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Assessing the Impact of Alternative Repayment Rate Policies on Educational Institutions and Students

January 2019 |  Nam D. Pham, Ph.D. and Mary Donovan

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In 2017, the Federal Government delivered $122.5 billion in student aid to 12.9 million post-secondary students and their parents, expanding the entire federal student loan portfolio to 43 million borrowers with $1.4 trillion in outstanding loans. Currently the U.S. Department of Education uses the Cohort Default Rate to determine if a higher education institution is eligible to accept Federal financial aid. However, policymakers are considering alternative measures, such as the repayment rate, to determine eligibility. As proposed policies are introduced and debated, decisionmakers must consider any negative unintended consequences. In this study, we evaluated three different policy scenarios and measured the impact on students and institutions. Our analysis shows that a one-size-fits-all policy has significant negative consequences, especially for low-income and minority students. Alternatively, a tiered approach which factors in student demographics has a much lesser impact and would be more constructive in addressing student loan repayment performance.