College Access

New America Event, 11/5: Linking Savings to College Access, Affordability and Completion

Mark Huelsman — Tue, 03 Nov 2009 15:55:00 -0500

Just last year, tuition and fees at four-year public colleges rose 6.5 percent. Unfortunately, this continues a decades-long trend of rising college costs, even during periods of economic unease and low inflation. Escalating prices have also coincided with stagnation in need-based financial aid availability, the result of which has been mounting levels of student debt for low and middle-income families. In this context, there has been greater reliance on savings, particularly through 529 college savings plans, in order to increase college affordability and reduce debt.

But there is also an emerging body of research linking savings to important educational and behavioral benefits, as well as college completion.

The Obama Administration has indicated that saving, broadly, will help lay a new and sustainable foundation for economic growth, and that saving for college in particular can help America regain its global education lead. How can college savings plans be reformed to help achieve these goals, particularly for low and moderate income families? What has the Obama Administration learned from its recent review of 529 plans? How are states, through their 529 plans, helping families combat the rising cost of higher education? And how are families actually saving for college, given the current economy?

Join the New America Foundation's College Savings Initiative this Thursday, November 5th, for a discussion of these questions and more, featuring Alan B. Krueger, Assistant Secretary for Economic Policy at the U.S. Treasury Department. This event will also feature commentary by Dan Ebersole, State Treasurer of Georgia, Margaret Clancy of the Center for Social Development at Washington University in St. Louis, and Scott Buchanan of Sallie Mae.

A live webcast of the event can be seen on the event page.

Illinois Helps Employees Save for College -- Through the Workplace

Mark Huelsman — Fri, 21 Aug 2009 19:30:00 -0400

By Jackie Williams, College Savings Initiative

The state of Illinois recently passed a bill, SB 77, creating a state income tax credit for employers making matching contributions to their employees' 529 college prepaid and savings accounts. The credit is a 25% match of the employee contribution, not to exceed $500 per employee. The provision is effective for the current tax year and runs through December of 2020.

This is an important step forward to involve employers in helping employees save for their children's or even their own higher education expenses. Most of us don't learn about saving and investing until we begin fulltime employment. This is typically when we begin contributing to 401K accounts. So why not encourage greater savings discipline for college at the same time employees are investing for retirement?

Employers have the capacity to encourage better academic participation by making it easier for employees to contribute to savings plans. Offering payroll deduction and providing financial support in the form of matching contributions are two important ways that employers can support their workers. The workplace is often an important classroom for learning about saving and investing.

In the current economic environment, individuals with post-secondary education and training have fared better than those without. Employers have a vested interest in facilitating participation in these plans in order to encourage better educated workers including their own workers.

The Illinois proposal had been around before the legislative session that saw SB 77 enacted. Sometimes it takes time for a good idea to find traction. The Illinois Legislature took an important step forward by enacting this provision. Hopefully other states will follow their lead.

The Case for Helping Low-Income Families Save for College

Mark Huelsman — Thu, 04 Jun 2009 15:46:00 -0400

Note: This post was originally published on Higher Ed Watch, New America's commentary on the world of higher education, run by the Education Policy Program.

Recently, 529 college savings plans have come under criticism. Like many stakeholders in the economy, 529 plan owners have not been isolated from financial pain, and many critics have used recent market volatility and plan underperformance to call for reform. Others, however, have gone further and called for policymakers to abandon 529s in particular, and savings overall, as a plausible conduit to help families afford college. As New America's recently launched College Savings Initiative is charged with examining and improving 529 plans, we feel that it is important to respond to some of these arguments.

To their credit, many critics of these plans share our general goal -- to increase postsecondary access and affordability for low- and middle-income students. We simply differ over whether or not 529 plans provide a promising tool for helping students attend and complete college who could not otherwise afford to go.

Consider this: A recent Gallup survey from Sallie Mae indicates that, while 62% of parents are saving for college, only 32% of those making less than $35,000 have put any money aside for this purpose. Furthermore, half of those low-income families are saving even less (or in some cases not at all) in light of the recession. This is, quite obviously, cause for concern. But is encouraging savings -- and college savings plans as vehicles to do so -- really the answer? We believe so.

The general anti-529 argument, which has made the rounds in recent months, goes something like this: College prices have gone through the roof, to the point where many low- and middle-class families are being priced out altogether. Exacerbating the problem is the fact that many families have lost wealth in the market, including in 529 plans, which have a shorter time frame to recoup. As a result, we should scrap the savings model since it's overly risky. This wouldn't be a problem because, after all, low- and middle-income families don't have enough money to save in the first place and don't reap as much tax benefit from 529s. A better approach would be to simply increase spending on Pell Grants or other forms of federal aid, and at the same time, significantly increase subsidies for state universities to make college more affordable, and bolster attempts to control the price.

Unfortunately, this approach amounts to throwing the baby out with the bath water.

We recognize that, for most families, 529s will never hold enough to fund an entire education. Instead we see them as a significant part of a balanced financial plan - including grants, loans, scholarships, work study and other forms of aid. In this vein, we should certainly use all policy levers necessary - including increased student aid funding - to make college more affordable and accessible. It is the potential of the college savings plan, however, to incorporate progressive features, which we believe could have broad effects, both financial and behavioral.

College savings, at the very least, replace college debt that comes with interest to pay. This is critical because the less student loan debt families incur, the more money they have at their disposal - for a home, a retirement, or for emergency short-term savings.

Some have questioned whether 529s can even be considered "assets" like a house or a retirement fund, since the 529 is a means to an end, and homeownership/retirement is an end in itself. To that, we would point to the fact that many families have lost the home equity that was supposed to be "permanent" or, in some cases, the homes themselves. Yet we don't find it likely that many would argue that homeownership has become a bad idea. To be sure, responsible homeownership, as well as a retirement fund and, yes, an education, all have important roles to play in building wealth over the life course. And unlike a home, you can't foreclose on a college degree.

Still, one might ask: Why the emphasis on savings and assets, broadly? In other words, should policymakers instead focus on increasing earnings (of which increased savings will be a natural byproduct)? To that, there are several arguments.

First, two decades of research from the asset building field suggest that asset ownership is a useful tool in generating income for the populations we're discussing. Second, there is also evidence to suggest that, controlling for other factors, a parent's savings and net worth correlate with a child's educational attainment. As one example, a 2008 paper from the Center for Social Development on the topic can be found here; it finds that parents' liquid assets have significantly positive associations with years of schooling, high school graduation, and college attendance. Finally, college savings can make for savvier consumers. If families have more personal funds to spend on college, the likelihood increases that they will shop around for a better deal. If people start saving, they inevitably think about costs earlier, making them more conscious of price options. If policymakers can get families to save on a broader (or even universal) scale, it has the potential to create competition among major universities to give students more bang for their buck.

This is not to say that 529s, as currently structured, are perfect. Too many 529 administrators incorporated too much risk in their investments, which meant that so-called "conservative" investments were anything but. In general, there are a couple of ways to fix this without going so far as to dismiss the very idea of the investment plan. For instance, how about mandating that each state plan has a truly safe capital preservation option, such as an FDIC insured account, that a family can use as the tuition bills become larger on the horizon (like a number of states currently do)? Or in a down market, how about allowing families to change their mix of investments quarterly (as opposed to twice a year, which is now a temporary rule)? Or, if we want to stretch out the timeline for those families who have had the misfortune of losing money as college approaches, perhaps allow 529 monies to temporarily be used to pay off student loans.

Generally, these fixes all come with tradeoffs, and the implications of some remain unexamined, but the point remains that these investment vehicles could stand to be improved without being scrapped. The College Savings Initiative hopes to do so by conducting research on innovative 529 features such as matching deposits and seeding accounts, as well as studying policy options such as reforming higher education tax credits to better meet at-risk populations. Without the option of a 529, low-income families would lose yet another opportunity to reap the benefits of saving and investing, and move up the income ladder. Savings is certainly not a silver bullet, but we believe it is an essential part of any plan to address the college affordability crisis.

Higher Ed Roundup: Week of January 5 - January 9

Ed Policy — Fri, 09 Jan 2009 15:25:00 -0500

State Spending on Higher Ed Slows

Audit: Fifth Third Bank Provided Illegal Inducements for Loans

Moody's Issues Negative Outlook for Colleges

Some Colleges Helping Students Cope with Economic Crisis

State Spending on Higher Ed Slows

Fourteen states across the country will decrease their taxpayer dollars devoted to higher education in 2009, while another 11 will have increases of less than 2 percent, according to a report released today by the Center for the Study of Education Policy. The report, which is known as the Grapevine, found that national state tax appropriations are up 0.9 percent for 2009, though that number is expected to drop as more states are forced to enact budget cuts. The report found that states in the South and Northeast are likely to be the hardest hit, while South Carolina has the largest state decrease so far, lowering spending by 17.7 percent compared to fiscal year 2008. This is 7 percentage points more than Alabama, which had the second largest drop of 10.5 percent. But not all states are enacting funding cuts. Wyoming has the largest percentage increase, with a gain of 10.9 percent, followed by Hawaii at 10.6 percent and Missouri at 9.8 percent. This slowdown in state higher education spending follows several years of large spending increases, including a nationwide average increase of 7.5 percent in fiscal year 2008 and a 7.1 percent increase in fiscal year 2007.

Audit: Fifth Third Bank Provided Illegal Inducements for Loans

For the first time, the Department of Education is publicly recommending penalties for a loan company's actions in the student loan "pay for play" scandals. An audit released Wednesday by the Department's Inspector General recommends that Fifth Third Bank -- a lender based in Cincinnati, Ohio -- pay a fine and face other sanctions for providing illegal inducements to companies in return for higher loan volumes. The audit found that Fifth Third (in partnership with the now defunct Student Loan Xpress) had offered loan premiums based on principal volume to three companies that helped it market and secure consolidation loans. This is a direct violation of anti-inducement provisions in the Higher Education Act. The audit recommends either fining Fifth Third or withholding the federal reinsurance on the $3 million worth of loans originated under the illegal agreements. In addition to penalties, the audit also found that Fifth Third needs to improve its procedures for monitoring other third-party loan relationships, and recommended that the Department cease issuing similar guarantees with Fifth Third until improved procedures are in place. Fifth Third disputed the audit's findings and questioned the IG's interpretation of prohibitions in the law.

Moody's Issues Negative Outlook for Colleges

Postsecondary institutions -- especially private colleges -- will face several short-term financial challenges, including lower endowment funds and tighter liquidity, according to a report on higher education released earlier this week by Moody's, an investor services firm. This is the first time the Moody's annual higher education outlook has been universally negative, according to an interview with the report's author in the Chronicle of Higher Education. Among the challenges leading to gloomy institutional expectations are: endowment losses of up to 35 percent, volatility in variable-rate credit markets, and growing student demand for financial aid. Private 4-year colleges will be especially hurt, as students are now more likely to consider attending lower-cost public universities and community colleges. The report did, however, note that higher education overall is unlikely to be hurt by a drop in discretionary consumer spending because few parents will defer sending their child to college.

Some Colleges Helping Students Cope with Economic Crisis

Some colleges and universities are taking action so that the financial crisis won't prevent their students from paying tuition or staying enrolled, according to the Chronicle of Higher Education. In an article this week, the Chronicle noted that institutions such as Northern Illinois University and Georgia's Agnes Scott College have started new programs that provide additional grant aid for low-income students, especially freshmen that have smaller federal student loan limits. Other schools, such as St. Mary's University in Minnesota are appealing to private donors and alumni to raise donations for financial aid. The Chronicle also identified other initiatives undertaken by schools including: extending grace periods for paying tuition, expanding mid-career certificate programs, and expanding aid counseling services.

Higher Ed Roundup: Week of December 8 - December 12

Ed Policy — Fri, 12 Dec 2008 16:10:00 -0500

College and Student Groups Push to Include Higher Ed in Stimulus Bill

Report Outlines Student Aversion to Borrowing

College Board Settles with NY Attorney General

College Board Presents Higher Ed Reform Proposals

College and Student Groups Push to Include Higher Ed in Stimulus Bill

A group of organizations representing students, consumer advocates, and colleges sent a letter to Democratic Congressional leaders on Thursday asking them to include a major expansion of federal financial aid as part of a giant economic stimulus package that Congress is hoping to consider early next year. In the letter the group calls for substantially increasing the maximum Pell Grant for the lowest income students from $4,731 to $7,000, expanding Federal Work Study spending by 25 percent, and making PLUS loans more affordable for college students’ parents. In addition, the groups call for creating a new temporary “emergency access” student loan program, which would provide financing to students who have exhausted federal eligibility but still need help paying for college. To participate in the program, colleges would have to agree to maintain or increase the amount of institutional need based aid they provide their students. Among the organizations that signed the letter were the American Association of State Colleges and Universities, the National Association of Student Financial Aid Administrators, the National Consumer Law Center, the Project on Student Debt, and the United States Students Association.

Report Outlines Student Aversion to Borrowing

Part time, community college, Asian, and Hispanic students were less likely to take out federal students loans than others, according to a report released this week by the Institute for Higher Education policy. The study also found that there were large numbers of students who, despite having unmet financial need of $2,000 or more, did not take out federal student loans. These students, the report says, were more likely to leave school without a degree, with even higher attrition rates among non-borrowing black and Hispanic students. Failing to borrow federal loans is especially dangerous for students who then take on private loan debt, which is generally more costly and has fewer repayment options. Students that are averse to borrowing, meanwhile may attend at a lower rate or select a cheaper institution -- such as a community college over a four-year university. These decisions could prolong the time it takes to get a degree, which also decreases the likelihood of receiving a credential. The report has several recommendations for getting more students to borrow federal loans. These include: increased financial literacy programs to better address the risks and benefits associated with borrowing, changing the financial aid system to reduce the need for borrowing, and investigating whether restrictions prohibiting borrowing by some groups of students are a good idea.

The report was sponsored in part by the following student loan companies: the Education Resources Institute (TERI); TG, a guaranty agency and nonprofit lender in Texas, and USA Funds, the largest student loan guarantor in the country.

College Board Settles with NY Attorney General

New York State Attorney General Andrew Cuomo announced on Monday that his office had reached a settlement agreement with the College Board over its former private student loan marketing practices. The agreement follows allegations that the College Board engaged in deceptive marketing practices by providing incentives to colleges that placed the organization on the schools’ preferred lender list. Under the agreement, the testing company will spend $675,000 to develop tools, including an online loan calculator, “to help financial aid administrators, students, and parents across the country compare student loan offers and identify the lowest-cost student loan options.” The company, which ended its private student loan operations in August 2007, also agreed that it would adhere to Cuomo’s Direct-to-Consumer Marketing Code of Conduct if it resumed loan operations at any point.

College Board Presents Higher Ed Reform Proposals

Poor high school-college academic alignment, complex admissions and financial aid processes, college affordability, and access to adult education are among the seven great challenges facing PK-16 education in America today, according to the final report released this week by the College Board’s Commission on Access, Admissions and Success in Higher Education. Focused on finding ways to get 55 percent of young Americans to hold a community college degree or higher by 2025, the commission’s report calls for several new or increased education funding streams and programs across all levels of education.

These proposals include: increasing the maximum Pell Grant to $5,100; raising Federal Supplemental Educational Opportunity Grant funding to $1 billion; providing voluntary preschool for all families at or below 200 percent of the poverty line; and creating a “Title I-like” program to help colleges that serve large numbers of low-income students. The commission also proposed raising federal spending on adult education to $1 billion and creating an “honors GED” program that has stronger connections to postsecondary curricula. Finally, the commission report said schools and states should boost high school counseling programs, control college costs, and use “data-based” strategies to increase postsecondary degree completion rates. Composed of several university presidents and representatives from higher education groups, the commission first formed 18 months ago.

Higher Ed Roundup: Week of November 17 - November 21

Ed Policy — Fri, 21 Nov 2008 17:00:00 -0500

Bush Administration Announces More Relief for FFEL Lenders

Opposition to Private Student Loan Bailout Mounts

Department of Ed Data Project Sparks Controversy

High Costs Keep Thousands of Qualified Students Out of College, Survey Finds

Bush Administration Announces More Relief for FFEL Lenders

Using authority granted by Congress to the Department of Education last May, the Bush administration announced Thursday another avenue of financial support to lenders in the Federal Family Loan (FFEL) Program who are struggling to meet their commitments for the current academic year. Under the new program, lenders will be able to sell up to $500 million a week of loan debt issued in the 2007-08 academic year directly to the government. The government will pay lenders 97 percent of the original value of the loan. The new loan purchase program will run until February 28, 2009, serving as a temporary bridge until the Department's other recently announced plan to provide liquidity conduits to FFEL loans issued between October 1, 2003 and July 1, 2009 goes into effect.

Opposition to Private Student Loan Bailout Mounts

Groups representing students, consumers, and some colleges this week urged U.S. Treasury Secretary Henry Paulson to reconsider plans to bailout private student loan providers. In a letter to Paulson, these groups wrote that it would be counterproductive for the government to ensure that lenders and colleges can continue to load students up with high-cost private student loan debt. "A bailout for the providers of usurious private student loans will not solve the college affordability crisis caused by the failing economy, and would actually be detrimental to many students and consumers," the groups wrote. The letter, which was spearheaded by the Project on Student Debt, was intended in part to rebut an earlier letter sent by the National Association of Student Financial Aid Administrators that encouraged the Treasury Secretary to use a portion of the $700 billion bailout package to provide liquidity to companies that make private student loans. [Disclosure: Higher Ed Watch is supported in part by Institute for College Access and Success, the sponsor of the Project on Student Debt, with funds provided by the Pew Charitable Trusts.]

Department of Ed Data Project Sparks Controversy

The nation's leading higher education associations are up in arms about a proposal by the U.S. Department of Education's Inspector General (IG) to create a massive federal database that would include personally identifiable information of individuals who have applied for grants, loans, or contracts from the agency. The IG says the plan would simply consolidate information the Department already collects in nine different databases in order to better detect fraud and abuse in the agency's programs. The college groups, however, objected to "the scale and the scope of data collection proposed," and said the IG is seeking waivers to the federal privacy act that would allow it to unilaterally share information contained in the database with third parties. While applauding the IG's efforts to crack down on fraud and abuse, the associations said Congress never intended "to allow the creation of a Big Brother-like surveillance system by any IG, or to permit any IG to set itself up as a data mart of information on U.S. citizens."

High Costs Keep Thousands of Qualified Students Out of College, Survey Finds

Thousands of students who are qualified for college do not pursue a higher education because they do not believe they can afford it, are unaware of financial-aid opportunities, and fail to take steps necessary to apply for college, according to a new report by the Institute of Higher Education Policy and the Education Resources Institute (TERI). The report is based on a survey of 1,800 college-qualified students -- 1,000 of which did not go to college -- and 600 high school guidance counselors. The researchers found that students who chose not to enroll were more likely to come from low-income families, be of minority background, and have parents with lower educational attainment. Of the college-qualified students surveyed, 80 percent said the availability or lack of grants of scholarships played a key role in their decision of whether or not to enroll. Meanwhile, 63 percent said the price of college was an "extremely" or "very" important consideration in their decision-making process. The report's authors recommend that the federal government and states invest in programs that make early financial aid commitments to high school students who meet "certain standards of college readiness."

Higher Ed Roundup: Week of November 3 - November 7

Ed Policy — Fri, 07 Nov 2008 15:15:00 -0500

Financial Crisis Expected to Impact Community Colleges, Survey Finds

Adjunct Faculty Use Can Impact Student Performance

Goal Financial Settles with Cuomo

Financial Crisis Expected to Impact Community Colleges, Survey Finds

Community college directors across the country are bracing for painful budget cuts as the financial crisis begins to squeeze states' education budgets, according to a survey that the National Council of State Directors of Community Colleges conducted recently of its members. The survey, the results of which were reported this week in The Chronicle of Higher Education, found that 18 of 28 states with funding formulas for community colleges failed to fully finance them in 2007-08. Respondents in nearly half of the states said they will likely face mid-year cuts as well. The survey also found that the more expensive vocational, occupational, and technical education programs are expected to take the greatest hit. Overall, of the various sectors of public higher education, the survey found that community colleges experienced the deepest cuts in state appropriations in the 2007-08 academic year, dropping 5.2 percent from 2006-07, compared to decreases of 1.8 percent for flagship universities and 3.7 percent for regional state colleges during the same period.

Adjunct Faculty Use Can Impact Student Performance

At a time when colleges are relying more on part-time, or adjunct, faculty to teach courses, three new studies released this week suggest that having too many adjuncts can negatively impact student performance. The first two studies, conducted by researchers at North Carolina State University and the University of California - Los Angeles (UCLA), found that the likelihood that community college students in California would transfer to four-year colleges decreased by 2 percent for every 10 percent increase in the proportion of adjuncts teaching their courses. Given that about 40 percent of community college courses are taught by adjuncts, this represents an average 8 percent decrease. Similarly, the researchers found that each 10 percent increase in adjunct faculty translated into a 1 percent decrease in the likelihood that students studying for an associate's degree would reach their goal. A third study, also from UCLA, found that adjunct faculty spent less time preparing for courses and advising students out of class. Nationwide, adjuncts comprise about 46 percent of teachers in higher education, up 22 percent since 1970, and more than two-thirds of faculty at community colleges. The authors of these studies emphasized that they were not blaming adjuncts for students' failures, but instead were taking a critical look at a higher education system that increasingly relies on part timers to save money.

Goal Financial Settles with Cuomo

Goal Financial, one of the nation's largest federal student loan consolidation companies, has reached a $350,000 settlement agreement with New York Attorney General Andrew Cuomo In September, Cuomo announced that he was planning to sue Goal, claiming that the company had engaged in improper and deceptive marketing practices, including luring students to its loans with promises of iPods, cash, and other gifts, and misleading students about the terms of the loans they offered. Goal becomes the eighth direct-to-consumer loan provider to settle with Cuomo over allegations of misconduct this year.

Higher Ed Roundup: Week of October 20 - October 24

Ed Policy — Fri, 24 Oct 2008 17:00:00 -0400

Student Debt Loads Increase, Report Finds

Economic Downturn Impacting College Decisions, Survey Finds

College Board Unveils Test for 8^th Graders

Student Debt Loads Increase, Report Finds

Students are sinking ever deeper into debt, according to a new report released on Wednesday by the Project on Student Debt. The average level of federal student loan debt owed by graduating seniors in 2007 was $20,098, up 6 percent from $18,976 in 2006. The report found that students at public colleges had a lower debt burden on average ($18,482) than those at private institutions who owed an average of $23,065. The most heavily indebted students were in the Northeast, where a larger share of students attend private institutions, and the Upper Midwest, while the lowest-debt states are in the West. The report’s authors estimated that average actual debt burden of graduating seniors was even higher -- $21,900 -- because the data they were relying on was incomplete. The report noted that student debt is growing faster than starting salaries for new graduates, which grew by about 3 percent over the same time period. "The class of 2007 graduated before the financial downturn, but today's tough economic times make high student loan payments even harder to bear," Robert Shireman, the project's executive director, said in a news release. [Disclosure: Higher Ed Watch is supported in part by Institute for College Access and Success, the sponsor of the Project on Student Debt, with funds provided by the Pew Charitable Trusts.]

Economic Downturn Impacting College Decisions, Survey Finds

The downturn in the economy is having a significant impact on prospective students' college plans, according to a survey released this week by Meritaid.com, an online source that helps match students with merit scholarships. Of the 2,500 students surveyed, 16 percent said they were putting their college searchers on hold, while an additional 57 percent said they were concentrating on applying to less-expensive, less prestigious colleges because they believed they would be more affordable. Nearly half of the students surveyed reported being “more concerned than ever” about being able to afford college, and 85 percent said they are spending more time looking for merit aid to help cover their costs. Some prospective students said they planned to attend colleges closer to home in order to save on fuel and housing costs.

College Board Unveils Test for 8^th Graders

The organization known to high-schools across the country as the administrator of the SAT will now be offering a test for eighth-graders as well. The new test, Readistep, which will be available to schools beginning next fall, will test students in reading, math, and writing. Readistep is part of the College Board’s College Readiness System and designed to be a diagnostic tool for high schools, not an evaluative tool for college applications or scholarships. Critics, however, questioned the need for yet another standardized exam. "The new test will only accelerate the college admissions arms race and push it down onto ever younger children," Robert Schaeffer, the public education director of FairTest told The New York Times.

Higher Ed Roundup: Week of October 13 - October 17

Ed Policy — Fri, 17 Oct 2008 17:30:00 -0400

Small Private Colleges Could Suffer in Credit Crunch

Baylor Pays Students to Retake SAT

Colleges Worried About IRS Questionnaire

NCAA Reports Higher Graduation Rates Among Student Athletes

Small Private Colleges Could Suffer in Credit Crunch

The credit crunch may be starting to hit small private colleges hard -- particularly ones that have miniscule endowments and rely predominantly on tuition payments to finance their operations, according to a report released on Thursday by bond rating agency Moody's. Many of these private colleges rely on variable rate bonds with interest rates that could spike if the credit market continues to dry up. With the deteriorating financial situation, banks are also more likely to ask for early repayment on these bonds, the report warns. While banks haven't started demanding accelerated payments yet, Moody' states, they will likely do so if the credit markets remain as tight as they have been. These higher-priced colleges could also suffer, the report states, if students shift in large numbers "to lower cost alternatives," such as state universities and community colleges. "We are not worried about the vast majority of colleges," John Nelson, the managing director of Moody's told Inside Higher Ed. "That message can't be lost. The vast majority of colleges are going to be fine. But for any of them to be in financial stress is kind of news."

Baylor Pays Students to Retake SAT

Baylor University came under fire this week after its student newpaper revealed that the institution had been providing financial incentives to incoming freshmen to retake the SAT. This fall, the institution began offering admitted freshmen a $300 campus bookstore voucher to retake the exam. Those students who raised their score by 50 points could receive a $1,000 discount on tuition. Nearly one-third of the incoming class took the university up on its offer. At first, campus officials defended the practice, saying that the financial incentives amounted to "merit aid." But admissions experts and other higher education officials and commentators criticized the university, saying it was trying to game its U.S. News & World Report college rankings, which take into account the average SAT scores of a college's incoming students. On Tuesday, the Baylor Faculty Senate condemned the practice as "academically dishonest." Yesterday, the university announced that it would curtail it.

Colleges Worried About IRS Questionnaire

More than 400 colleges are expecting a 42-page questionnaire from the IRS to arrive in their mailboxes soon, and many worry that the "compliance check questionnaire" signals more extensive regulation of their institutions. Two higher education associations -- the National Association of College and University Business Officers (NACUBO) and the Association of Governing Boards of Universities and Colleges (AGB) -- recently sent a letter to their members warning that the effort by the IRS "portends a significant shift in the way colleges and universities are regulated and governed." Responses by colleges to the questionnaire "will be used by the IRS to determine where tighter regulation is necessary and, in some instances, to initiate audits," the groups wrote. In addition, the IRS is expected to use the responses it receives to "serve as a foundation" for a new 990 tax form for colleges.

With those concerns in mind, the groups said that they planned to conduct their own analysis of their members' answers "in order to promote clarity and understanding in the higher education community, the general public, and for policymakers, regarding what these responses say about the college and university sector." According to The Chronicle of Higher Education, Sen. Charles Grassley (R-IA), who has been demanding greater scrutiny of higher education, said that if colleges were going to share the responses, he'd like to see them too. Policymakers and the public should not be asked to just accept the findings of a "higher education group funded study," he stated.

NCAA Reports Higher Graduation Rates Among Student Athletes

More college athletes are making it to graduation day, according to new data released on Tuesday by the National Collegiate Athletic Association (NCAA). The NCAA reported that 78 percent of Division I athletes who entered college between 1998 and 2001 graduated within six years. That's one percentage point higher than last year's data. The NCAA's "Graduation Success Rate" is higher than the federal graduation rates during the same period (64 percent for college athletes) because unlike the government figure, the association's doesn't penalize colleges for students who transfer out of school who are in good standing and rewards schools for students who transfer in to the institutions and graduate. Still, graduation rates for the most high profile college sports, such as men's basketball, continue to lag, with some schools graduating less than one-third of their players.

Case Not Closed: Matteo Fontana's Resignation Leaves Unanswered Questions

Ed Policy — Tue, 30 Sep 2008 14:56:00 -0400

More than 500 days after being placed on paid administrative leave, Matteo Fontana officially resigned from his position at the U.S. Department of Education in early September, according to a report yesterday in The Chronicle of Higher Education. The Department's political leaders are surely breathing a sigh of relief.

After all, over the past 17 months, they have come under heavy fire (including from us) for the way they have handled the case, which revolves around special shares of stock that Fontana received from a student loan company he was in charge of overseeing.

But if Department leaders think that Fontana's resignation brings this case to a close, they are kidding themselves. Serious questions remain about Fontana's actions and about the Department's response to them.

In April 2007, the Department placed Fontana, the then-general manager of the Financial Partners Division of the U.S. Department of Education's Federal Student Aid office, on paid leave after Higher Ed Watch revealed that he had held at least $100,000 worth of stock in the company Student Loan Xpress. It is clear that Fontana's purchase and subsequent sale of the stock represented a substantial conflict of interest -- he was, after all, responsible for overseeing the lenders and guaranty agencies that participate in the Federal Family Education Loan (FFEL) program.

At the time he received the stock he was in charge of the National Student Loan Data System (NSLDS), a database that keeps track of the student aid awards of tens of millions of students. Last year, the Department was forced to shut it down temporarily because, as Higher Ed Watch also revealed, student loan companies had been mining it to collect personal information about borrowers for marketing purposes.

What remains unclear is how much the Department knew about the stock holdings. Fontana appears to have disclosed the holdings that initially got him into trouble, but then why didn't the Department stop what was obviously a conflict of interest? Was the initial disclosure itself a sufficient source of information?

On a related note, did Department leaders know at the time that lenders were getting access to NSLDS to mine data? In the course of its investigation, has the Department come to any conclusions about Fontana's alleged role in helping loan companies, such as Student Loan Xpress, use NSLDS to market their products to potential borrowers?

While Fontana was on leave, additional questions have arisen about other actions he has taken to help loan providers. The most serious involves a ruling he made in 2004 that essentially cleared the way for Sallie Mae, his former employer, to achieve its long-sought goal of becoming a fully-privatized corporation.

At the time, Sallie Mae's transition was being held up by the Department's Inspector General (IG) who had determined that a lucrative arrangement between the company and USA Funds, the country's largest guaranty agency, violated the law and needed to be severed in order to protect borrowers. The IG argued that the deal effectively put the guarantor under Sallie Mae's control, creating serious conflicts of interest. Fontana overruled the IG arguing that because the Sallie Mae subsidiaries that helped manage USA Funds had separate tax identification numbers from other parts of the company, they were officially separate entities.

Our question for the Department is why was a former Sallie Mae employee ever allowed to be in the position of ruling on a matter of such importance to the company and its shareholders? Were questions ever raised about whether Fontana was actually making an impartial decision?

Unfortunately, the Fontana case appears to fit the Department's M.O. of resisting calls for disclosure or transparency -- just look at its reluctance to further investigate other loan company scandals. But just because Fontana is no longer receiving his federal paycheck doesn't mean that this case is closed. The public has a right to know about all the damage the revolving door between the Education Department and the student loan industry has inflicted on the integrity of the federal student loan programs and on financially needy students.