College Affordability Act (CAA) improves college accountability by monitoring colleges exceeding Cohort Default Rate of 20% for three years, 15% for six years, and 10% for eight consecutive years, respectively.
Also, the CAA would exclude borrowers who have been in forbearance for 18 months or more from the CDR calculation.
The College Affordability Act (CAA) is an improvement of Cohort Default Rates (CDR) of schools. The CDR captures only a set of colleges with a rate of 30% and above for three consecutive years.
CDR measures the share of each school’s former students who default on their federal loans within three years of entering repayment. If a school’s CDR is above 30% for three years or above 40% for one year, the school may lose access to federal funds.
The loophole in this current accountability system is the fact that colleges with low CDR still have student defaulters of federal loans. When this happens, the low CDR college isn’t captured even with a high proportion of student defaulters.
Workability of College Affordability Act
With the CAA, colleges have more elasticity to continue receiving federal student aid. It is also a process through which the federal government holds taxpayer-supported colleges accountable for student outcomes.
The proposed CAA is achievable theoretically and would restrict the CDR from disqualifying large numbers of colleges from federal loans.
However, the workability and the effects of the CAA will be determined when the Act is effected.
A borrower in forbearance gets excluded from making loan payments. But, there is evidence that colleges nudged borrowers into forbearance so they would have low CDR.
Where the CAA Goes Wrong on Accountability
The improvements made to CDR might enhance higher education accountability. But there are other changes it brings to the system, which undermines its usefulness as a tool to hold colleges accountable.
First, the College Affordability Act does not only ascertain the share of student borrowers who default in three years. It multiplies the traditional default rate by the percentage of students at each institution who borrow federal loans.
This new calculation metrics lower the CDR of colleges from the actual to a new value. For example, a college with 16% CDR and 50% student defaulters will eventually have a CDR of 8% under the Democrats’ bill.
The current CDR is used to hold schools answerable for over $25 billion in taxpayer-funded grants that they receive every year. But with the College Affordability Act, one of the tools used to ensure accountability is stifled.
Another flaw of CAA is the fact that it favors colleges in preferred political sectors.
Despite the flaws, the College Affordability Act is a better innovation to ensure the accountability of federal funds using CDR.
