Sunday, September 27, 2015


Why “Skin in the Game” Doesn’t Make Sense

The best data are the ones that correct intuitions.

By that standard, the new ACCT report on student loan defaults, “A Closer Look at the Trillion,”  is full of great data.

It’s based on a study of every community college in Iowa over the last five years.  And although it’s pitched to community college leaders in the spirit of “here are some ways to get default rates down,” it’s also an implicit attack on the idea that the key to getting student loan defaults under control is forcing colleges to put some “skin in the game.”

(Does anyone know the source of that awful metaphor?)

Among its findings:

In other words, if students complete more than fifteen credits and use IBR, the default issue shrinks to an easily manageable level.

Alternately, one could say that the student loan default problem is not a cost problem at all.  It’s a completion problem, and/or an information problem (ignorance of IBR).

The report also taught me a few things.  Did you know that simply paying off a loan doesn’t make the “default” label go away?  I didn’t.  Apparently, if you “rehabilitate” a loan -- meaning, you make nine consecutive payments -- then it moves out of default and you can pay it off.  But if you just pay off a defaulted loan, the scarlet letter stays with you for seven years.  Who knew?

From the perspective of a college trying to lower its rate, a couple of strategies suggest themselves.  First, make sure that students are aware of IBR, and try to make it the default option as much as possible.  And second, focus on retention.  Even if students only get to thirty credits instead of sixty, they’re far likelier to be able to make their payments.

I have to admit being annoyed whenever I hear proposals for getting colleges on the hook for students who default.  If your college is open-admissions, and defaulters often have fewer than fifteen credits, then how, exactly, are you supposed to control that?  Selective institutions can screen out high-risk students, but community colleges can’t.  Blaming colleges for students who walk after a few weeks is obtuse at best, if not actively classist.  

In a better world, a report like this would serve as a spur to the “free community college” movement, or at least to improved state support for community colleges.  But if it motivates campuses to look more closely at IBR, and helps to deflate the pernicious “skin in the game” movement, I’ll take it.  And for heaven’s sake, let’s count “paying off the loan” as escaping default.  

I believe that "skin in the game" makes use of golf slang, where a wager on the outcome of a hole is a "skin," as in "skins game." No, I don't know why golf for stakes uses that terminology, perhaps it's because all the other four-letter words were taken.
It would be nice if campus statistics also recognized the existence of students who register for a class but never actually attempt it, the analogous situation to not reaching the 15-credit threshold.

The fact that institutional research data don't include information like "did student take any tests" or "did student do any homework (or any work at all)" is only an explanation for why it is ignored when looking at the fraction of enrolled students who pass a class and why you think web classes have a lower success rate than regular classes.
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With regards to number of credits, I think you might be assuming causality where there's only correlation. If you can't get through one term in community college, it's likely because you have other significant challenges (be they external or internal). Those challenges can cause both (a) quitting college and (b) not being able to reliably pay down a loan.

I'm a big fan of the work we do at CCs, but one year at a community college isn't going to *cause* such a significant effect.
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