Episode 405: Addressing Stranded Credits to Create Win-Win Solutions

Stranded credits are a significant issue in higher ed institutions, impacting both schools and students. With new data arising on the subject, there is much to learn about potential solutions to the problem of stranded credits and how to keep students on track. James Ward joined a recent episode of Focus to shed light on the topic of stranded credits and solutions campuses can employ. Ward is a senior researcher at Ithaca S+R, where he leads research on higher ed institutions, finance, and policy issues. He also has experience in institutional research, worked with the National Association of College and University Business Officers (NACUBO), and teaches courses at National Louis University.

What are Stranded Credits?
Before diving into why stranded credits are an issue, it’s important to have a full understanding of what they are first.

“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,” Ward explains.

Research done by Ithaca S+R shows that an estimated 6.6 million students have stranded credits adding up to $15 billion in debt. This substantial problem for students and institutions requires solutions and provides an enormous opportunity for institutions to re-engage disaffected students, resolve debt, boost enrollment, and support students to complete degrees.

Which Students are Affected?
Ithaca S+R’s research found stranded credits more prevalent in schools enrolling disproportionate numbers of historically underserved students. Students come into these institutions already at a disadvantage, which only compounds once they accrue stranded credits. While stranded credits broadly affect higher ed across all sectors and institution types, schools serving lower-income and minority students see a greater impact.

Community colleges are the largest sector of higher ed to face this issue, with an estimated three million students carrying an average of $630 in stranded credit debt. On the flip side, small private institutions have a higher average cost per student of $5,700, but only have around 500,000 affected students.

Students with stranded credits typically fall into one of three groups. The first are students who left school quickly after enrollment, either due to a change in plans or college not being the right choice and left without paying their fees. The second group is made up of students who were progressing through their degree normally, then encountered some financial setback that caused them to leave school and not pay their balance. Lastly, there are students who make it to the end of their degree with only a few credits or requirements left, and never pay their final bill. Understanding these three groups can aid campuses in encouraging students to get back into school and earn their credentials and help them in their longer-term life outcomes.

Stranded Credit Solutions
Ward suggests three solutions to the issue of stranded credits. First, policy bans can stop schools from withholding transcripts from students with unpaid debts. This solution helps students by freeing their transcripts to re-enroll, apply to jobs, and potentially pay back the credits, but debt will still follow them. Additionally, policy bans leave institutions with little to no recourse to collect debts.

Gap loans provided by nonprofit organizations allow students to borrow money to get them out of current debt and back in the classroom. This option still saddles students with additional debt, which may not be the best option long-term.

The final solution students have access to are debt forgiveness programs. These are mostly single institution programs, where colleges forgive unpaid balances and let students reenroll to pay off debts, or the debts are forgiven over time. Some schools even used Covid relief funds to help pay off unpaid balances. Colleges receive additional tuition revenue from that reenrollment, and students are still able to work towards their credentials while reducing debt.

What Comes Next?
While Ithaca S+R doesn’t yet have statistical evidence of the success of these debt forgiveness programs, they have seen anecdotal evidence that the programs do in fact bring students back in. Ithaca S+R recently helped launched the Ohio Compact, a collection of eight schools with a system set up for debt forgiveness. Students who owe a balance to one of the colleges will be able to reenroll in any of the eight partner institutions. Their debts will be forgiven if they enroll over a certain number of terms, depending on how much was unpaid. The institutions will cross subsidize the debt, depending on where students owed and where they end up enrolling. Ward believes that this will be a model for other schools to build debt forgiveness programs from.

Ward’s final piece of advice as higher ed institutions begin to strategize potential solutions is to gather more relevant data. Find out who has unpaid balances, how much is left unpaid, why are balances left unpaid, what policies and codes are adding to student hurdles, and how successful debt forgiveness programs are, if the institution has any. As institutions begin to close this information gap, better solutions can be implemented that will lead to fewer students struggling with stranded debts.

Special Guest: James Ward.