Department’s Gainful Employment Metric May Underestimate Borrowers Successfully Repaying Their Loans

Posted: August 25, 2010 in News
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The Department’s proposed rules for “gainful employment” underestimate the number of borrowers who are repaying their student loans, according to a recent policy analysis by Mark Kantrowitz, publisher of and

If the Department overestimates the number of students who are not in repayment, some programs could be unfairly penalized for not meeting the proposed gainful employment requirements. In his analysis, The Impact of ‘Persistence of Interest’ on Loan Repayment Rates, Kantrowitz contends that the Department’s proposal “fails to give credit for all borrowers who are making full payments on their loans.”

The Department’s proposal would include an annual loan repayment rate test that would measure the percentage of borrowers who are successfully reducing the principal of their FFEL and Direct Loans. The Department would measure whether borrowers are actually repaying their loans by comparing snapshots of a borrower’s principal balance at the start and end of the most recent federal fiscal year. But, since loan payments are applied to accrued interest before principal, borrowers could be making full loan payments on their loans without actually paying down their loan debt, according to Kantrowitz.
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