Massachusetts’ Lending Failure
A closer look at the No Interest Loan (NIL) Program
Unknown to many, Massachusetts has its own student loan program, the No Interest Loan (NIL) Program. This program offers generous terms where students can borrow a maximum of $20,000 in interest-free loans over a lifetime, to be repaid within 10 years of graduation. While eligibility and the amount are determined according to financial need, students can borrow NIL to attend public or private Massachusetts higher education institutions.
We, at the Hildreth Institute, believe in the importance of evaluating the performance of subsidized programs to assess whether they are fulfilling their mandate and serving their target populations in the best possible way. As we sought to learn more about NIL’s history, funding scheme, and most importantly its effectiveness, we were surprised at how little information was available on this program. After a serious investigation, we submitted a public record request to gather missing information and here we are sharing what we learned about NIL:
- The program started in 1992 and has a current outstanding debt of $55 million.
- 80 percent of NILs are disbursed to private colleges and universities.
- The program used to be funded by an annual $10 million appropriation from the legislature and was issuing about $9 million in loans annually. However, since 2002, it no longer receives appropriations and operates entirely on its loan repayments and issues between $5-$6 million annually.
- It has abysmal repayment rates, with 62 percent of borrowers not repaying their debt on schedule.
- Borrowers in collection are struggling to repay small amounts averaging $2,605 which indicates that their college degrees have not yielded well-paying employment opportunities.
- Graduation and default rates of NIL borrowers are not disclosed (even after a public record request).
- The policies in place to hold schools accountable for the high default rates are not severe enough to dissuade bad behavior, however, borrowers in default, are heavily penalized by being denied access to any other assistance from MA financial aid programs until their default status has been cleared, they may even risk state tax return interception.
With more than half of the borrowers in collection for loans averaging at $2,500, it is clear that NIL has failed to realize its mandate to provide educational opportunities to MA residents in need and is wasting of taxpayers’ money. NIL is a failed subsidy that benefits colleges and universities but not MA residents who are seeking to afford a college degree.
The Massachusetts Department of Higher Education’s (DHE) Office of Student Financial Assistance (OSFA) offers its residents an interest-free student loan named, the No Interest Loan (NIL) program. $20,000 can be borrowed in a lifetime, with amounts determined according to financial need. These loans can be borrowed to attend public or private Massachusetts colleges and universities. Students have 10 years to repay this loan after graduation.
Little can be found on the history, funding, or effectiveness of the NIL program on the DHE or the OSFA websites, which provide information on eligibility requirements for students  and guidelines and procedures for institutions. 
After some investigation, we found a 2007 Office of Legislative Report  indicating that NIL was created in 1992, and that until 2002, it was funded by an annual $10 million appropriation from the legislature and was issuing about $9 million dollars in loans a year. Now the program operates entirely on its loan repayments and issues between $5 and $6 million annually.
We also found in an official Audit of the DHE  indicating the number of students who were awarded NILs and the amount disbursed according to the institution type for FY 2015 and FY 2016. It is interesting to note that 80% of these loans are disbursed to Private MA institutions:
We wanted to learn more about the performance of this program and thus filed a public records request asking for:
- The total outstanding balance of the MA no-interest loan program
- The number of borrowers in repayment, in grace period, in deferment, in delinquency, and in default.
- The monetary volume of debt in repayment, in grace period, in deferment, in delinquency, and in default.
Using the data we received, we created the tables, shared below, which reveal that only 28% of borrowers are repaying the $55 million outstanding NIL debt. That is, more than half of the borrowers were in collection (56%), with another 3% past due and 2.5% in deferment.
It is clear that the real benefactors of this subsidized program are not the students, but the colleges and universities that pocket this money without being truly accountable for the education they provide. If more than half of borrowers are failing to repay debt averaging $ 2,604, students are either dropping out or unable to find adequate employment after graduation. While some guidelines have been put in place in 2005  to increase the responsibility of individual schools, they are not severe enough to change or deter bad behavior.  According to the new regulations, schools with a cohort default rate exceeding 30% can continue their eligibility to the NIL program by simply making sure that they achieve a 100% return rate on the online exit interviews for that fiscal year. And even if they fail to do so, institutions have another year to not exceed a 30% cohort default rate, and if they fail, they are only penalized by a 25% decrease in their NIL total disbursement eligibility. Meanwhile, the real punitive conditions fall mostly on vulnerable borrowers in default who lose eligibility to receive assistance from any other MA financial aid programs until their default status has been cleared and they may have their state tax returns intercepted.
With more than half of the borrowers in collection, it is clear that NIL is failing in its mandate to provide educational opportunity to needy MA residents and is a waste of taxpayers’ money. We believe higher education institutions should be held accountable for the subsidized loans they request from the State on behalf of their students.
 Massachusetts Department of Higher Education, “Massachusetts No Interest Loan Program,” OSFA, 2018, http://www.mass.edu/osfa/programs/nointerest.asp.
 Ibid. PDF found at: http://www.mass.edu/osfa/documents/publications/2017/2017-2018%20No%20Interest%20Loan.pdf
 Pinhel, Rute A. “Massachusetts No Interest Student Loan Program.” OLR Research Report. January 12, 2007. https://www.cga.ct.gov/2007/rpt/2007-R-0044.htm.
 Bump, Suzanne. “Official Audit Report.” Office of the State Auditor. August 29, 2018. https://www.mass.gov/files/documents/2018/08/29/201713413e.pdf.
 “State Financial Aid Programs Guidelines and Procedures.” Commonwealth of Massachusetts – Office of Student Financial Assistance. 2018. http://docplayer.net/42634158-Commonwealth-of-massachusetts-office-of-student-financial-assistance-state-financial-aid-programs-guidelines-and-procedures.html.
 According to OSFA guidelines and procedures, new policies, effective with award year 2005-06, have been put in place to guide individual school’s responsibilities to the loan program, based on their loan cohort default rate performance. Each fiscal year, OSFA calculates each NIL participating institution’s NIL cohort default rate for that same fiscal year. Institutions whose default rates exceed 30% are asked to achieve 100% return rate on their online exit interviews by July 15th to be considered for continued participation. Any school that does not achieve this goal and have a prior year default rate in excess of 30% is only eligible to receive no more than 75% of their highest allocation in the last five years.