these two states spend less per capita on higher education than any other,” write the authors.

Even when states allocate a similar amount of funds to higher education and post near-equal graduation rates among its college students, the borrowing to credential ratio can vary greatly. The report points to Iowa and Florida: the Hawkeye State’s ratio is double that of Florida’s, $20,237 to $10,888.

“The difference is state policy. All states subsidize higher education, but some are more generous than others,” the authors show. “Students who pay less borrow less, and that affects the borrowing to credential ratio.”

For-profit colleges, already on the tail-end of a bad year of publicity and new regulations that could cut at their enrollment numbers and profits, are shown to lead the higher education space in debt accrued per degree. While the ratio at public four-year universities was $16,247 and $21,827 for private non-profit schools, students of for-profit universities were saddled with $43,383 in debt for every degree. The authors add:

This difference is arguably even more significant than it seems. While public and private four-year institutions are overwhelmingly in the business of granting four-year degrees (90 percent of their undergraduate degrees were bachelor’s degrees in 2008–09), for-profit four-year institutions tend to grant significant numbers of two-year associate degrees and shorter-term credentials (56 percent of their degrees in 2008–09). These less-valuable credentials should presumably cost students less, yet the amount of debt taken on by students to obtain them is significant.

The funding and scholarship formulas that are applied to leading state university systems or campuses were also shown to be less than equitable. Debt per certificate at flagship universities like University of California and University of Georgia was $2,549 less than other public universities, even though tuitions at these leading schools was $2,000 higher.

Dillon says these schools are harder to get into, and selectivity brings in a wealthier cohort of students whose families can pay more out of pocket to subsidize tuition costs. The study also writes these big-name schools can raise more money and receive more per-student funding.

Other factors include the way scholarships are distributed. The HOPE program in Georgia, a nationally recognized scholarship system, is a merit-based award. Dillon says more funding streams should be needs-based, since high school students with higher grades and better SAT or ACT scores tend to come form wealthier families.

Numerous studies at FairTest.org show (PDF) much of the same: on the whole, poorer students perform worse than students with more financial means at every income bracket.

TAI asked Dillon what explains the uptick in costs: “Tuition has increased even though the cost of actual education hasn’t,” she says. “But cost is shifting over to families a state budgets have been slashed,” particularly during recessions.

In 2008, the high school graduation rate was 70 percent; the six-year college graduation rate nationwide was 55 percent in 2009.

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