A Sustainable Solution to Settle Students’ Debt and Release Stranded Credits
Ithaka S+R and Eight Ohio Public Institutions Announce Promising New Pilot
Since publishing our first report on the subject in October 2020, Ithaka S+R has been at the forefront of defining the problem of stranded credits. We are now moving ahead with testing a potentially groundbreaking solution.
“Stranded credits” are credits that students have earned but can’t access because their former institution is holding their transcript as collateral for an unpaid balance to the institution. Ninety-five percent of institutions withhold transcripts when students have a balance, and we estimate that 6.6 million students nationally have stranded credits. Collectively, these individuals owe an estimated $15.4 billion to former institutions, with average balances ranging from $631 for former community college students to $4,400 for former students at research universities. Like student loan debt, stranded credits are inequitably distributed: institutions with higher shares of students of color and Pell students have more former students with stranded credits.
The accumulation of stranded credits associated with institutional debt is a lose-lose-lose proposition. Students lose because they are unable to confirm their credentials to seek employment or transfer credits to continue their education, in addition to bearing the significant burden of debt collection. Institutions lose because they typically only recoup pennies on the dollar when balances are sent to collections and many students give up on furthering their education, reducing enrollments. And our communities lose because these administrative impediments stifle adult education and training needed to fill in-demand jobs, which hinders economic development.
We are excited to announce a new pilot of an initiative aiming to turn that lose-lose-lose situation into a win-win-win.
Beginning this month, Ithaka S+R will be working with all eight public universities and community colleges in Northeast Ohio to design and pilot a sustainable, inter-institutional compact to settle institutional debt and release transcripts of returning students with stranded credits. If the pilot is successful, there is great potential to rapidly scale this compact to other institutions in Ohio and to replicate the effort in other states.
The compact will be designed around three core features:
- Participating institutions will agree to settle institutional debts and release transcripts for former students who re-enroll in their own or any other participating institution.
- The institutions, Ithaka S+R, and regional community-based organizations will conduct proactive outreach to eligible students and advise students on a re-enrollment plan that is right for them.
- Participating institutions will engage in periodic financial transactions to account for resolved debts for students who enroll somewhere other than their previous institution.
Each of these features responds to a characteristic of the stranded credits problem and fills gaps left by other, promising, but incomplete solutions. The compact among regional institutions accounts for the fact that the majority of returning adult students choose to enroll in an institution other than the one they previously attended while staying in the same region. Proactive outreach and advising can expand the pipeline of returning adult students, while ensuring that eligible individuals know their options and have the support they need to make smart choices about re-enrollment that will advance their careers. The financial transactions among institutions would be a fraction of the nominal debt, but could be set at a level that is higher than the expected return from collections—which is only about seven cents on the dollar in Ohio. For institutions enrolling the students as transfers, that payment would also be far less than the new tuition revenue. These transactions will motivate continued institutional participation in the compact, wherever eligible students enroll.
The state of Ohio and the eight institutions we are working with are ideal partners for this effort. The Ohio Department of Higher Education released guidance last spring explicitly permitting institutions to develop “comeback” programs to settle debt for returning students, including cross-institutional programs. Chancellor Gardner and his team and the statewide higher education associations (the Inter-University Council of Ohio and the Ohio Association of Community Colleges) have been incredibly supportive as we began organizing the pilot. Ohio’s business and not-for-profit communities have also been enthusiastic about this initiative.
The eight Northeast Ohio institutions—Cleveland State University, Cuyahoga Community College, Kent State University, Lakeland Community College, Lorain County Community College, Stark State College, The University of Akron, and Youngstown State University—have significant transfer pipelines among themselves. Several of the institutions have existing or planned “comeback” programs of their own. The institutions have a history of collaboration and their leaders are incredibly motivated to work together on this challenge: it is worth emphasizing that the presidents of all eight public undergraduate-serving institutions in the region enthusiastically support the initiative and are committed to finding a solution.
Most importantly, the potential benefits of the compact to the region’s students, institutions, and economy are great. An estimated 60,000 of Ohio’s 222,000 individuals with stranded credits are in the Northeast region of the state. If just 10 percent of those individuals re-enrolls through the compact, it will mean 6,000 stopped-out adults will be back on track to earn a credential that will improve their livelihood and contribute to an educated workforce. Those students, who might not otherwise have enrolled, will bring in about $41 million in annual tuition revenue to the eight regional institutions. And if those students’ institutional debt is settled for just 10 cents on the dollar, it will mean about $900,000 in payments versus an expectation of $630,000 through collections.
The pilot team has a lot of work to do and an ambitious timeline. Our aim is to move from concept to operations in time to begin outreach to students about the opportunity in Spring 2022. Students may begin to re-enroll through the compact as early as Fall 2022. With great partners in Ohio, and generous financial support from Lumina Foundation, The Kresge Foundation, and The Joyce Foundation to manage the pilot, we feel confident that we will reach our goal.