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Online degrees may mean less debt, but students still can’t pay

With student loan debt soaring to more than $1.6 trillion, undergraduate students are turning to online classes in the hopes of saving money. But an Ididio study of nearly 2,000 universities and colleges shows online education may not be a good deal.

About a third of students who are working toward their bachelor’s degree are taking at least some of their courses online. And the share of students taking online courses has increased 50% over the past six years.

At first glance, online education does look like a cost-effective option. At schools where 80% of students take all their courses online, students’ median federal loan debt is $10,638. Meanwhile, schools with no online focus report a median federal debt of $18,750 for students.

$10,638$13,438$18,750$0$5,000$10,000$15,000$20,000$25,000Median federal debt upon entering loan repaymentFew onlineSome onlineMostly online
SOURCES:
2019 College Scorecard
2018 IPEDS

When it comes time to pay off those loans, students at online-focused schools seem to have a more difficult time. Half of the heavily online-focused schools have at least 10 percent of their former students give up on paying back loans within three years.

Students at schools without an online focus are more than half as likely to default on their federal loans. That’s no small matter. Default doesn’t just hurt a student’s credit score, it can damage future job prospects.

10%9%4%0%5%10%15%20%Default rate (loan repayment failure within 3 years)Few onlineSome onlineMostly online
SOURCES:
2019 College Scorecard
2018 IPEDS

Why are these online-focused students defaulting on their loans?

The problem may be that they didn’t finish their program. Our analysis found students are much more likely to successfully complete a bachelor’s degree when they attend colleges with few, if any, online classes.

Students who complete a degree or postsecondary certificate are significantly more likely to start paying down their loan principal compared to noncompleters

Students who complete a degree or postsecondary certificate are significantly more likely to start paying down their loan principal compared to noncompleters, reports Third Way.

The following graph compares the number of students, including full-time, part-time, those who began as freshmen, and those who transferred in, who are able to complete a degree within 6 years. At schools where 80 percent of students take only online courses, the median completion was only 26 percent.

26%39%62%0%20%40%60%80%100%Completion rate for all studentsFew onlineSome onlineMostly online
SOURCES:
2018 IPEDS
2019 College Scorecard

Disadvantaged students bear a greater burden

Unfortunately, students who can least afford the setbacks of lower graduation and higher default rates are the most affected by these trends in online-focused higher education.

To illustrate this, let’s consider Pell grants: the percentage of students receiving Pell grants can show a rough, comparable estimate of student financial need by school because eligibility is determined by the federal government.

When you compare the share of Pell grant recipients between online-focused schools and schools with no online focus, it’s evident that schools with online offerings are serving a greater proportion of students with financial need.

48%46%31%0%20%40%60%80%Percentage of students receiving federal Pell grantsFew onlineSome onlineMostly online
SOURCES:
2018 IPEDS

Students with financial need are more likely to have attended high schools that left them under-prepared for college, and they can benefit greatly from academic intervention and personal attention.

But there’s reason to believe that the students who choose an online-focused school aren’t getting the same level of support as a more traditional school — Online schools spend significantly less money on student instruction.

$2,372$5,550$10,659$0$5,000$10,000$15,000$20,000$25,000Instructional expenditures per studentFew onlineSome onlineMostly online
SOURCES:
2018 IPEDS

In aggregate, our analysis finds that online-focused education may have some pitfalls for undergraduate students. Not all schools are the same though. For some of our measures, the top-performing online school may be better than the lowest traditional school. If you’re considering an online-focused program with a college or university, search through the schools in the chart and table below to see how they fared.

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SOURCES:
2018 IPEDS
2019 College Scorecard

Methodology
This study included colleges and universities for which 60 percent or more of undergraduate degrees awarded are at the bachelor’s level. While we were tempted to restrict our attention to schools that only graduated students with four-year degrees, we can consider almost twice the schools with our relaxed condition that at least 60 percent of undergraduate degrees are at the bachelor’s level, and that allows us to create reliable statistics for the smaller groupings of schools that are focused on distance education.
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