College Costs

Demand Value in Higher Education

Michael Dannenberg — Tue, 17 Nov 2009 16:00:00 -0500

[Editor's Note: A version of this post ran yesterday in the Albany Times Union]

The College Board reports tuition is up nine percent this year in inflation-adjusted terms, despite declining prices throughout the economy and stagnant median family income. Parents want to know why the sharp increase and why college costs so much in the first place.

The answer, in a word, is demand. Until we channel higher education demand in a more rational direction, tuition will continue to outpace inflation, grant aid, and family income.

Higher Ed Watch readers know that demand isn't the only factor driving tuition. College supply is relatively limited. Higher education is slow to embrace productivity gains seen elsewhere in the economy. Most important, states cut higher education funding to balance budgets, and colleges backfill those cuts by hiking tuition. Banks act as enablers, supplying big student loans to anyone willing to borrow.

But at its base, tuition rises because suppliers, including those who finance them, take advantage of high, under-informed, and often irrational consumer demand. As families shop colleges this fall, they would be well served to focus on value. The Department of Education can help by protecting consumers from the worst deals. We need a lemon law for colleges that cost too much and deliver too little.

Families are limited in their ability to assess the value of most colleges. Popular guides like US News & World Report rank only the top 10 percent of schools and focus on inputs like class size instead of outcomes like how much students learn. Families therefore rely on proxies, including the newness of non-academic facilities like residence halls and athletic fields, advertising, and price. It's the Neiman Marcus phenomenon. If it costs more, it must be better. Wrong.

It's not easy to compare colleges in terms of student learning because there isn't comparative testing at the post-secondary education level. But we can compare schools according to what consumers most want out of higher education: good jobs and financial security.

Congress recently required colleges to report average net price after financial aid. A private web site, www.payscale.com, lists average starting and mid-career salaries for graduates of more than 300 institutions of higher education. And the Education Department knows the percentage of students leaving each college who default on their student loans. With that information and more like it, Secretary Duncan can construct a "higher education p/e ratio," price of college to expected future earnings, for each school.

Consider SUNY Binghamton and Niagara University, for example, both in upstate New York. From a purely financial standpoint, Binghamton is a great deal. Its sticker price is approximately $17,000 a year, and graduates earn a median income of $52,000 within five years of separation, according to Payscale.com.

In contrast, Niagara's sticker price is $35,000 a year, and graduates earn a median starting income of less than $38,000 within five years of separation.

The lemons tend to be in the for-profit trade school sector. Not all trade schools are poor options, but we should make the really risky ones warn consumers in all marketing materials, just like politicians have to say they approve campaign commercials.

"Warning: One in three Acme College borrowers defaults on a student loan within three years of separation from Acme College. Acme graduates earn an average starting salary of $22,000 a year. Be careful before assuming substantial student loan debt to attend Acme College.''

True, higher education is about more than future income. Most music and art schools will have a worse higher education p/e ratio than science and engineering schools. That's fine. Students can and should still study music and art, and they should consider more than financial returns in choosing a college. But a well-publicized higher education p/e ratio will empower students who want to study music, art, or anything else to choose programs and institutions with a more informed eye.

Schools will want to be identified as good-value options and shudder at the prospect of being on a lemon list. To avoid it, they'll be less quick to raise tuition and more interested in making sure their students get good-paying jobs.

Until we nudge students toward good value options, tuition everywhere will march upward, unabated. We can slow that march though by helping families become better consumers in the higher education marketplace.

Michael Dannenberg, the founding Director of New America's Education Policy Program and Higher Ed Watch, is currently a Senior Fellow with the foundation.

Reality Check: The Privatization of Public Higher Education

Ed Policy — Thu, 05 Nov 2009 16:45:00 -0500

By Travis Reindl

For the better part of the last decade, the higher education community has debated the question of whether public colleges and universities are on the path to privatization. Will state support for public institutions sag to the point where they are not really public? Should these institutions be given greater autonomy to do things like build buildings and raise tuition? This conversation usually follows the ebb and flow of the state budget cycle, intensifying understandably during downturns.

The current state fiscal meltdown, which has prompted steep funding cuts and tuition hikes for higher education, has breathed new life into the issue of privatization. College presidents, researchers, and even campus newspapers are pondering whether the current fiscal slump is severe enough to force a revisiting of the state-campus relationship. The old joke among college presidents about their institutions moving from state supported to state molested is enjoying a comeback on the conference circuit.

Having watched this conversation for the better part of a decade, I've come to realize that a reality check is in order. To evaluate these claims, I believe that there are several important questions that need to be answered:

Are we really that close to losing the "public" in public higher education?

Is there some threshold below which a public university can or should be relieved of its public mission?

Does it matter if major public universities become quasi-public enterprises? Will they operate any differently than they do now?

The answer to the first question is "Not as close as some might think." Leaders of major public research universities frequently talk about the trend of state disinvestment in higher education and cite statistics showing that the state supplies less than 10 percent of their revenue. True enough; higher education's share of the state budget has declined in recent years, as has the state's share of institutional revenues.

But what they fail to note is that these figures include income colleges earn from hospitals and enterprises such as bookstores, which have little if anything to do with their core teaching and research functions. Subtract those revenue sources from the picture, and the state's contribution doubles. According to the Delta Cost Project , state appropriations are the second-largest source of revenue per full-time student at public research universities, and on average comprise one-third of revenues (net of auxiliary enterprises). The bottom line: there is still a lot of state money in the basic functions of public universities.

The answer to the second question is "No." As noted higher education researchers Dennis Jones and Jane Wellman point out in their recent essay on top myths in higher education finance, shareholders in publicly traded corporations have exerted considerable influence over management performance with as little as three percent of voting stock. Moreover, there is the question of which should count more in determining the degree to which universities' bonds with the state should be loosened -- percentage of total revenue or dollars received. For example, the University of Michigan receives nearly twice as much per full-time student in state appropriations as Eastern Michigan University, so why should it be subject to less regulation? The point is that governors and legislators should be wary of deregulation discussions that are based on the "minority shareholder" argument.

The answer to the third question is "Absolutely yes." The conversation about privatization in public higher education matters because it is really not about autonomy, regulation, or accountability -- it is about revenue maximization. It is about whether some of the nation's wealthiest public universities will be allowed to have their cake and eat it, too, staying public enough to receive annual appropriations from the state and private enough to charge whatever the market will bear in terms of tuition. That scenario works out well for the institutions, but what does that mean for providing an affordable university education for state residents or meeting state needs?

At a time when President Obama has challenged the nation to regain world leadership in college attainment and more Americans than ever believe that qualified students are being denied college opportunity, we need affordable and accessible higher education at all levels. Talking about how much of the public's money is needed to call a university public is simply the wrong conversation at this critical juncture. Instead, we need to be focusing on what the public's investment in higher education is -- and should -- be buying.

Travis Reindl is the state policy and campaigns director at CommunicationWorks, a public affairs firm that specializes in educational improvement. Prior to joining the firm, he had 15 years of experience in higher education policy and advocacy. Most recently, he served as program director at Jobs for the Future, where he led a national initiative focused on increasing productivity in higher education. Before that, he headed the state policy analysis unit at the American Association of State Colleges and Universities. He has written extensively on issues of college affordability, accountability, and governance. His views are his own and do not necessarily reflect those of the New America Foundation.

A Penny Saved for College is a Penny Not Borrowed for College

Mark Huelsman — Fri, 04 Sep 2009 19:03:00 -0400

While I usually leave it over to our friends at Higher Ed Watch to discuss the latest hullabaloo in the world of student loans, something in today's Wall Street Journal stopped me on a dime. From WSJ:

New numbers from the U.S. Education Department show that federal student-loan disbursements-the total amount borrowed by students and received by schools-in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion.

Gulp. For many families, financing higher education without piling on too much debt was already a steep proposition. Like everything else post-financial crisis, it's gotten even more difficult. Job losses, home equity losses, market swings, stagnation in federal aid, state budget strains, and tuition increases have resulted in increasing uncertainty and hopelessness over household budgets, and a dramatic spike in the amount of money students are borrowing for college. Much can be blamed on the economic mire in which we find ourselves. But the point remains: many students and families are taking on unsustainable levels of debt, and it's affecting important life decisions. And in turn, it's affecting our ability to jumpstart the economy.

Before a long Labor Day weekend of despair sets in, however, this author offers hope to drink in: There are ways for Congress, the Obama Administration, States, and the financial industry to collaborate and give families a way to escape crushing levels of debt. The tonic? Targeted and meaningful savings incentives.

Perhaps ironically, the vehicle that could drive students to sustainable amounts of debt is an investment strategy that has taken as much heat as anything in the Monday-morning quarterbacking of personal finance and economic discourse: the 529 college savings plan.

529 plans have been around for decades now, though they've only existed in their current form since 2001.* And only fairly recently have some states, who are given considerable leeway to innovate with their plans, begun to realize that they can wield their power in facilitating more responsible, workable ways to finance higher ed. These have taken the form of matching contributions (like an employer with a 401k), lowering fees, partnering with scholarship programs, and more. I would argue that, not only have states only scratched the surface in giving its families a good deal on savings, but there has never been a better time for the 529 industry to submit its product as the alternative to massive borrowing. To paraphrase Dr. Franklin: a penny saved and matched is 1.5 pennies a student doesn't have to borrow.

In general, the industry (or rather, the states) needs to get serious about helping people who are currently being crushed: Low- and middle-income students. States can do this through a number of ways, and the Feds can certainly help -- with funding and/or guidance (a Treasury Department review is currently underway in assessing how these plans can be more effective and frankly, provide a safer return). First, more states should institute reforms targeted at low-income families, to counterbalance the fact that they receive no real tax benefit from contributing to 529 plans. If states' budgets are too dried up to do so, the Federal government seemingly has the authority to fund some state initiatives. This can take any number of forms, which I won't exhaust you with, but some of which you can find at the dazzling collegesavingsinitiative.org.

The original point of college savings plans was to help out a struggling middle class -- not rich enough to be carefree about paying for college, not poor enough to receive substantial federal Pell Grant awards to cover higher education costs. But as college has become more expensive and, at the same time, nearly necessary to climb the economic ladder, low-income families have received comparatively less federal aid than decades ago.

One could argue that the easy solution is to simply provide more federal aid. Maybe. But incentives to save, even when it's not enough to fund a college education, can impact more than just the personal bottom line. Even a small amount of money, stocked away explicitly for college, provides goals for students beyond high school. And just as unsustainable amounts of student loan debt can delay important life decisions after college -- like starting up a small business, completing graduate school, or even, as the WSJ notes, a marriage -- savings can reorient students towards a higher level of education than they otherwise would have completed.

There are caveats. Savings for most families, while important, is rarely going to serve as the only strategy to send the kids to school. That's okay. Scholarships, work-study, and yes, some borrowing, can get a student across the finish line with minimal damage on his or her future finances. And families are always going to be required to take it upon themselves to understand their investment choices and plan accordingly; no one is immune from the whims of the market.

That said, there are very few strategies that could chip away at the mountain of student loan debt families are currently placing upon themselves. Savings incentives seem like a great place to start.

*While states began creating college savings plans in the late 1980s, usage of 529s hadn't taken off until they were added to the Internal Revenue Code in 1996 and then given tax-advantaged status in 2001. 49 states, the District of Columbia, and an independent private consortium sponsor plans.

Guest Post: Five Questions for Colleges

Ed Policy — Tue, 23 Jun 2009 18:45:00 -0400

By Travis Reindl

Every year, colleges and universities send reams of data to the federal government, on subjects ranging from campus crime to research by foreign nationals. Yet, there's still a lot we don't know about our system of higher education. Congress and the executive branch bear some responsibility for this state of affairs, continually adding to an already massive and uncoordinated regulatory structure. But some higher education leaders are also on the hook here, having fought efforts over the years to bring more transparency to colleges' admissions and financial aid practices, as well as their performance in educating and graduating students.

This is no longer acceptable. Higher education is a major enterprise in the U.S., representing three percent of the total Gross Domestic Product (GDP) and employing more than 3.5 million Americans. Taxpayers also play a big part in this enterprise, contributing $21 billion toward federal student grants and billions more for research grants and contracts. Given that, it is troubling that we can't get better answers about who's getting into college, what happens to these students, and how much it costs to educate them.

As Congress and the Obama administration prepare to invest billions more in our colleges and universities, they should require colleges to provide better answers to the following five questions:

1. Who's getting in? At a time when major public universities are capping or cutting enrollment, high-achieving, low-income students are less likely to go to college than lower achieving, high-income students, and nearly three-quarters of Americans believe that qualified students are being shut out of college, we need greater transparency about who is making the cut. Colleges that receive federal student aid and have a selective admissions policy (i.e. anything other than open admissions) should be required to annually disclose the number and percentage of students admitted under special provisions, such as those who get a leg up because of their legacy status, or because of their athletic talent. The recent debacle at the University of Illinois, where admissions slots were traded as political favors, underscores why this is a timely question.

2. Who's getting institutional aid, and how much? As tuition rises and federal and state grants lose purchasing power, it is important to know how colleges are using their institutional aid dollars. Are they devoting their resources to expanding access by providing need-based aid? Or are they engaging in financial aid leveraging tactics to try to win the competition for the best and brightest, and in many cases, wealthiest students? We have some information about this from the U.S. Department of Education's National Postsecondary Student Aid Study (NPSAS), but a survey can't tell us what is happening at individual institutions. What NPSAS data do tell us, though, is that nearly one-third of students from families making $100,000 or more per year receive institutional aid, and the average award they receive is significantly larger than the average award for students from families making less than $20,000 per year. More comprehensive research is needed in this area.

3. How many students successfully transfer and/or graduate-on time or at all? Meeting President Obama's goal of regaining world leadership on the percentage of students who earn college degrees will require a major improvement in completion rates. But to figure out where and by how much we need to improve, we must have better data about what happens to our students. The information the government currently collects from colleges provides an incomplete picture of student success because it tracks only first-time, full-time students and fails to take into account transfer students. The administration has committed a quarter of a billion dollars of stimulus finding to improve postsecondary data, and hopefully some of that money will be used to either link state data systems or develop a federal unit record system so we have a better idea how students are progressing through our higher education system.

4. How much does it cost to produce a college degree? The dramatic price increases of the past decade beg the question of what is going on with respect to college costs. In other words, where is the money colleges are getting going? The Delta Cost Project, a non-profit research organization, is making progress on this front by conducting the first comprehensive analysis of higher education revenues and spending in more than a decade and by developing models for calculating cost per degree. Given the President's call for colleges to contain their costs as part of his push to improve attainment rates, the federal government should invest in more regular tracking of cost trends and in research on strategies for containing costs. Additionally, Congress needs to include cost, not just price, in its efforts to hold institutions accountable.

5. What are our graduates learning? In our knowledge-driven economy, not knowing our graduates' abilities in basic areas such as communications and problem solving leaves us ill-equipped to answer questions about the strength of our human capital and identify ways to improve it. Rather than restarting the debate about measuring student learning spawned several years ago by the Secretary of Education's Commission on the Future of Higher Education (otherwise known as the Spellings Commission), we can take a smaller but still significant step. The National Assessment of Adult Literacy (NAAL), administered by the Department of Education, provides valuable data about the reasoning and comprehension skills of our adult population. Unfortunately, the most recent data available are from 2002-2003, and not enough information is being gathered to do state-level analyses. Again, if the administration is going to make substantial new investments geared toward improving results, then spending a bit more to measure those results seems like a wise use of money.

In these difficult economic times, it is heartening to see the Obama administration putting its money where its mouth is with respect to investing in higher education. But without some better answers to questions such as the ones raised above, major new investments could be misdirected -- leaving the nation well short of the president's goal and the public more frustrated than ever with their colleges and universities.

A Senator's Legacy

Stephen Burd — Thu, 08 Jan 2009 15:00:00 -0500

At Higher Ed Watch, we were saddened to learn of the recent death of former Sen. Claiborne Pell, the Rhode Island Democrat whose work on Capitol Hill helped open the doors of college to tens of millions of low-income students. The Pell Grant program remains the cornerstone of the federal government's efforts to help the most financially-needy students obtain a higher education.

As Maura Casey, an editorial writer for The New York Times wrote in a moving tribute to the Senator on Tuesday, "Pell Grants have been around so long that few remember how much opposition they had to overcome or how revolutionary they once seemed."

In fact, Senator Pell -- "a wealthy New England aristocrat," as Casey described him -- had to fight an epic battle in 1972 against his Democratic colleagues in the House of Representatives and the higher education establishment to create the grant program that he first dreamed up, legend has it, on a ski slope in Switzerland. [Whether or not he had ever skied at all is a matter of much debate.]

Pell's vision was to create a new grant program to aid low-income students modeled on the GI Bill, which had helped pay for his graduate education. Under the Senator's plan, federal grants would go directly to students who could use them at the college of their choice. The idea, however, was met with fierce opposition from the leading national higher education associations who wanted the money to go straight to their member institutions. They argued that college officials were in the best position to determine which students were in most need of financial aid funds. The college groups had powerful allies on the House education committee, who fought on their behalf.

A battle between the Democratic leaders in the two chambers waged for two long and grueling months in the spring of 1972. The dispute was ultimately resolved in the early morning hours of a mid-May day when Rep. Carl Perkins of Kentucky, who chaired the House education committee, finally relented.

Since then, more than 55 million low- and moderate-income students have benefited from the program. That is quite an accomplishment.

Unfortunately, funding for the Pell Grant program has not kept up with skyrocketing increases in college prices over the past three decades. As a result, the grant's purchasing power has, with some exceptions, been mostly in decline during that period of time.

College lobbyists, who have become champions for Pell Grants, place the blame squarely on the government for failing to adequately finance the program. But the truth is that Democrats and Republicans alike have legitimately grown tired of boosting spending on student aid, only to see their efforts squandered by ever-escalating tuition increases.

Colleges' increasing reliance on enrollment management and financial aid leveraging techniques to create award packages has also harmed the effectiveness of the Pell Grant program. All too often, schools use Pell Grants to replace institutional aid they would have provided financially-needy students otherwise, and then shift the money they save into merit aid to attract the kind of high-achieving students that improve their rankings. The upshot is that low- and moderate-income students are expected to supplement their Pell Grants by taking on heavy loads of debt.

In addition, as lawmakers have increased eligibility for the awards, the program has become extremely expensive. The Department of Education estimates that each $100 increase in the maximum award costs about $400 million. And that's not counting the $4-5 billion shortfall that the program is currently facing -- and an even bigger one looming in fiscal year 2013 when mandatory money that is currently propping up the maximum grant runs out.

While the Pell Grant program will always be a centerpiece of the government's efforts, federal officials need to find new ways to better leverage college and state support to ensure that the doors of college remain open to low-income and working-class students. If we have any hope of at least maintaining and hopefully building on the gains in college accessibility over the last 40 years, we desperately need colleges and states to stop working at cross purposes with the stated goals of the Pell Grant.

It's just too bad that we don't have a visionary like Senator Claiborne Pell to lead the charge. In this battle and others, the patrician Senator from Rhode Island will be dearly missed.

Guest Post: A Textbook Proposal for Obama

Ed Policy — Tue, 16 Dec 2008 15:30:00 -0500

[Editor's Note: Throughout his presidential campaign, President-elect Barack Obama often talked about the need to make college more affordable for low- and middle-income students. In today's post, longtime student advocate Luke Swarthout offers a proposal for overhauling the college textbook industry that he believes will result in significant savings for students. Luke's views are his own and do not necessarily reflect those of the New America Foundation.]

By Luke Swarthout

As the incoming Obama administration prepares its policy agenda and searches for ways to help middle class Americans within the constraints of the current budget deficit, it should consider championing efforts to bring down the costs of college textbooks. This goal could be accomplished in a relatively inexpensive manner: not by more generously subsidizing the current system but by sparking reform in the way textbooks are created and sold.

The high cost of textbooks is a significant but often overlooked part of the college cost equation for millions of students from low- and middle-income families. The average student pays nearly $1,000 for books each year -- a significant sum. For students at low-cost public colleges, books can cost as much as 40 percent of tuition and fees. And to add insult to injury, students and their families are often frustrated to learn that they cannot resell their textbooks at the end of the semester because new, but substantively unchanged editions are at the printers.

Local politicians from both blue states and red states (and those in between) recognize the saliency of the issue. Legislators in states as politically diverse as California, Georgia, and Ohio have introduced bills designed to make college textbooks more affordable at their public colleges and universities.

The flaws of the current system are well documented. Testifying in 2006 before the Advisory Committee on Student Financial Assistance, a federal panel that advises Congress on student aid issues, economist James Koch, described the demand side issues with textbooks as a classic example of a "broken market."

"The textbook market is remarkable because the primary individuals who choose college textbooks (faculty) are not the people that pay for those textbooks (students)," Koch, a professor of economics at, and former president of, Old Dominion University, wrote in a report for the advisory committee. "Only a few other organized markets in the United States are similar in this regard. A comparable situation exists in medicine where doctors prescribe drugs for their patients, but do not pay for those drugs."

The supply side of the textbook industry faces similar problems. As a result of recent consolidations in the market, there are now three main publishers: Pearson, Cengage (formerly Thompson Learning and Houghton-Mifflin) and McGraw-Hill. While smaller academic publishing houses remain, the three effectively form an oligopoly. By maintaining relationships with authors, book stores, printers, professors, and colleges, these publishers are able to ensure their books wind up in the backpacks of college freshmen. Their control ensures not only the promotion of their own books but it has slowed the evolution of textbooks beyond their traditional format.

The publishing oligopoly will not reform itself. For all the technological innovation of the last two decades, the college textbook continues to look much like it did in the nineteenth century: bound in hardcover and bought in bookstores. Publishers have been reluctant to move textbooks beyond their traditional medium for fear of losing their competitive edge in the market. Placing textbooks online diminishes the value of publisher relationships with printers and bookstores, just as producing a more affordable line of textbooks would undercut their current market.

The current market failure in the textbook industry comes not only at a high cost for students, but for taxpayers too. The federal government and states indirectly support the current textbook regime by allowing grant aid to be used to cover the cost of books.

Fortunately a growing coalition of non-profits, colleges, and companies are creating the tools to deliver open educational resources to students while protecting the rights of writers and professors. Students are increasingly willing to accept information, news, and texts through a digital interface. Only the lack of high-quality free resources stands between students and more affordable textbooks.

The Obama Administration should propose a "21^st Century Textbook Challenge Grant" to provide low-cost, high quality textbooks and bring educational resources into the new millennium. The program would enlist the best professors and textbook writers to create 20 introductory online textbooks in key disciplines like math, science, engineering, and foreign languages. These textbooks would be distributed for free on the web under a Creative Commons license. That would not only allow any professor to use these books without any cost, but would also enable any company to build upon the original textbook and sell an updated version or ancillary materials. The result would be a fleet of free, high-quality texts that could be used in part or in whole by any college professor across the country.

The mechanics of the program could be quite basic. A $10 million pool of money could be used to make grants of between $250,000 and $500,000 to professors, companies or writers for the production of these textbooks. There are two clear benefits to such a program:

Savings: In the short term, free, high quality textbooks could save students hundreds of dollars a year in book costs. For example, if all California's community college students used one online textbook instead of buying a $100 book, they would collectively save $250 million a year. Since both Pell Grants and Cal Grants can be used for textbook costs, money from these programs could stretch further in covering the college costs of current students.
Market Reform: In the long term, the injection of real, low cost alternatives to the current crop of textbooks would force textbook publishers to deal with the realities of 21^st century technology and increasingly unmanageable textbook costs. It could also help faculty become more comfortable with using online textbooks and prove the viability of this approach to smaller publishing firms.

During the presidential campaign much was made of Obama being a candidate for the 21^st century. This was a comment not simply about his age (the first post-boomer president), but his campaign (innovative in the areas of online fundraising and organizing) and his policies (health care technology and green collar jobs). The broken textbook market could benefit from the same type of innovative thinking and policymaking. A relatively small investment could not only help students struggling to pay for college but bring the industry into the twenty-first century.

Luke Swarthout was U.S. PIRG's Higher Education Advocate from 2004 to 2008. At PIRG he worked on issues of textbook affordability including legislation mandating publishers disclose the price of books to faculty. This legislation was included in the College Opportunity and Affordability Act of 2008, which passed earlier this fall. Luke can be contacted at luke.swarthout@gmail.com.

Higher Ed Roundup: Week of December 1 - December 5

Ed Policy — Fri, 05 Dec 2008 16:45:00 -0500

Paulson Acts to Prop Up Private Student Loan Providers

Reports Paint Dire Picture of College Affordability

Adjunct Faculty Use High and Widespread

Paulson Acts to Prop Up Private Student Loan Providers

Shortly before the Thanksgiving holiday, U.S. Treasury Secretary Henry Paulson gave private student loan providers a reason to be thankful. He announced that starting early next year, the federal government would lend as much as $200 billion to investors holding securities backed by private student loans and other forms of consumer credit, such as auto loans and credit card debt. The plan is aimed at reviving the credit markets to help provide capital and liquidity to lenders so that they will continue offering consumer loans, including high-cost private student loans. While the loan industry and allies at groups like the National Association of Student Financial Aid Administrators hailed the plan, consumer advocates and some Democratic lawmakers expressed serious concerns about it. On Wednesday, Sen. Dick Durbin (D-IL) sent a letter to Paulson urging him to be cautious about bailing out lenders who have engaged in unethical practices that have harmed students. “Using taxpayer dollars to aid an industry that has been detrimental to so many students is very troubling,” Durbin wrote. “At a minimum, the Treasury should require that any receipt of taxpayer dollars be contingent on the lenders’ agreement to increase consumer protections for private student loan borrowers.”

Reports Paint Dire Picture of College Affordability

Unless steps are taken to curb ever-increasing college prices, higher education will become unaffordable for most Americans, according to a new report from the National Center for Public Policy and Higher Education. The report, “Measuring Up 2008”, finds that published tuition and fees increased 439 percent between 1982 and 2007 in non-inflation-adjusted dollars while family income rose 147 percent during this period, meaning that the cost of higher education is eating up a growing share of family incomes. The report calculated that the net cost of attendance at a four-year state university amounts to 28 percent of median family income, while the cost of attending a four-year private college amounts to 76 percent of median family income. For the poorest families, the cost of attending a four-year public university amounts to 55 percent of median family income, up from 39 percent eight years ago. At community colleges, the cost of attendance represents 49 percent of these families' median income.

Meanwhile, a second report released this week by the National Association of State Colleges and Land Grant Universities projected that by 2036, tuition and fees at its member institutions would rise from 11 percent of family income to 24 percent of family income. While the group’s findings are less dire than “Measuring Up," the report does acknowledge that tuition growth at public universities, largely due to cuts in state funding, is making attendance at a four-year colleges unaffordable for students from the most financially needy families. "We think public higher education is affordable right now, but we're concerned that it won't be, if the changes we're seeing continue, and family income doesn't go up," David Shulenburger, the association's vice president for academic affairs and co-author of the report, told The New York Times.

Adjunct Faculty Use High and Widespread

The majority of public college and university courses are taught by adjunct faculty members and graduate teaching assistants, according to a new report released this week by the American Federation of Teachers. The report found that 49 percent of courses at these public institutions are taught by non-tenure-track, part-time and full-time instructors. In addition, the report estimates that graduate teaching assistants represent between 16 and 32 percent of undergraduate instructors at these institutions. Meanwhile, the report found that the average compensation per course for adjunct faculty, $2,758, was about a third of that paid to full-time faculty. The increasing reliance of colleges on "a growing corps of instructors who teach classes part-time or on limited-term contracts, without permanent appointments, equitable compensation, or appropriate professional support," the report states, "raises serious issues about the ability of colleges and universities in the United States to provide the highest quality education possible."

Don't Pass the Buck

Ben Miller — Tue, 02 Dec 2008 17:15:00 -0500

With Thanksgiving behind us, it is officially the start of the gift-giving season. Unfortunately, students at public colleges and universities across the country can already expect an unwanted present from their governors -- tuition and fee increases. At least coal could have been used for heat.

Students are going to face increased tuition burdens, both for next semester and the following academic year, because governors and state legislators often turn to higher education when they need to make budget cuts. But increasing tuition could lead more students to drop out or delay enrollment -- lowering graduation rates and stranding students with debt. To prevent these negative outcomes, we urge states to make a sustained commitment to higher education, while asking schools to reexamine their financial aid and revenue allocation policies.

The coming months are going to be gloomy for higher education funding. Several states have already announced plans for postsecondary education cuts, and many more are sure to follow suit. The governors of New York and California -- the two states with the largest public higher education systems in the country -- recently proposed a new round of budget cuts on top of ones that these colleges endured earlier this year.

In New York, Democratic Gov. David Patterson is proposing a cumulative $353 million higher education cut -- $115 million this year, $238 million the following year. Colleges would make up this drop in funding by raising tuition $600 over the next year -- including a $300 hike this spring. That's a 10 percent increase at the State University of New York, Binghamton, and a 14 percent increase at the City College of the City University of New York -- the flagship schools in New York's public university and community college systems. Community colleges, meanwhile, would see an estimated 10 percent reduction in aid per student.

California, meanwhile, is calling for $464 million in higher education cuts -- including $332.2 million from community colleges and $66.3 million at the California State University System. These cuts could increase tuition by as much as 10 percent, some faculty members warn. It could cause the Cal State system, which enrolls a large number of low-income students, to drop enrollment by 10,000.

California and New York's willingness to pass college costs on to the least affluent students and schools could lead price-sensitive low-income students to drop out, reduce their attendance to part-time status, delay enrolling, or forgo college altogether. This would lead to a series of negative outcomes for students, such as not attending college at all or leaving school heavily indebted without gaining a credential, increasing the likelihood that they will eventually default on their student loans and ruin their credit.

Rather than turning to tuition as a revenue source, we implore governors and legislators to remember they are not the only ones making sacrifices to invest in higher education. The federal government spends tens of billions of dollars each year on student aid and federal loan guarantees, while students take on substantial debt and pay thousands of dollars in their own money to attend a postsecondary institution. Shifting more of the burden to federal taxpayers and students is both inequitable and unfair.

If states are unwilling to keep this commitment to higher education on their own, then the federal government should assist them with both carrots and sticks. There is already a legislative provision that would make states ineligible for certain grants if they do not maintain their higher education spending at or above their five-year average. But this program, College Access Challenge Grants, only has guaranteed funding for a few years. At Higher Ed Watch, we believe that the federal government should hold more funds at risk -- such as administrative payments to state boards of education or requested U.S. Treasury bail out funds to states and local governments (as suggested by former Higher Ed Watch Editor Michael Dannenberg) -- for states that slash higher education funding. At the same time, those that keep their funding level or increase it should either receive access to a special funding stream for low-income students or priority in competitive pilot programs.

But states aren't the only higher education actors whose practices should be scrutinized. It is also worth looking at schools' aid packages. Every single public college contacted for a recent survey by the National Association for College Admission Counseling said it provided non-need based assistance, or "merit aid." The same survey found that merit aid made up 41.9 percent of public institutional funds, only slightly less than the 46.6 percent devoted to need-based institutional aid. This is troubling because "merit aid" is not targeted at low-income students, and is instead used to compete for the best (and sometimes the wealthiest) students to boost prestige and fundraising. Schools should not be allowed to continue to spend their limited financial aid budgets on non-needy students when low- and moderate-income students are being asked to shoulder ever-larger tuition burdens.

Finally, colleges should see if they can lessen tuition increases by finding savings in their current spending practices. In an insightful Washington Monthly article about using technology to reduce college costs, Kevin Carey of Education Sector cites data from the Delta Project on Postsecondary Education Costs that show schools are spending less on instructional costs -- often their biggest expense -- while taking in more tuition revenue. This would suggest that a growing portion of their revenue is going to non-essential functions. Carey also discusses several tactics taken by Virginia Tech University to use technology to substantially reduce the cost of some expensive introductory courses without harming student achievement. Employing these type of programs on a larger scale could also help reduce the need to heap more tuition on students.

It is undeniable that the future outlook for state budgets is far from rosy. But states and schools should not take the knee-jerk, easy way out of passing more costs on to students by raising tuition. Instead, they should view the lean times ahead as an opportunity to reexamine their own spending and aid policies to increase efficiency and better target their own aid to low-income students. Doing so would recognize and match the sizable commitment the federal government, students, and parents already commit to higher education, rather than just passing the buck.

Higher Ed Roundup: Week of October 27 - October 31

Ed Policy — Fri, 31 Oct 2008 17:15:00 -0400

Tuition and Student Debt Up, College Board Says

Dept. of Ed Issues Final Rules on Public Service Loan Forgiveness

Tuition and Student Debt Up, College Board Says

College prices rose steadily this year and are likely to increase at an even faster pace next year as a result of the downturn in the economy, according to the latest annual reports from the College Board on tuition and student aid trends. At the same time, student debt levels continue to escalate, despite a slight reduction in private student loan borrowing. According to the reports, average tuition and fees rose in the 2008-09 academic year by:

6.4 percent to $6,585 for in-state students attending public four year colleges.
5.2 percent to $17,452 for out-of-state students attending public four year colleges.
5.9 percent to $25,143 for students at private four year colleges.
4.7 percent to $2,402 for students at community colleges.
4.5 percent to $13,046 for students at for-profit trade schools.

Meanwhile, the average room and board charges for those students who are in campus housing rose by about 4 percent to $8,000.

In 2007-08, the most recent data available, students graduated with an average loan debt of $22,700, an 18 percent increase since the 2000-01 academic year. For the first time in a decade, there was a slow down in private loan borrowing -- decreasing by 1 percent to $19.1-billion last year. Financial aid experts and student-loan industry officials expect a much steeper drop this year, as many loan companies have stopped making private loans due to the credit crunch.

Dept. of Ed Issues Final Rules on Public Service Loan Forgiveness

Final regulations that the U.S. Department of Education issued late last week may still keep federal student loan borrowers in the dark as to whether they qualify for the new Public Service Loan Forgiveness Program. Under the program, the federal government will forgive the remaining debt of Direct Student Loan borrowers who have made 120 payments on their loans while working in a public service profession. Borrowers with loans through the competing Federal Family Education Loan (FFEL) program can take advantage of this benefit by consolidating their debt into Direct Lending.

When the Department released its proposed regulations in July, it indicated that it didn't intend to let people know whether they qualified for the benefit until after they had made all 120 required payments. At Higher Ed Watch, we questioned this decision -- asking why borrowers working at low-paying jobs should have to wait at least 10 years to find out whether they were eligible for the new benefit. Instead, we joined our colleagues at the Project on Student Debt in calling for the Department to develop "a system that lets borrowers confirm and track their eligibility" over time for this benefit. [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.]

In its final rules, the Department did not commit to providing periodic confirmation notices to borrowers about their eligibility. Instead, the agency said that the onus will be on borrowers "to document" their eligibility over time. Department officials said that they do not want to provide borrowers "with a contractual right to the benefit," as Congress may decide to eliminate the program in the future. Higher Ed Watch hopes that Congress will revisit this issue next year to insure that the program lives up to its promise.

Higher Ed Roundup: Week of September 29 - October 3

Ed Policy — Fri, 03 Oct 2008 17:00:00 -0400

Direct Loan Volume Soars in Response to Credit Crunch

Spellings Presents Plan to Shrink the FAFSA

Ed Dept. Underestimates Improper Payments to Lenders, IG Reports

New IRS Form Questions Colleges on Spending, Endowments

Direct Loan Volume Soars in Response to Credit Crunch

The Direct Loan program's volume has increased by nearly 50 percent this year, according to the U.S. Department of Education. In the wake of the credit crunch, roughly 400 schools have switched to Direct Lending from the competing Federal Family Education Loan program, bringing the total number of schools offering Direct Loans to 1,369. Overall, students at these schools have taken out $16.4 billion in loans this year, which is about 35 percent of the total federal student loan program volume. At its most popular in the mid-1990's, Direct Lending controlled nearly 40 percent of the total loan volume.

The Department also revealed his week that 10 FFEL lenders have taken advantage of the agency's loan purchase program first authorized in the Ensuring Continued Access to Student Loans Act (ECASLA). Lenders sold about 40 percent of this year's $30.6 billion FFEL volume this year back to the Department, and are working on selling most of the remainder, according to The Chronicle of Higher Education. In a letter to shareholders, Sallie Mae reported that it intends to use the program to finance all of its expected $20 billion in loans this year. The buyback program is designed to help loan companies secure financing by giving them the option of selling all or portions of new student loans back to the Department. By contrast, no schools has had to turn to FFEL's original backup plan, the overly complex and confusing "lender-of-last-resort system," which requires guaranty agencies to provide loans to students that have been turned down by conventional lenders .

Spellings Presents Plan to Shrink the FAFSA

U.S. Education Secretary Margaret Spellings unveiled a proposal on Wednesday to significantly simplify the process of applying for federal financial aid. Under the plan, which Spellings announced in a speech at Harvard University, the Department of Education would slash the number of questions asked on the Free Application for Federal Student Aid (FAFSA) from 120 questions to 27. In addition, the proposal calls for the agency to use year-old tax data so that the agency would be able to inform students about their aid eligibility at the beginning of their senior year in high school rather than at the end. These changes, Spellings said, should encourage low-income students to pursue a higher education rather than discourage them, as the current aid application process does. "We should be knocking down barriers, not putting up hurdles," she stated. "It starts with a new form." In an interview with Inside Higher Ed, Spellings said she said she hoped that Congress would give "careful consideration" to her plan.

Ed Dept. Underestimates Improper Payments to Lenders, IG Reports

The U.S. Education Department has dramatically understated the amount of improper payments it has made to lenders participating in the Federal Family Education Loan program, according to a recent report by the agency’s Inspector General (IG). Federal law requires government agencies to annually report on incorrect payments they have made to outside entities. According to the IG, the Federal Student Aid office’s Financial Partners Services’ division keeps changing the methodology it uses to estimate improper payment rates, and as a result, the estimates have varied wildly. For example, the Department claims that it made $258-million in improper payments to lenders and guaranty agencies in the 2006 fiscal year, but only $2 million in fiscal year 2007. The report goes into great detail about flaws in the Department’s methodology, but lays some of the blame on the overwhelming complexity of the FFEL program.

New IRS Form Questions Colleges on Spending, Endowments

Colleges will soon have to provide the Internal Revenue Service (IRS) with greater detail about their finances, including how they use their endowments and compensate top executives, on a new reporting form that the IRS said it will release shortly. The announcement came almost a month after Sen. Charles Grassley (R-IA) and Rep. Peter Welch (D-VT) convened a roundtable on endowment spending at which they asked the IRS to create a special 990 tax form for colleges. The lawmakers especially wanted the new form to include more questions on expenses, revenues, and use of endowment income. In addition to covering these topics, the new IRS questionnaire will asks schools about related business opportunities and lavish perks offered to employees -- at least in part to determine whether colleges are taking advantage of their non-profit status.