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Rating colleges is ‘like rating a blender’ – Education Department official

Education Loans, Outcomes

26-05-2014

Washington Post

This is what  Jamienne Studley, a deputy under secretary at the Education Department, told a group of college presidents who were meeting to talk about President’s Obama’s plan to rate colleges with the apparent aim of driving out of business schools that don’t meet the administration’s definition of success, as reported by The New York Times:

“It’s like rating a blender. This is not so hard to get your mind around.”

And this is what Cecilia Muñoz, director of the White House Domestic Policy Council, said in the same article about whether it is possible for anybody to persuade the administration that their plan is a terrible one for many reasons, including the fact that rating a college is not really like rating a blender:

For those who are making the argument that we shouldn’t do this, I think those folks could fairly have the impression that we’re not listening. There is an element to this conversation which is, “We hope to God you don’t do this.” Our answer to that is: “This is happening.”

And there you have it. It doesn’t seem to matter what anybody else thinks. Though there are many definitions of success, the Obama administration is going to use its own to develop the rating system no matter how many people oppose it. They know better. Just ask them.

In this case, we are talking about a plan  to rate (not rank) colleges on criteria that could include average tuition and how much graduates earn even though many higher education leaders have said it is a terrible idea.

The administration says it will rate colleges by “mission” as well as institutional type, and wants to link federal student aid to the rankings, giving more to schools that score highly, and thus ultimately driving out schools that do poorly on the ratings system.  (The federal student aid piece involves congressional approval, which isn’t likely.) How much it is going to cost? Not known.

The administration thinks this will serve students well by revealing important data to families so they can better make college decisions. Critics say that all rating systems present a limited view of any institution and that the government already publishes a mountain of information on institutions of higher education. (See below for other problems with the plan.)

One of the critics is Janet Napolitano, president of the University of California system who had been Obama’s U.S. homeland security secretary; she said last December that she is “deeply skeptical that there are criteria that can be developed that are in the end meaningful.” The administration, apparently, doesn’t care much what its own former Cabinet member has to say.

This may seem painfully obvious but, for the record:  Blenders mix things together. That’s it. They may do it on different speeds, but mixing things is what they do. Colleges do countless things for students, and people go to them for many different reasons, with many different goals. The administration’s focus seems to be on financial rewards after college, but that’s not why everybody goes.

Yes, some students want to go to Wall Street and make a fortune. But some want to go to college to become teachers and not make a fortune. Some students want to be poets, engineers, sociologists, urban planners, nurses, etc. Some go for a religious education. Some go without knowing what they want to be but want to expand their understanding of the world and develop analytical thinking, which, incidentally, can be done in just about any area, not simply the sciences but also philosophy and music and the whole range of humanities.

Schools are highly complicated institutions with countless moving parts. Unlike a blender.

Besides, there are a host of problems associated with the plan.  The Education Department asked for public comments about its plan, and the National Association for College Admissions Counseling responded with some of the most interesting. I’ve published some of these comments before, but here they are again:

*Ratings and rankings can be skewed by the methodology used to create them.

* The federal government has major constraints in its ability to oversee data submission from colleges and “as a result, it may take years before institutions are held accountable for violating program integrity standards, including reporting false data to the Department of Education.”

At a minimum, a college ratings system in the current environment of program integrity enforcement would suffer from inaccurate and potentially misleading information if unscrupulous institutions are able to avoid accountability for reporting inaccurate information. At worst, decisions about the allocation of federal student aid will be made on information that has been manipulated to ensure continued eligibility for federal student aid programs, with little or significantly delayed corrective action.

* A rating system could create incentives for schools “to focus disproportionate resources on data elements that can change rankings without necessarily changing the quality of the institution.

* It is “virtually impossible to develop a ratings system that includes affordability as an input variable without also making an evaluation of the state funding mechanisms for higher education.”

* The administration suggested that  colleges and universities would be classified in its ratings system by “mission” as well as institutional type, but schools “differ widely within some of these categories.”

* Using as a data point the number of students from low-income families with Pell grants is problematic because “some institutions that enroll the largest number of Pell grants are also the institutions with the worst track record for serving students.”

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Education loan gets a big boost

Education Loans, Finances & Budgets, Higher Education

17-03-2014

The Indian Express

Nearly nine lakh borrowers stand to benefit from the Interim Budget 2014-15 when finance minister P Chidambaram announced a moratorium period for all education loans taken up to March 31, 2009, and outstanding as of March 31, 2013.

As the new academic session kicks off over the next few months, for students pursuing higher education, not only the institute and the course will matter, but also the method of funding.

Higher education courses, especially those for professional training or in foreign colleges tend to come with a heavy expenditure on fees and travel. In such cases, taking an education loan may be a good option.

All banks, public sector as well as private, offer both education as well as vocational loans to students for regular degree as well as post graduate courses by recognised universities in India and abroad.

Such loans are an attractive option not only for students from economically weaker sections of the society but even for those from middle or higher middle class due to the easy repayment options and availability of funds.

Education loan portfolio of banks have been rising steadily given that it is one of the priority sectors under which banks are mandated to lend by the Reserve Bank of India. The finance ministry also keeps a tight watch on lending by public sector banks under the scheme.

Reflecting their popularity, official data reveals that public sector banks have disbursed Rs 57,700 crore as education loans and 25,70, 254 such accounts were opened by December 31 last year.

Of these, the largest number of accounts were opened by State Bank of India (6,14,957), followed by Canara Bank (2,45,155) and Indian Overseas Bank (2,17,045).

Finance minister P Chidambaram has also stressed time and again that education loan is the right of every student and banks should not reject applications of deserving students.

Apart from regular post graduation courses such as a Master’s degree, the education loan scheme also covers courses such as medicine, engineering and diploma courses like nursing, business management, pilot training and chartered accountancy.

The Model Education Loan Scheme was prepared in 2001, which was then circulated to banks for implementation by the Reserve Bank of India (RBI) in April 2001. The scheme, since then has seen some changes and a massive overhaul was done in September 2001 based on needs of students and suggestions of stakeholders.

The size of the Indian education industry is pegged at Rs 3,833.1 billion in 2012-13 by CARE Ratings, of which higher education is estimated to contribute nearly 60 per cent.

Meanwhile, according to India Ratings, timely availability of education loans have not only given a boost to the sector but has also helped affordability given the periodic revision in fees by both the government and private colleges.

Under priority sector guidelines of the RBI, banks can give up to Rs 10 lakh to students for studies in India and Rs 20 lakh for courses abroad.

But the Indian Banks’ Association — the umbrella body for all lenders, has said that banks can consider a higher quantum of loans on a course-to-course basis. This means that students studying in institutes that have fees over Rs 10 lakh such as the Indian Institutes of Management or the Indian School of Business may get higher loans sanctioned.

“But this is largely on the discretion of the bank and is based on the course being studied and the institute,” said an official with a state-owned lender.

The education loan scheme covers basic education fees as well as travel expenses, purchase of books and computer, examination and library charges and any other expenses such as study tours and even lodging and boarding expenses.

Banks are free to charge interest rate linked to the base rate. A simple interest is charged during the study period and up to commencement of repayment. The repayment period usually starts one year after completing the course or six months after getting a job.

Depending upon the amount, banks typically expect the loan to be repaid within 10 to 12 years of the start of the repayment.

Borrowers can also claim income tax deduction on the interest repaid by them in the previous year on an education loan.

An added bonus for students is that education loans are collateral free up to Rs 4 lakh. For loans between Rs 4 lakh and Rs 7.5 lakh, parents have to be a joint borrower and collateral is just in the form of a third party guarantee. For loans above the amount, a physical collateral has to be provided.

The education loan scheme got a further fillip in the Interim Budget 2014-15 when finance minister P Chidambaram announced a moratorium period for all education loans taken up to March 31, 2009, and outstanding as of March 31, 2013. Nearly 9,00,000 student-borrowers would benefit to the tune of around Rs 2,600 crore.

“This proposal was based on public demand. The finance minister received a large number of letters where people who had taken student loans prior to April 1, 2009 felt they were discriminated against as they could not avail the interest subsidy scheme. Basically, what was happening was that many of these doctors and engineers were being considered as NPAs on passing out and could not get a new loan to set up something new,” said a senior finance ministry official.

According to finance ministry calculations, there were 8.94 lakh such pending accounts of which the total interest was Rs 6,000 crore.

Though the move has helped students who graduated earlier, bankers caution that such a moratorium should not be the main reason for students to opt for an education loan.

“Before taking out an education loan, students should also evaluate the job prospects post completion of the course or alternative means of repayment of the loan. Else, in times of a slowdown such as post-2009, when hiring is low, students can face pressure in payments,” said a banker on conditions of anonymity.

Industry sources said that there has been a rise in defaults in education loans post the global financial crisis as many students found it difficult to get a job.

While banks do prefer timely repayment of education loans, under IBA guidelines, if a student chooses to leave the course mid-way or has to extend the course up to a maximum period of two years, the bank can work out a new repayment schedule.

Meanwhile, the government is also working on a credit guarantee fund for education loans that would provide guarantee for such loans up to Rs 7.5 lakh.

The objective is to spur banks to lend more to students without concerns over repayment or defaults.

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Education sector gets 9% hike in outlay

Education Budget, Education Loans

17-Feb-2014

Business Standard

The education sector has got about nine per cent hike in theInterim Budget presented today by Finance Minister P Chidambaram, who also proposed a moratorium on repayment of education loans, benefiting 900,000 students.

The minister proposed a plan outlay of Rs 67,398 crore for the sector, out of which the higher education sector has been allocated Rs 16,200 crore and the school education department Rs 51,198 crore.

The hike proposed is 8.96 per cent compared to the revised estimate of Rs 61,857 crore in 2013-14.

With elections round the corner, Chidambaram sought to reach out to the students who have taken education loans to fund their studies, proposing a moratorium for all loans taken up to March 31, 2009 and outstanding ones up to December 31, 2013.

“It is estimated that nearly nine lakh student borrowers will benefit to the tune of approximately Rs 2,600 crore. I intend to provide the funds in the current financial year itself and Rs 2,600 crore will be transferred to the Canara Bank, which is the designated Central Scheme for Interest Subsidy (CSIS) banker,” he said.

In 2009-10, the then Finance Minister Pranab Mukherjee had introduced CSIS in respect of education loans disbursed after April 1, 2009 under which the government took over the burden of interest for the duration of the period of study and a little more.

The scheme brought cheers to the students and their families.

“However, I have noticed a sense of discrimination among students who had borrowed before March 31, 2009 and straggled to pay interest during the period of study and continued to service the loans afterwards. I think they deserve some relief,” he said while announcing the moratorium.

As of December 2013, public sector banks had 25,70,254 student loan account and the amount outstanding was Rs 57,700 crore.

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