When we talk about stranded credits, we're talking about students who have an unpaid balance that they owe an institution. And because of that balance, they can't reenroll. And they can't access their transcripts to either transfer, or potentially use them for an employment related reason.
Welcome to focus, a podcast dedicated to the business of Higher Education. I'm your host, Heather Richmond. And we will be exploring the challenges and opportunities facing today's higher learning institutions. Hi, James. Thanks so much for joining us today.
Hi, thank you for having me. I'm excited to chat with you today.
Today, we're here to talk about stranded credits and the importance of addressing them. But first, can you give our listeners an overview of your background and experience with research in the higher ed financial space?
Sure. So my name is James Ward. I'm a senior researcher at Ithaka S+R I have been working in higher ed for a bit over a decade at this point in various capacities. So I've worked in institutional research, consulting and advisory work. I've also done research at NACUBO, the National Association of College and University Business Officers. I have a PhD in higher education policy. And I've been with Ithaka S+R for the past three years, leading research on higher education, finance and policy issues, as well as teaching Higher Education Finance, in the EdD program at National Louis University.
That's great. So you know a lot then about all the financial elements, especially stranded credits.
Yeah, I'm excited to chat about the exciting issue of stranded credits and unpaid balances.
Yes. Well, before we get too far in just for anybody who maybe is questioning what we're talking about, can you maybe just give an overview of what we mean when we talk about stranded credits?
Sure. So when we talk about stranded credits, we're talking about students who have an unpaid balance that they owe an institution. And because of that balance, they can't reenroll and they can't access their transcripts to either transfer, or potentially use them for employment related reasons. So we're kind of referring to those credits of being stranded as a result of those unpaid balances.
Got it, that makes a lot of sense. And I know that Ithaca S+R has published really a lot of research on this topic, and you're one of the authors. So can you maybe expand on, you know, really what led to this initiative? And what is the current state of the stranded credits, according to your research?
Sure. So this issue has certainly been around for a long time. And it has been growing in the attention being paid to it over the past few years, I would say. And about three years ago, my colleagues and I at S+R,we started trying to find some answers to how big of a problem is this? What is the really the scope of the issue here, and there just wasn't a lot of information out there. So we started down a path of doing some initial scoping research. And we partnered with some other organizations to try to get as much data as possible since this is not something that's captured by the Department of Education. And a lot of institutions don't necessarily have detailed data on this issue. Thinking about where the state of stranded credits is now, we're looking our estimates from our initial report were indicating about 6.6 million students across the country might be in this situation, and their unpaid debts may be more than $15 billion. So this is really a substantial problem both for students and institutions, and we think something worth addressing and trying to solve.
Yeah, that's very significant, as a matter of fact. So are you seeing yet in the data or is there a certain type of population of students that this is really impacting?
So our research shows that this issue is definitely more prevalent at colleges that are serving disproportionate numbers of historically underserved students. So we're talking about institutions that are really enrolling some students who are already disadvantaged coming into school and then who are potentially ending up in this situation, which is just compounding that disadvantage. We also see the issue of broadly affecting higher ed and really touching on all sectors and all institution types.
Yeah, I was wondering about that, too, just kind of thinking about types of institutions that deal with this more as it sounds like it's really kind of across the board.
It is. So we know that, you know, schools that are serving lower income students and minority students are impacted more greatly. But we also know that this is affecting community college students, students at private research universities and public comprehensive colleges. It's really a pervasive issue. And it differs across both the sectors as well as, you know, across different states. So there's really a national problem but a problem that there's a lot of variation in.
Yeah, that makes a lot of sense. And when we think about, you know, what some of those unpaid balances are to create these stranded credits, like, you know, what are we talking here in regards to the cost per student, and really the source of where the debts coming from?
Sure. To the cost per student, like I said, it's going to vary. So at community colleges, you know, it's probably the largest sector that we see this problem. And we estimate over 3 million students at community colleges may have stranded credits, but their average balance is actually much lower than the national average. It's only about $630, from our estimates, whereas on the flip side, you have small private institutions, where the average balance may be as high as $5,700. But affecting fewer than 500,000 students. So you know, the way the problem manifests across these different types of institutions is really important. And part of that is also because of the way students end up in these situations. So you kind of have three main groups, I would say, of students, you have students who have enrolled, and kind of leave right away. And these are students, you know, where college may simply have not been the right choice for them or are their plans have changed whatever it may be, but they were only in school for a short amount of time. Then you have students who were progressing through their degree normally, something happens, and that really just sets them off course financially, and leaves them with this unpaid balance, which becomes a problem that derails their studies. And then you have students who make it to the end. And, you know, they may only have a few credits left, or they may have actually completed all their requirements, but couldn't pay that last bill. And now they can't access their transcripts when they're trying to get a job or something like that.
Yeah. So it becomes a pretty big impact of being able to kind of tie up those loose ends, I guess, right?
Exactly.
And so I guess, beyond, you know, really getting the transcript are there some other, you know, negative impacts from a student's perspective, or even institutions and how are you seeing this being addressed?
So for institutions, not receiving the payment is the obvious issue for them, you know, that's a loss of revenue, whether it's tuition or room and board, and that's dollars that they're relying on in order to, you know, meet their operational expenses. Resolving these debts is really important, not only for recouping those dollars, but also if they can reenroll students, that future tuition revenue for these institutions. From the student perspective, you know, the unpaid debts can really follow them in a lot of different ways. So certainly preventing them from reenrolling, preventing them from transferring potentially, from getting a job, which would help to repay the debt. So it's a bit tautological in that sense. But then you also have the kind of longer term financial impacts of this potentially ending up on their credit score, and impacting them through collections agencies, which is really problematic from their long term outcomes. So if we can solve the problem for them, we can help them both educationally and get back into school and earn their credential, but also help them in their longer term life outcomes.
Yeah, I know, we've talked to a lot of business officers, and they certainly, you know, last resort to have to go to a collection agency, they really want their students to be able to get off on the right foot and not have to get on the right foot with debt and being called by collection agencies. So I think being able to solve, you know, for these stranded credits is definitely a goal across the board. So have you identified any solutions to help really address the stranded credits?
So there are three solutions that are kind of out there right now. One, we have policy bans that have been going into effect across states that are stopping the practice of withholding transcripts. So California and Washington are two of the first states that did that. They're also recent bills that have passed in Colorado, New York and Maine. So this is certainly a trend that we see growing across states. And we think that, you know, these bills are helping students and because they're able to get their transcripts. However, it's only solving half the problem. So these students may be able to access their transcripts, but they still have this unpaid balance, and that debt can still follow them around. Another solution that we've come across are gap loans. So basically, private organizations, usually nonprofit organizations, who are providing these loans for students to pay off their unpaid balance, and then, you know, get back into the classroom and complete. You know, this is certainly helping students, but these have all been very small operations thus far. And also, you know, they're saddling students with additional debt, which is something, you know, we should really think about carefully, whether or not that's the right option here. And also, when thinking about the students who are disproportionately impacted by this, you know, lower income students is more debt, really the best solution for them? And then the third approach that we've seen are these debt forgiveness programs. And these are mostly single institution programs, where colleges are forgiving these unpaid balances, and then letting students kind of reenroll to pay off those debts over time or the debts are forgiven over time, I should say, and then be able to continue their credential and colleges get all that additional tuition revenue from that reenrollment.
Yeah, it almost seems like this is a perfect opportunity to offer some special payment plans. So instead of outsourcing to a third party, really having the institution setup a payment plan for that student or for the certain situation. So I'm just kind of curious, I just thought about that. Have you seen payment plans or special maybe like, gap payment plans versus the gap loans come into play?
You know, we haven't seen a ton of that. I do think that that is another potential solution, assuming, you know, that those additional payments, don't put students in a situation where they have an unpaid balance in the next term because of those additional expenses that they may not have been expecting. But I think it's certainly another strategy institutions might be able to use in order to alleviate the debt problem that students are facing.
Yeah, I know I some of our schools do that. And I was just thinking this could be something to really help, especially with some of those smaller ticket items, I'll say, or the smaller balances that can maybe be spread out over the next, you know, four to six months and get that paid off and clear. But yeah, it's really interesting. And then I, and it sounds like too, then the flip side of that is really just looking at, hey, do we need to do some debt forgiveness? And so have there been some different approaches you've seen in terms of the debt forgiveness, you talked about?
Yeah. So we've seen kind of two approaches so far. So one is the more recent approach of using federal COVID relief dollars for debt forgiveness. So as part of the funds, institutions are able to use that to pay off students unpaid balances. We've done a little bit of research trying to collect some information about these programs at Ithaka. And we've found that, you know, they may be very effective in the near term, but it's unclear if, you know, without the continued investment from the federal government, if these programs are going to persist, because colleges likely don't have that that bond funding in their budget. The other kind of debt forgiveness programs are these more long standing programs that we've seen, I think, the Warrior Way Back program at Wayne State is probably the most well-known versions of this. And these programs, you know, from the conversations we've had appear to be really successful. There's usually some sort of cap on how much can be forgiven through these programs. And students have to kind of persist in their reenrollment to receive that forgiveness. But it appears to have been a really effective way of getting students back into the classroom.
Yeah, sounds like it's a really good alternative. And it sounds like that you have seen some success. Are you able to, is there data to support that yet on some of the success of these programs?
Yeah, I think there's certainly some anecdotal evidence that these are successful at getting students back in. You know, one thing that we are working on Ithaka, to try to maximize the impact of these types of solutions is this new Ohio Compact that we just recently launched. So it's a collection of eight institutions in Northeast Ohio, for community colleges and for public four years. Essentially, we're setting up a system of debt forgiveness across all of the institutions. So students who owe a balance to one of these colleges will be able to reenroll in any of the eight partner institutions. And then their debts will be forgiven if they enroll over a certain number of terms, depending on how much was unpaid. And then at the college level, you know, colleges will kind of cross subsidize the debt, depending on where students owed and where they end up enrolling. And we think this approach, kind of takes some of the best ideas from the solutions that are out there, and really tries to solve both the transcript withholding problem as well as the debt problem. And by setting up incentives for kind of both sets of colleges as well as the students, we think that this is going to be a really effective way of getting more students back into the classroom and pursuing their credentials.
Yeah, that's really interesting. And so kind of starting there in Ohio, are you seeing kind of the next place this may go? Or is this more about let's see how this works, and get some other kind of states to buy in?
Sure. So we we made the announcement about the Ohio Compact in December, and we are launching it this spring slash summer. So we will be hopefully, you know, enrolling students this fall in this and we'll be evaluating the effects of this as we go along, you know, in order to improve the compact as time goes on. But we certainly see this as a model that could work in a lot of different jurisdictions. So whether it is at the state level, whether it is amongst full systems of public institutions, or even consortiums of private public mixes that are geographically bound, we think that this is a promising model that we are hoping to implement in a lot of other places.
Oh, that sounds great. And so I just kind of curious if people are listening and going, hmm, that might make sense. Yeah, I'm part of the consortium, or I’m part of the group, is that something they would just, you know, reach out to Ithaka S+R about? Or what would be the process for them?
Absolutely, they are more than welcome to reach out to me, and I can certainly get the ball rolling on connecting them to folks. And, you know, we've got plenty of resources on the issue of stranded credits on the website as well.
Oh, that's wonderful. That's great. Well I know, you know, obviously, you've been a researcher, you love data, we all love data. But around some of these topics are really sometimes seems to be a lack of data. But maybe, again, if schools start to think about programs like this, you just talked about, you know, what should they be thinking about in terms of types of data that would really help, you know, identify the scope of the problem they may have on campus with stranded credits and then also those solutions? Do you kind of have some guidelines?
Sure. So I think, you know, first of all, just understanding what the policies are on campus was really important. You know, we know from our research with some of our partners that like 95% of institutions are putting transcripts holds on students for unpaid balances. And about 64% of them are for balances as low as $25. So we're talking about some pretty small, outstanding balances, that could be derailing students, or we're certainly getting in the way of both students and institutions functioning correctly, right. So understanding the institutional policies is really important and documenting them as well as the state policies. Because as we're seeing these different bills passed across states and changes to what is allowed and what is expected, it's really important to understand the context that colleges are operating in. And then there's also really, a great first step is for colleges to really start just collecting data on who has unpaid balances, how much they owe when the balances are popping up. Right? In our research, we found a lot of colleges couldn't provide that information. And that's a potential roadblock. That seems pretty solvable, right. But if colleges just spend more time collecting this data, they may be able to start proactively addressing this problem on campus. And then the third thing is really thinking about why students are ending up in this situation first place. So we know that students are ending up because of you know, some sort of unexpected loss of financial aid or support from family that prevents them from paying their full bill. We know some students are ending up in this situation, because of unexpected fees or fines that they simply can't afford. And then we have other students who are ending up in this situation because they may have decided to withdraw but under Return of Title IV policies, colleges have to give the money back to the federal government and then the student owes a balance to the institution that they weren't expecting to pay. So you know, colleges should probably spend a bit more time understanding what is happening in students’ lives that's causing them to end up in this situation in the first place.
Yeah, I think that's really interesting. And kind of thinking about the types of balances like you said, you really have like a whole tuition balance or maybe you have some parking fines that you didn't pay, and there's just a single hold code. So if you're only looking at the hold code, you may not be able to differentiate, you know, what's that line? So I was just thinking, I don't know, if you talked to any schools where maybe they have a different hold code that's like, based upon dollar amount? Or would that be a suggestion to, to maybe see, let's tackle these low dollar, you know, balances differently than the higher dollar? I don't know. What do you think about that?
Sure, you know, I think I think definitely approaching the dollar amount differently is probably a really good idea, right? A student who owes $50 is likely very different than student who owes $5,000. And most of them are going to be very different. Our colleagues at AACRAO, actually the registrar's association, they've done some recent research into old codes. And they found that a lot of institutions have hundreds of different codes that they're using for holds and dozens of offices across campuses can put these holds on. So I think, certainly, probably consolidating those into a more manageable number, and more useful numbers, that are a more useful set of codes, that really tells individuals what is happening is probably another helpful first step.
Yeah, I think that really is a good tip. And you know, kind of thinking about the withdrawal, we certainly have seen the increase for medical reasons and have it be from mental health or taking care of family. And it's interesting, you know, kind of how that works. Do you have any insight on institutions who, you know, provide, like a tuition protection program? Do they seem to have lower stranded credits? Or do you have enough data on that yet?
You know, we don't have data on that. The one thing I will say, you know, I think the students who are ending up who have to withdraw and are ending up with unpaid balances are also students who are already disadvantaged to start with a lot of times, which means they may not have even had, you know, the funds available to join a tuition protection program in the first place. So I think that kind of really just goes back to the point of shedding more light on why students are ending up in this situation and which students are, so we can be very proactive and tailor solutions to be meeting those needs.
Yeah, I think I think you're right on that too. And again, I know, a lot of our schools we talked to, they're really just looking for ways to help those students resolve holes, I don't think anybody likes having stranded credits. And the goal is, yes, to collect the debt from a revenue perspective. But more importantly, just to be able to get students back in school and to graduate, right, that's the most important step.
Exactly, stranded credits really is a lose/lose situation across the board, you know, students are harmed, institutions aren't actively looking to be in that situation. And then from a broader perspective, you know, we're not going to be able to meet attainment goals that we've set, at state and national levels, if we can’t help students get through and earn a credential. So, you know, any way we can proactively address this problem and really solve this issue. I think it's going to be beneficial for everyone.
Yes, I agree with that. Well, anything any other insights that you have, from your research or anything on this topic that you want to share with our audience? Before we close out today?
No, I think, you know, I'm really glad to be here and chatting with you about the topic. I think it's really important. And I would just encourage everyone to start having conversations on their campus about this. You know, I think there's been a lot of press coverage recently on the issue. And we've certainly been releasing as much research as we can, over here at Ithaka. But we'd love to see more folks talking about this issue, and really starting to elevate it to make sure that we are proactively addressing it.
Yeah, I agree. I think anytime that they can, you know, build a business case and back it with data is the best way to go about doing that. So I assume all your research is available on your website for folks to be able to go and download.
Yes, it's all available on Ithaka S+R’s website.
Well, James, thanks so much for talking with me today. It really has been great to learn more about stranded credits, even more than we already knew, and the steps that you know, really we can take to better understand that issue.
Great. Well, thank you so much for having me.
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