Only One Public College Failed a Government Accountability Test. Here’s Why It Won’t Be Punished.

Kentucky Community and Technical College System

Each year, the Education Department publishes a list of colleges with unacceptably high percentages of students who default on their federal loans. With that list comes the chance to crack down on the worst offenders.

But there aren’t many such offenders, at least not by the measures the department uses. According to this year’s data, released on Wednesday, only one public institution in the country has crossed the threshold for facing a loss of federal aid: Southeast Kentucky Community and Technical College, a multicampus college of more than 3,000 students.

With default rates in excess of 30 percent, the college has been over the line four years in a row. But in April, it received a windfall: A federal waiver shepherded by Sen. Mitch McConnell, the majority leader, and approved by Education Secretary Betsy DeVos, allowed it to keep receiving federal aid.

The college is one of a few that have been in the news for carve-outs in congressional deal-making: During last December’s tax-cut negotiations, Democrats decried apparent exemptions inserted by Republican lawmakers for Hillsdale and Berea Colleges. The latter is another college protected by the Kentuckian, McConnell. Thanks to a provision Senator McConnell inserted into the budget in February, which gave more flexibility to institutions in economically distressed areas, Southeast Kentucky has kept its federal aid, which it sorely needs.

Is that an act of political favoritism, or a reasonable concession to reality? The college makes the case for the latter. It serves a community damaged by a loss of coal jobs and beset by perennially high unemployment and poverty rates. Officials at community colleges and historically black colleges and universities have long argued that their mandate to serve economically disadvantaged students means they are unfairly penalized by default-rate calculations. Southeast Kentucky and its fellow community colleges are at the heart of the region’s rebound strategy.

Southeast Kentucky has had “very open” discussions about its high default rates, said Vic Adams, the college’s president. The community is “extremely unique,” and its socioeconomic challenges, along with a change in how default rates were measured in 2008, he said, contributed to a higher rate. To deal with the problem, Southeast Kentucky focused on communicating with its student borrowers, investing in financial counselors and two extra loan servicers.

McConnell’s office directed The Chronicle to a release and an op-ed by Jay Box, president of the Kentucky Community and Technical College System. The default-rate system “fails to grasp the economic realities of Southeastern Kentucky,” wrote Box. (Neither Box nor a spokeswoman for the Education Department responded to requests for comment.)

The Higher Education Act mandates sanctions on institutions that have excessive cohort-default rates, which measure the percentage of student borrowers who default on their federal loans within the first three years. Those institutions that do — this year, just Southeast Kentucky and a handful of small, private, for-profit and cosmetology schools — are at risk of losing federal aid.

In theory, the measure keeps institutions accountable for their students’ success. But it’s enforced relatively rarely, and critics say the sanctions are a “toothless” shadow of their early incarnations in the 1990s. Colleges found all sorts of ways around enforcement, submitting successful appeals and hiring consultants who drove students into postponement programs like forbearance, sometimes hurting the students by providing insufficient information and driving up their fees over time. Those tactics also helped institutions sidestep the three-year measurement window the government uses to determine default rates, according to the Government Accountability Office.

The default-rate tool isn’t just weak, it’s blunt, said Robert Kelchen, an assistant professor of higher education at Seton Hall University. Its all-or-nothing penalty cuts colleges off from critical federal aid for two years, giving them the incentive to to tweak their default rates by any means necessary, he says. Meanwhile, the tool doesn’t match students’ financial behavior. Many struggling borrowers now opt for income-driven repayment, which generally lessens the likelihood of default by adjusting payments based on how much a student makes. Adams said income-driven repayment “has been a tremendous help to our students.”

“If the economy is bad, you go into income-driven repayment and you should not have to default,” said Kelchen. People in that situation could still be struggling, but their struggles wouldn’t be caught in the government’s default rate. Economic distress of the type that justified Southern Kentucky’s exception was a more reasonable rationale before these newer forms of payment came along, he said.

Southern Kentucky’s escape from financial punishment isn’t unique — rather, it’s indicative of colleges avoiding 90s-era restrictions by opting for appeals, pushing different repayment strategies, or netting political favors. In 2014, the Obama administration also tinkered with default rates to allow certain colleges a pass, said Kelchen.

Kelchen predicts that the next round of Higher Education Act negotiations may modernize the process somewhat to measure repayment rates, not just default rates. Such a move “can help protect taxpayers as well as protecting students by providing better information about their likely outcomes,” he said.

In the meantime, McConnell’s intervention will help keep Southeast Kentucky afloat — and, if all goes as intended, give the community college a chance to make good on its mission to revive a region’s flagging economy.

Follow Steven Johnson on Twitter at @stetyjohn, or email him at steve.johnson@chronicle.com.