College Costs

Our Biggest Disappointments (With Final Higher Ed Bill)

Ed Policy — Thu, 31 Jul 2008 21:23:00 -0400

By Ben Miller, Stephen Burd, and Sara Mead

Yesterday, Higher Ed Watch highlighted our favorite provisions in the final version of legislation to reauthorize the Higher Education Act. With Congress poised to approve the bill today and send it to President Bush for his signature, we take a critical look at the parts of the legislation that fail to close loopholes, open new areas for potential exploitation, and weaken existing accountability frameworks.

Easing Restrictions on Trade Schools

For-profit colleges' lobbyists are exuberant about the reauthorization legislation. And who can blame them? Congress has gutted a key consumer protection provision that the career college lobbyists have been trying to kill since it was first introduced in 1992. The provision, which is known as the "90-10 rule," was intended to crack down on unscrupulous trade schools. It requires proprietary institutions to receive at least 10 percent of their revenue from sources other than federal student aid in order to participate in the aid programs. Congress' legislation would keep the requirement in place, but takes all the teeth out of it.

The bill substantially increases the sources of funds that proprietary institutions can count toward the 10 percent threshold, including institutional need- and merit-based scholarships and loans the schools make to their students. In addition, schools that violate the rule would no longer become automatically ineligible to participate in the federal student aid programs. Instead, they would now have to exceed the threshold for two consecutive years before being penalized. (The bill gives the Education Secretary the option of removing such institutions from the aid programs but does not actually require it.) The legislation would also temporarily exempt from the 90-10 calculations recent federal loan limit increases Congress approved as part of the Ensuring Continued Access to Student Loans Act. This means some federal student aid will not count toward the 10 percent cap.

We find it extremely troubling that lawmakers would consider weakening the government's limited tools for protecting students and the integrity of the aid programs at a time when trade schools recruiting practices are coming under so much scrutiny from federal and state regulators.

Taking the Truth Out of Tuition Calculations

The House of Representatives' version of the higher education reauthorization contained a bipartisan provision called "Truth in Tuition," which the New America Foundation has long favored. Designed to provide parents and students with a better idea of future charges, this provision would have required colleges to provide all incoming freshmen with a four-year schedule of expected tuition and fees. While schools could raise tuition from one year to the next, the schedule would help students prepare for the possibility of large cost hikes in future years. Unfortunately, instead of requiring colleges to help their students plan ahead, the bill requires the Department of Education to develop a multi-year tuition calculator, which bases its estimates solely on colleges' past increases. In essence, the calculator takes the responsibility away from schools to provide earnest and thoughtful estimates of future fees, and replaces it with a tool of questionable predictive value. As a result, most students will likely remain in the dark about what lies ahead.

Keeping a Veil on Institutional Aid Policies

Lobbyists for traditional colleges have fought vigorously Congressional efforts to shed more light on institutional financial aid practices, and it appears they have been victorious. The final bill requires colleges to report the average amount of grant aid they provide their students out of their own coffers. It doesn't, however, require them to disaggregate the data by family income of student recipients, as the original House version of the bill did. While the legislation requires colleges to disclose the average net price (the sticker price minus all financial aid a student receives) charged to students, broken down by income, it directs colleges to include only students who have received federal financial aid in its calculations. As a result, colleges will not have to reveal the extent to which they provide non-need-based "merit" aid to students from affluent families.

The government, as we have previously said, has a right and responsibility to know whether colleges are helping or hindering public policy goals. Specifically, are they using federal student aid dollars to supplement their own institutional financial aid to insure that low-income students don't have unmet financial need? Or are they using federal funds to replace institutional aid dollars they would have spent otherwise on needy students, and using that money to attract better, and often wealthier, students? Unfortunately, this bill won't provide policymakers with those answers.

Growing Guarantor Roles

Student loan guaranty agencies are no longer needed to serve their original purposes, so they are increasingly branching out into new roles to justify their existence. As we wrote recently, advocates for guarantors convinced lawmakers in 2006 to add language to a budget reconciliation bill that explicitly required the agencies to promote college access efforts. Now, in the reauthorization legislation, Congress goes a step further and involves guarantors in colleges' efforts to promote better financial literacy. Under the bill, guaranty agencies would be required to develop materials for parents and students on "budgeting and financial management, including debt management and other aspects of financial literacy, such as the cost of using high interest loans to pay for postsecondary education." These are certainly worthy goals, but do we really need guaranty agencies to do them? The agencies would be directed not only to engage in these activities, but they would also be allowed to count these efforts towards the default reduction activities they are required to carry out. Moreover, the legislation doesn't include any mechanisms for measuring the effectiveness of the guarantors' efforts.

We are also perplexed by a requirement in the legislation that guarantors be included in the pilot PLUS loan auction. Under the bill, winning lenders will receive a 99 percent guarantee against default by guaranty agencies -- rather than from the Education Secretary, as the initial legislation mandated. The federal government is already responsible for the cost of defaults anyway, so why do we need to insert a middleman?

Leaving States to Define "Low-Performing" Teacher Prep

While the reauthorization bill takes some positive steps to improve accountability for teacher preparation programs, it fails to accurately target "low-performing" prep programs. Like the 1998 Higher Education Amendments, the legislation does require states to identify "low-performing" teacher prep programs, which can then be subject to penalties. Unfortunately, this measure, like the 1998 law, leaves it solely to the states to define the criteria by which they will judge programs to be "low-performing." As we've seen over the past decade, most states have set laughably low standards that hold few or no programs accountable. By not mandating any parameters for how states define and judge teacher prep programs, the legislation continues to let lousy programs off the hook.

Ensuring that Default Rates Remain Toothless

The version of the reauthorization legislation that was approved by a key House committee last November contained a promising provision to increase the measurement window for student loan cohort default rates -- a metric used to hold schools accountable if too many of their students don't repay their loans. Unfortunately, by the time it got to the final bill, that provision was substantially weakened. Like the committee's version, the final bill would include in the cohort default rate all students who don't make payments on their loans within three years of leaving college, rather than two, as is in current law. That's a good change. The bill, however, would also increase the default rate threshold at which sanctions kick in. Under the new law, a school would be penalized only if 30 percent of its former students defaulted on their loans within three years, instead of 25 percent, as is currently the case. While the longer window will more accurately capture defaults, the higher threshold will make it easier for schools to avoid sanction. The legislation further weakens the measurement by allowing schools to get out of sanctions due to "mitigating circumstances," such as enrolling a substantial number of low-income students. In addition, the bill increases the minimum percentage of student borrowers a school must have to be subject to penalties. The net result of these actions is that Congress has made an accountability measure that was already pretty toothless even weaker.

Next week, Higher Ed Watch will take a closer look at other parts of the bill, including our views on provisions attempting to remove "pay for play" conflicts of interest from the student loan programs. Stay tuned.

A Few of Our Favorite Things (From Final Higher Ed Bill)

Ed Policy — Wed, 30 Jul 2008 17:27:00 -0400

By Ben Miller, Stephen Burd, and Sara Mead

A decade after its last reauthorization and five years since an updated version was due, a new version of the Higher Education Act is finally ready for Congressional passage. With both chambers set to vote on the bill this week, Higher Ed Watch will take a closer look at various parts of the legislation over the next two days. Today, we praise lawmakers for doing the following:

Putting Teeth Into Loan Auctions

Last year, Congress created a groundbreaking pilot auction program that uses market forces to set student loan subsidy rates for lenders making federal PLUS loans to parents and graduate students. With about a year left to enact the pilot project, lawmakers have added penalties for lenders who win an auction and then back out. The bill allows the Education Secretary to punish lenders that violate the terms of the auction agreement by one of the following methods: fining the lender for any additional costs needed to find and subsidize a replacement PLUS loan lender; banning the offending lender from future auctions; or, kicking them out of the Federal Family Education Loan (FFEL) program entirely. We particularly like the fact that the Secretary can retrieve the fine by reducing subsidies paid to the lenders on other FFEL loans or having another federal agency garnish other subsidies the lender might receive. While we have some complaints about the language (it doesn't, for example, address the PLUS loan auction bidding cap, which needs to be more flexible to encourage robust bidding in a range of financial market conditions), overall, we believe that this provision is an important step forward in getting this pilot program off the ground.

Adding Key Protections for Private Loan Borrowers

The reauthorization legislation takes a stab at addressing concerns that students borrowing high-cost private loans frequently don’t understand the terms and conditions of these loans before taking them out. Under the bill, lenders would be required to provide clearer information about the interest rates and fees they charge and to inform potential applicants about the availability of cheaper, safer federal loans. Borrowers would have up to 30 days, after a private loan offer is made, to decide whether or not they want to take out the loan, and another three days, after the loan is consummated, to cancel it. In addition, the measure would ban lenders from branding private loan products with a college’s name or logo in a way that implies the school has endorsed the loan. The measure would also bar lenders from penalizing borrowers who pay off their private loans early. These are all good provisions. The bill, however, does not goes far enough in addressing the fact that large numbers of students take out private loans without exhausting their federal student loan eligibility first. We also are extremely disappointed that the measure doesn’t do anything to help financially-distressed borrowers carrying unmanageable levels of private loan debt. Still, this legislation makes a good-faith effort to confront this problem. And that’s a start.

Banning Opportunity Loan Deals

The legislation would forbid colleges from entering into sweetheart deals with lenders in which loan companies agree to waive or loosen credit requirements on private student loans in exchange for becoming the school's exclusive federal student loan provider. These types of harmful "opportunity loan" arrangements give lenders a major incentive to provide subprime private loans to high-risk borrowers. The damage has been particularly grave at some of the most scandal-ridden chains of for-profit colleges, where disadvantaged students with poor credit ratings have been stuck with loans with interest rates and fees exceeding 20 percent. Now many of these borrowers are in default and wishing they had never pursued a post-secondary education in the first place. While this legislation won't do anything for those borrowers, it will hopefully prevent students from being victimized by such predatory lending practices in the future.

Maintaining a Watchful Eye on College Costs

The legislation has two tactics for targeting the rising cost of college: penalizing states that don't live up to their end of the bargain and shaming colleges that raise their prices too high. The bill holds states accountable through a "maintenance of effort" (MOE) provision, which withholds funds from states that fail to maintain their levels of spending on higher education. States in violation of MOE would be ineligible for College Access Challenge Grants, a new $66 million program included in the College Cost Reduction and Access Act that is only funded through fiscal year 2009. With falling state support a major driver of massive tuition hikes and questionable revenue deals, the MOE provision, albeit an extremely weak one, should provide at least a small incentive for states to avoid slashing higher education funding.

The bill also tackles college costs by requiring the Education Department to publish an annual list of the top 5 percent of colleges with the highest tuition and fees and net price, along with those with the largest percentage change in tuition and fees and net price over the preceding three years. Lists would be disaggregated by type of institution, though not by region. Colleges with the highest percentage increases would have to provide the Education Secretary with a report explaining factors behind those price increases, and steps they plan to take to limit them in the future . These lists would provide students with an idea of which schools are likely to hike tuition, but also make colleges think twice before jacking up their prices. The provision is more thoughtful than previous efforts because it would not penalize state colleges that don't have any control over setting their tuition rates.

Curbing Textbook Prices

At an average annual cost of $900, textbooks are a major expense for students who are already struggling to keep up with ever-rising college prices. This legislation aims to drive down textbook prices by helping colleges and students make better-informed decisions. The bill would require publishers to disclose any major revisions in new editions of textbooks to individuals making purchasing decisions. This should help colleges decide whether it makes sense to order the latest editions, which are more expensive and less likely to be available used. Publishers would also be required to sell supplementary materials and textbooks separately. Separating out bundled materials should decrease student costs by allowing individuals to purchase a book without having to also pay for expensive companion items. The bill also requires colleges to tell students the name and cost of textbooks used in a given course by posting such information on online course schedules. Providing this information before classes start gives students time to look for copies of the books online, where they can often be purchased for less. We are hopeful that these changes will bring some relief to students.

Making Teacher Preparation Programs More Accountable

When Congress passed the Higher Education Amendments Act of 1998, it took unprecedented steps to improve the quality of teacher preparation programs operated by institutions of higher education. This included providing funding for teacher quality enhancement and requiring teacher preparation programs to report annual pass rates for their students on state teacher licensure exams. Unfortunately, the law's accountability provisions, as implemented, contain an enormous loophole that allows many institutions of higher education to report pass rates of 100 percent by only counting students who have already passed the tests as "program completers." The proposed legislation takes steps to close that loophole, by requiring teacher preparation programs to report on "the percentage of students who have completed 100 percent of the nonclinical coursework and taken the assessment who passed such assessment," and "the percentage of all students who passed such assessment." The legislation would also require teacher preparation programs to report on the average scale score their students obtain on teacher licensure exams. Because teacher licensure exams are not especially rigorous, these are modest steps to improve accountability for teacher preparation programs, but they are steps in the right direction. As the only federal policy that seeks to measure the educational outcomes of higher education programs, it provides a potential foot in the door for broader accountability in the future.

Preventing Rip-Offs by the Department of Education

The legislation would require the U.S. Department of Justice to review any settlements made by the Education Secretary that exceed $1 million. This provision, which was first introduced as an amendment to the House of Representatives version of the legislation by Rep. Tom Petri (R-Wisc.), is meant to help prevent the kind of abuse of taxpayer funds that occurred last year when Education Secretary Margaret Spellings allowed the loan company Nelnet to keep $278 million in subsidy payments that it had illegally billed the agency as part of the 9.5 percent student loan scam. Such a provision would also have been helpful back in 2004 when the Education Department gave the University of Phoenix a slap on the wrist, even though it found the for-profit higher education giant guilty of violating a law prohibiting colleges from giving "any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments." We applaud Congress for trying to inject some accountability back into the Education Department.

So what did Congress get wrong with the bill? Tune in tomorrow to find out.

Undermining a New Effort to Promote Public Service

Stephen Burd — Wed, 23 Jul 2008 14:43:00 -0400

Is the U.S. Department of Education deliberately trying to undermine a new program created by Congress to encourage students to pursue careers in the public service?

That question came to mind as we reviewed the Education Department's proposed regulations for enacting the Public Service Loan Forgiveness program that Congress created in September as part of the College Cost Reduction and Access Act (CCRA).

Under the program, the federal government will forgive the remaining debt of Direct Student Loan borrowers if they make 120 payments on their loans while holding a low-paying, full-time public service-oriented job. Borrowers with loans through the competing Federal Family Education Loan program can take advantage of this benefit by consolidating their debt into Direct Lending.

The program is a reaction to reports that student loan borrowers are increasingly shying away from pursuing public-service careers, such as teaching and social work, and is designed to provide incentives to get college graduates to enter these fields and reward them for their service.

But don't take our word for it. Listen to what Rep. John Sarbanes (D-Md.), one of the authors of that provision, had to say about the program last fall. "With daunting student loan debt, there is not enough incentive for new graduates to choose a life of public service," he said in a news release touting the CCRA's passage. "This will make it easier for many graduates to pursue a career of service."

In the same news release, Rep. George Miller, the California Democrat who was the CCRA's primary author in the House of Representatives, echoed Sarbanes' remarks. "This bill rightfully encourages and rewards the vital public service members of our workplace," he stated.

Sounds pretty straightforward, right? So imagine our surprise when we learned that the Department doesn't intend to let people know whether they qualify for the loan forgiveness until after they have made the 120 required payments. In other words, borrowers working at low-paying jobs will have to wait at least 10 years to find out whether or not they are eligible for the new benefit. What kind of incentive is that? It's hard to imagine people rushing to change their career plans as a result of the law without having some guarantee that their remaining debt will be forgiven.

Our colleagues at the Project on Student Debt have expressed dismay over the Department's plan and offered a more promising alternative. In a letter to the Department, project officials recommended that it develop "a system that lets borrowers confirm and track their eligibility for this form of loan forgiveness." [Disclosure: The Pew Charitable Trusts finances Higher Ed Watch through a subgrant provided by the Institute for College Access and Success, which runs the Project on Student Debt.]

"Giving borrowers clear, periodic confirmation of how many more years of eligible work and payments are required before they qualify for forgiveness will provide an incentive to continue in public service and ultimately meet the forgiveness requirements," project officials wrote.

The Education Department doesn't appear to be interested in adopting such an approach. In the introduction to its proposed regulations, the Department wrote that "tracking and reviewing documents on an annual basis for potentially thousands of borrowers, many of whom might not remain in public service employment or who may never meet the eligibility requirements for final loan forgiveness, would be a complex and costly administrative process."

We don't have any reason to question the sincerity of the Department's stance. Keeping track of a borrower's career choice over a significant period of time would probably be a challenging undertaking for the agency. But does that added burden negate the Department's responsibility to carry out the will of Congress and abide by both the letter and spirit of the law?

While some will assume that this is a deliberate attempt by the Bush administration to sabotage a program that could be a boon to Direct Lending, we are not convinced. More likely it's a classic case of bureaucratic inertia -- resisting new solutions to longstanding and seemingly intractable problems, such as the growing indebtedness of students, because they require significant administrative changes.

Nevertheless, if the Department refuses to budge from its current position, it will be setting up this promising new program up for failure. And that would be unfortunate because we certainly could use more people looking out for the public good.

Guest Post: Not Your Grandfather's GI Bill

Ed Policy — Thu, 17 Jul 2008 19:26:00 -0400

By Robert Mackey

In 1944, Franklin Roosevelt signed into law the “Servicemen’s Readjustment Act,” what would be commonly called the “GI Bill.” It was a model of success, educating future presidents, Nobel Prize winners, writers, poets, musicians, and teachers, as well as a generation of mechanics, farmers, and technicians. By the time it expired in 1956, it had changed the face of American higher education and boosted a generation into the middle class.

On June 30, President Bush signed into law the newest version of the GI Bill, legislation that promised to reward the service of the men and women who have worn the uniform since September 11, 2001. This measure, which would significantly expand higher education benefits for veterans, has won bipartisan acclaim, with only a slight ripple from those concerned that the recipients of said governmental largesse will flee from the military in droves, cash in hand, ready to actually go to college.

These critics need not worry because, despite the hype, this bill is not really a new version of the World War II bill at all, but in many ways a repackaged enlistment benefit meant to tie the individual servicemember to the military for decades before full privileges are earned.

The original GI Bill was simply a reward for service. It was intended to ensure that troops coming back from World War II were able to get an education, move into the middle class, and contribute to the system, in stark contrast to how veterans had been treated since the American Revolution (a small "separation" pay if you were lucky, your likely ragged uniform and out the door). Most importantly, the original bill was not tied to future service—you didn’t enlist to gain the benefits; your past service was the only deciding factor. And the actual amount of money involved could be substantial: full tuition, books, room and board were covered until 1952, when an amendment to the act changed it to a simple stipend ($110 a month, the equivalent of about $900 in 2007).

Now, don’t get me wrong, the new bill also is generous, especially for those veterans who have not yet attended college. The new bill will cover the cost of tuition equal to “the most expensive in-State public institution of higher education”—big money if you are going to an expensive college. If you served for 36 months after 9/11, you get 100 percent of the entitlement; it is downgraded from there based on shorter service periods. Veterans also will receive $1,000 each year for books and supplies, and a housing allowance equal to that of an E-5 (in military jargon, the code for an Army or Marine sergeant, Air Force staff sergeant, or Navy Petty Officer 2nd Class). That is no small benefit—it would amount to as much as $1,855 a month for veterans living in Washington, DC. In all, the new GI Bill could provide eligible veterans with nearly $130,000 to pay for an undergraduate degree.

In addition, the legislation includes a transferability option—allowing a veteran to “transfer” at least some of the benefits to his or her spouse or children. This is a great idea, as most people in the military just do not have the money to save for their children’s college. On a personal note, this would be a great option for me as I am all “schooled out” (in full disclosure, I have a Ph.D. and two Master’s degrees) and would like to use the added benefits for my kids.

But wait, it turns out that the start date for transferability is Aug. 1, 2009—meaning that you would have to be on duty that day to qualify. In other words, every veteran who left the military between Sept. 12, 2001, and July 31, 2009, is automatically disqualified from transferring the benefits. And, as the vet will have had to serve for at least six years to transfer the benefit to his or her spouse (10 years to transfer to children), it means that the first time a transfer check could go to a family member may be 2015, depending on how the the different military branches determine eligibility. Possibly more than 100,000 veterans, including those who retired, were medically discharged, or fulfilled their service requirement, will be denied the transferability benefit patriotically embraced by leaders on both sides of the aisle and in the White House. Thanks a lot.

Instead of helping veterans serving in current wars who would like to leave the military, this legislation is a stick—not a carrot—intended to keep them in. For those who left the military between 2001 and 2009, they are second-class veterans, with no ability to give their benefit to their families. And those who enlist after Aug. 1, 2009 are forced to indenture themselves for upwards of 10 years to pass the benefits to their children.

Congress needs to close the transferability loophole that prevents veterans who served from 2001 to 2009 from sharing their already earned benefits with their families. It also needs to make the entire GI Bill, including transferability, available after three years of honorable service, instead of pushing the program into the next decade. If Congress wants to encourage “lifers” who serve 20 years or more, it should provide additional higher-education related benefits to long-service personnel, such as transferable housing allowances or stipends to family members, to those that dedicate their lives and their families’ fortunes as well to the nation.

In the original GI Bill, GI stood for “Government Issue”—the self-effacing slang used by the soldiers of World War II when speaking about themselves. In the new GI Bill, Congress needs to ensure that the “I” in “GI” does not stand for “incomplete.”

Robert Mackey is a retired U.S. Army officer and veteran of the invasion of Panama (1989), Operation Desert Storm (1991), and Operation Iraqi Freedom (2003). He is a military historian, author of The UnCivil War: Irregular Warfare in the Upper South, 1861-1865, and a regular contributor to the Huffington Post. Views expressed herein are his own and do not necessarily reflect the positions of the New America Foundation.

Guest Post: A System of Student Financial Support

Ed Policy — Tue, 06 May 2008 16:22:00 -0400

By Art Hauptman

Current arrangements for providing financial support to college students and their families in this country are not meeting many of the objectives for which they were intended. The Spellings Commission summed it up well in its final report: "The entire financial aid system - including federal, state, institutional, and private programs - is confusing, complex, inefficient, duplicative, and frequently does not direct aid to students who truly need it." As a result, the Commission and a number of other groups with wide ranging political agendas have recommended that "the entire student financial system be restructured". But what would that entail?

Since first established in the 1960s, the federal student aid programs of grants, loans, and work-study - in concert with state, institutional, and private efforts - have provided access to a postsecondary education for millions of Americans who otherwise might not have had enough funds to attend. More recently, federal tax offsets against current tuition expenses and tax-preferred incentives for college savings serve as an important source of financial relief for hard-pressed taxpayers from a range of incomes who worry that they will be unable to pay the constantly mounting bill for tuition and other expenses.

But there is good reason to believe that the financing system also has been a factor in some of the most nagging difficulties associated with American postsecondary education:

The growing number of students who require remedial coursework because they are not fully prepared to do college level work when they enroll

The fact that degree completion rates in the United States are below average among industrialized countries

Tuitions and other charges at both public and private colleges increasing at twice the rate of inflation for a quarter century, raising concerns about college affordability.

Student aid and tuition tax policies are certainly not solely or even primarily to blame for these concerns and trends. Many other factors are much more important in explaining the lack of student readiness, low completion rates, and mounting tuition bills. But the student aid system is not blameless.

The basic underlying problem is that the current system of providing financial support to college students and their families is not a system at all. Rather it is a loose conglomeration of policies and practices at the federal, state, institutional, and private levels that often conflict with each other, with the result that efforts by one governmental unit or group often cancel out efforts by others.

Moreover, federal policies are often in conflict with each other - student aid programs intended to promote greater access may be detracting from better student readiness and success as measured by degree completion. Increasing reliance on tax policies to help families pay for college is often at odds with the more access-oriented policies contained in the traditional federal and state student aid programs. As a result of poor design and lack of policy coordination, there are many problems with the current structure of providing financial support to college students and their families, including:

The system of applying for aid and administering it is far too complex which in itself becomes a large barrier to greater access.

Aid often is not well targeted to students from the lowest income families making it that much harder to achieve the goal of providing greater equity of access.

Student debt burdens are growing rapidly and there is far too little relief for the growing number of borrowers who are having trouble making their payments.

The existing financing structure places too much emphasis on getting students into college and there is not nearly enough focus on whether students are prepared to do the work or whether they will complete their educational program.

There is reason to suspect that the growing availability of aid, particularly loans, have been a factor in tuition and other charges growing at twice the rate of inflation for the past quarter century, suggesting a price effect of student aid.

The provision of government aid may encourage institutions that package aid to move their discounts up the income scale, suggesting that some forms of student aid, particularly government grants, may have an adverse substitution effect.

These and very real problems that indicate the current structure of student financial support needs to be changed in fundamental ways.

A subsequent post or two, if Higher Ed Watch doesn't tire of me, will describe a set of principles that should guide future reforms with specific suggestions for moving forward on this agenda. Big changes are needed to make current levels of government support work better for students and their families. Patchwork won't do.

Art Hauptman is an independent consultant on higher education finance issues. The views expressed herein are his own and do not necessarily reflect the positions of the New America Foundation.

Higher Ed Roundup: Week of April 14 - April 18

Ed Policy — Fri, 18 Apr 2008 17:56:00 -0400

House Passes Bill to Ease Credit Crunch Impact on Student Loans, Others in the Works

No Crisis Here, Says American Council on Education

Dems Introduce Legislation to Allow Private College TA Unions

House Passes Bill to Ease Credit Crunch Impact on Student Loans, Others in the Works

The U.S. House of Representatives overwhelmingly approved legislation on Thursday designed to increase federal loan options for students and ease the effects of the credit crunch for lenders that participate in the Federal Family Education Loan (FFEL) program. The bill, which passed by a vote of 383 to 27, would increase the annual and aggregate federal unsubsidized Stafford loan limits, allow parents to defer payments on PLUS loans while their children are in school, and establish the Department of Education as a "secondary lender of last resort" with the power to purchase outstanding FFEL loans and service them through the Direct Loan program. The House also approved several amendments to the bill, including one that would require the Government Accountability Office to conduct a study to determine whether the loan limit increase causes colleges to raise their prices. The study would also look into whether increase the limit on federal loans has the desired effect of leading colleges to reduce their students' use of high cost private loans.

In a Statement of Administration Policy, the White House expressed general support for the legislation, but shared concerns with for-profit colleges that increasing federal loan limits may push the trade schools' dependence on federal funds beyond the 90 percent limit required in order to participate in the federal student-aid program.

Meanwhile last week, Sen. John Kerry (D-MA) introduced legislation to use the Federal Home Loan Bank System to boost liquidity in the student loan market. The Emergency Student Loan Liquidity Market Act, is a companion bill to legislation that was introduced two days earlier in the House by Rep. Paul Kanjorski (D-PA). It would allow the Federal Home Loan Banks to use surplus funds to invest in student loans, use student loans and related securities as collateral, and advance funds to member banks to originate student loans.

No Crisis Here, Says American Council on Education

There may be cries of panic from some in Congress and the student loan industry, but the one of the leading lobby groups for higher education reports no evidence of a "student loan crisis." Terry Hartle, senior vice president of the American Council on Education (ACE), reported to the Senate Committee on Health, Education, Labor and Pensions on Thursday that the organization has not heard complaints so far. He added that the group will continue monitoring the situation. The council briefed staff working for the Senate panel's chairman, Sen. Edward Kennedy (D-MA), two days after the Senator sent a letter to the ACE, urging its member institutions to sign up for the Direct Loan Program, even if they have no intention of using it. [Disclosure: the Editor of Higher Ed Watch used to work for Kennedy.]

Meanwhile, the Department of Education is planning its own assessment of student loan availability, as part of its efforts to monitor the situation. A proposed emergency survey of all FFEL colleges, will ask schools if they have secured lenders for the 2008-09 academic year and requests a list of these lenders.

Dems Introduce Legislation to Allow Private College TA Unions

Teaching assistants at private colleges and universities would be granted the same right to unionize and engage in collective bargaining as their peers at public schools under a bill introduced Thursday. Sen. Edward Kennedy (D-MA) and Rep. George Miller (D-CA) dropped companion versions of legislation that would overturn a 2004 ruling by the National Labor Relations Board (NLRB) holding that private college teaching assistants are primarily students, not employees, and thus do not have the right to unionize. Public colleges are not affected by the same ruling, because teaching assistant unions there are covered by state laws. [Disclosure: the Editor of Higher Ed Watch worked for Kennedy.]

Selling Out Students When State Support Drops

Ben Miller — Tue, 15 Apr 2008 14:35:00 -0400

Falling state support for higher education has a number of onerous effects: increased tuition and fees, more student debt, and a greater likelihood of scaring away low-income students. Less examined is that lost state revenue has driven many public universities and state colleges to find new and previously untapped funding sources - even ones that have dangerous repercussions for their students.

Despite nearly a half decade of solid economic growth, aggregate state support of higher education funding has fallen by 7.8 percent over the past five years in real terms. But the average obscures the wide variability among states. For example, in states such as Alabama, Hawaii, and Wyoming, appropriations per full-time student increased by at least 20 percent. The flipside, of course, is that states such as Colorado, Minnesota, and Vermont all have seen their appropriations decrease by 25 percent or more.

Public colleges typically react to funding cuts by hiking tuition. This certainly has occurred - overall tuition revenue per student at state colleges has risen 24 percent over the past half decade, according to a recent report by the State Higher Education Executive Officers.

But tuition isn't the only revenue stream colleges tap. The most obvious is a turn to increased fundraising efforts. For example, flagship campuses in Michigan, Florida, and Virginia have launched billion dollar-plus campaigns over the past few years.

Many public universities and state colleges have also looked to the private sector for support, striking lucrative deals with corporations eager to reap the benefits of gaining access to a captive student audience.

Some of these deals -- stadium naming rights, athletic and event sponsorships -- are relatively innocuous. But others are far more treacherous, with universities essentially leaving their students prey to credit card companies and other financial institutions that agree to provide them with a cut of the profits they make off their students.

These credit card deals and other types of arrangements, in which colleges convert campus ID's into ATM and debit cards by outsourcing them to banks, expose the dangers of the privatization of public higher education. Instead of looking out for their students' best interests, these schools have been focused on finding ways to make additional money off of them.

Credit Cards

Under these deals, colleges provide credit card companies with personally-identifiable information about their students in exchange for cash payments. The companies then use the data - which can include permanent addresses, e-mail addresses, and local telephone numbers - to market credit cards directly to students. Some colleges go even further, providing these companies with face-to-face access to students -- allowing salespeople, for example, to set up marketing tents in central campus hubs. And the credit card companies often provide a share of the money they earn on students' credit-card purchases to the colleges, their alumni assocations, or their athletics departments.

Unsurprisingly, the easy access to credit cards has led to high levels of debt among many college students. A recent report by the federation of Public Interest Research Groups (U.S. PIRG) found that roughly 66 percent of college students had a credit card, with 34 percent of those individuals (or around 22 percent of all students) carrying a balance on the card. While the average card balances don't approach private loans, they could be quite high - as much as $1,301 for freshmen and $2,623 for seniors. Those with student loans or previous credit card defaults had even higher average balances.

ID Cards

Under these arrangements, colleges outsource the creation of student ID cards to banks, which transform them into ATM and/or debit cards. The agreements are a win-win for the colleges and banks that participate in them. Banks produce the cards, which students can use both to access checking/savings accounts and as a debit card. In return, schools get the cards for free and receive annual payments from the banks. In some cases, colleges also receive a percentage of the balances held by students.

The deals are quite profitable for both partices. An ID card deal between the University of Minnesota and TCF Financial has yielded an estimated $40 million over 30 years for the school, while the bank's deposits have increased by $50 million.

The benefits to the student are less clear. Students at some schools that participate in these programs have complained that they have essentially been forced to sign up for the card, and have been hit by substantial overdraft fees for negligible purchases. The personal information students give up by activating the card also makes them prime targets for further offers, especially credit cards.

A Common Thread

The deals that public universities are making with banks and other finance companies for credit cards and ID cards bear a striking similarity to the deals that were uncovered last year as part of the invesigation into the "pay-for-play" student loan scandal. Just as exclusive deals between lenders and colleges drew Congressional ire, policymakers need to take a closer look at schools' revenue machinations and their implications for students. In future posts, Higher Ed Watch will review the credit and ID card deals in greater depth and discuss ways to protect students.

In the meantime, Congress can take an important step and include a provision in the final version of the Higher Education Act Reauthorization legislation that is currently being drafted that would penalize states that reduce spending on higher education. Perhaps if states are forced to maintain a reasonable level of spending on their colleges, the institutions would stop being so willing to sell out their students to the highest bidder.

Lift the Veil

Stephen Burd — Thu, 03 Apr 2008 17:44:00 -0400

As Congress works to finalize legislation to reauthorize the Higher Education Act for the next five years, higher education lobbyists are making one last ditch effort to dissuade lawmakers from requiring colleges to provide even the most basic information about how they spend their own institutional financial aid dollars.

At issue are provisions in both the House and Senate reauthorization bills that aim to provide prospective students, their families, and policymakers with more detailed data about their aid policies, as well as other types of consumer information, such as graduation and retention rates. Both bills ask colleges to report the average amount of grant aid that the institutions award their students and the proportion of students who receive these grants. The House legislation goes a much-needed step further, and requires colleges to provide a breakdown by income of students who receive institutional aid.

The two bills also differ on how this consumer information is to be reported. Under the House measure, colleges would be required to provide the data to the Education Secretary who would then publish it on the U.S. Education Department's College Navigator website, which the agency hopes prospective students will use when picking colleges. In contrast, the consumer reporting provisions in the Senate bill would be completely voluntary. Colleges that chose to participate would publish the information on their websites, using a model form developed by the Education Department.

College lobbyists, not too surprisingly, favor the Senate's voluntary approach. "Institutions provide a substantial amount of data to the U.S. Department of Education through the Integrated Postsecondary Education Data System (IPEDS) each year, and we applaud efforts to assure that this information is used," the American Council on Education (ACE) wrote in a letter in late February to the leaders of the House and Senate education committees on behalf of itself and 13 other college groups. "However, many data elements specified in both bills are not currently collected through IPEDS in the form specified. Mandating that they be provided would create a significant new reporting burden for institutions."

If, however, Congress decides to make the reporting mandatory, ACE wrote, then it should "limit the data elements" required to those that the Department already collects through IPEDS. The groups know, of course, that such a limitation would continue to cloak colleges' institutional aid policies in mystery, as the Department currently asks the institutions little about how they spend their own aid dollars.

At Higher Ed Watch, we believe that colleges should be required to provide more detailed information about their institutional aid policies. The federal government, which spends tens of billions of dollars a year to help low- and moderate-income students gain access to college, has a right and responsibility to know whether institutions of higher education are helping or hindering public policy goals. Are colleges, for example, using the new influx of federal Pell Grant dollars that Congress and the Bush Administration have provided to supplement their own institutional financial aid and insure that low-income students don't have unmet financial need? Or are they using the new federal funding to replace institutional aid dollars they would have spent otherwise and using that money for other priorities, such as building fancy new dorms and athletic centers or providing merit aid to attract better, and often wealthier, students?

These are important questions for policymakers to be able to answer. Hopefully as lawmakers complete work on the Higher Education Act reauthorization legislation, they will stick to their guns and make colleges' financial aid practices more transparent. As we've said before, a little sunshine almost never hurts.

A Maintained Effort

Ben Miller — Wed, 19 Mar 2008 17:29:00 -0400

Behind closed doors, Members of Congress are battling over a key concept in the pending Higher Education Act reauthorization -- a House of Representatives generated requirement that states maintain steady fiscal support for higher education. Not only should Congress ensure this concept makes it through to President Bush’s desk, it should strengthen the requirement to make it more than a toothless accountability measure.

Under the House bill pending in a conference committee with the Senate, states would be required to maintain support for their higher-education systems at a level at or above the average funding for the previous five academic years. States would also have to provide a consistent level of spending on state aid for students attending private colleges within their borders. Failure to meet these “maintenance of effort” standards would result in the loss of some federal funding.

The Senate version of the legislaton doesn't contain a similar provision. As a result. it has become a major source of strife as lawmakers from both chambers meet to work out differences between the two bills. In fact, according to press reports, disagreements over this provision appear to be one of the main obstacles holding up completion of the legislation.

At Higher Ed Watch, we believe Congress should include this important provision in the final reauthorization measure. As we have stated previously, declining state support for higher education is the single most important force driving tuition increases at state colleges and universities, which educate over 75 percent of all post-secondary students. Federal policymakers, who are tired of increasing spending on federal student aid only to see their efforts squandered by large tuition increases, should use whatever leverage they have to make sure that states live up to their obligation to keep college affordable for their citizens.

Frankly, the House's maintenance of effort provision is relatively modest. Under pressure from state officials, House lawmakers agreed to exclude from the requirement both capital and research and development expenditures — funds that were initially included in the legislation. Capital expenses are a massive state expenditure (part of the $53.8 billion in state support for non-operating expenses, according to the latest figures released by the National Center for Education Statistics).

In addition, states don’t even stand to lose much money if they fail to meet the House's maintenance of effort standard. The funds at risk, the newly-created Grants for Access and Persistence, are authorized to receive an appropriation of $200 million. But because an authorized appropriation doesn’t actually compel Congress to provide funds, there is a good chance these grants could end up receiving only a fraction of this total, if anything at all. In other words, the stick is both small at best and far from guaranteed at that.

Still organizations representing state officials, such as the National Governor’s Association (NGA), remain intent on killing the provision. As part of that effort, the NGA has released an analysis claiming that requiring states to maintain consistent funding on higher education would lead to reduced state spending. The group argues that governors and legislators would not propose substantial increases in prosperous years, because they would be afraid that they wouldn’t be able to maintain that level of spending in leaner years. As the analysis put it:

“State higher education funding is cyclical: States freeze or slow the growth in spending during economic downturns, but more than make up for these lean years with significant increases of as much as 10 to 13 percent during good budget times.”

The NGA’s analysis, however, is only half right. States certainly do trim spending on higher education during lean economic times: According to a 2006 report by the Center for Study of Higher Education Policy at Illinois State University, each successive economic recession has led to an increase in the number of states reducing funding in this area. For example, during the 1980 recession, 26 states cut the amount they spent per college student. Ten years later, 38 states reduced higher education funding, and in 2001, 44 states did. If that trend continues, a 2008 recession would likely mean less money and higher tuition in almost every state in the country.

What states haven’t done, however, is return their support to the levels reached before those downturns. As reported recently by Inside Higher Ed, total state spending on higher education in the 2007 fiscal year was 7.8 percent lower than it had been five years ago, despite the fact that the economy did very well for most of that time period. How did public colleges fare in 2007 when the S&P 500 had a return of over 20 percent and the wealthiest college endowments did even better? State support went up a paltry 3.6 percent. If 2007 wasn’t the year for these rumored 10 percent increases, when will be?

Certainly not 2008. The weak economy has already led legislatures and governors in states such in Florida, New Jersey, and Rhode Island to propose or hint at multi-percentage point cuts in college funding, with other states sure to follow as budgets are prepared.

A drop in state funding will undoubtedly necessitate large tuition hikes at public colleges to cover costs. Just look at what happened in Maryland, where tuition increased by as much as 40 percent at some schools because of steep cuts by then-Governor Robert Ehrlich in the early 2000s.

Tuition hikes harm students from all income levels. A sudden increase in sticker price could scare away low-income students from ever enrolling and force those taking classes to drop out. Meanwhile, middle-income students would be forced to take on more and more debt — increasing the likelihood of ending up with a high-interest private loan.

Governors and state legislators have already shown a willingness to place a greater emphasis on tuition rather than state support during good years — education revenue from tuition and fees per full-time student is up 24 percent in constant dollars over the past five years. And that’s with “increased” state support. If that’s the price increase during bullish times, we shudder to think what levels tuition will hit in a bearish economy.

The House at least has already taken some action to address these fears with its maintenance of effort requirement. While the requirement is limited and the penalties are small, it’s at least a start. College students are being asked to pay their share. Congress made a major investment in need-based financial aid year, providing an additional $20-plus billion over the next five years. It’s time to ensure that states keep up their end of the higher education financing system. Budgets ought not be balanced on the backs of students.

Oversold?

Jason Delisle — Wed, 30 Jan 2008 00:00:00 -0500

In Kansas Governor Kathleen Sebelius's Democratic response to President Bush’s final State of the Union Speech Monday night, she touted a new law to “reduce the costs of college loans” as one of the major accomplishments of the new Democratic Majority in Congress. She was referring to enactment of the College Cost Reduction and Access Act of 2007, which among other things reduces interest rates on federally subsidized student loans. It was a big pat on the back for Congressional Democrats, who made cutting student loan interest rates in half a central part of their 2006 campaign. But Democrats should be careful not to oversell their achievement, as very few borrowers will get the full interest rate cut promised.

To be fair, under the new law, borrowers will also benefit from increased loan forgiveness for work in public service, substantially increased Pell Grant aid, and a decreased financial aid penalty associated with student work and savings. Indeed, the new law represents a significant increase in federal student aid. Higher Ed Watch has lauded it in the past.

The Fine Print

But when it comes to the much ballyhooed student loan interest rate reduction, take a look at the fine print. The College Cost Reduction and Access Act of 2007, signed into law on Sept. 27, 2007, does cut student loan interest rates in half. But it slowly phases in those cuts on new student loans only, achieving the promised 50 percent cut by the 2011-12 school year. After that date, interest rates on new loans revert back to the current fixed 6.8 percent interest rate. The cliff-like, expiration of budget policies is usually done to comply with (or avoid) budget rules, such as the fast-track procedure in Congress called reconciliation. That is the case with the interest rate cut, and it is also the reason why the 2001 and 2003 Bush tax cuts expire.

[slideshow]The College Cost Reduction and Access Act’s student loan interest rate reductions will take place in equal increments as outlined in the table below. Loans disbursed in each year shown will carry the reduced interest rate for the life of the loan. A freshman entering college in the fall of 2008 will have four sets of loans at four different interest rates. And no borrower will have more than one year’s worth of loans at a rate “cut in half” of what it was in 2006, because only those loans disbursed in 2011-12 carry the 3.4 percent interest rate. Loans issued in the 2012 school year revert to the current 6.8 percent rate. (Click here for an explanation of why the rate cut phases in and reverts back.)

The most a borrower could save under the new law’s interest rate cut is $216 a year ($3,240 over the life of the loan) on a maximum cumulative debt of $17,125 repaid over a 15 year period. That works out to $18 a month. Many borrowers will save less because they will not qualify for the maximum loan amount, or because they will enter college after 2008 and will not be able to take advantage of each year’s lower interest rates before they revert back to 6.8 percent.

…And More Fine Print

The interest rate reductions only apply to Subsidized Stafford loans, and only for undergraduate study. Unsubsidized loans -- which are similar to subsidized loans except they accrue interest while a borrower attends school -- will continue to carry the current rate of 6.8 percent. Borrowers can qualify for either federal unsubsidized Stafford loans or subsidized, or a mix of the two, depending on the adjusted gross income (AGI) of a borrower’s parents at the time he or she attends college and their school's cost of attendance. Currently, about two-thirds of Subsidized Stafford loan recipients come from families with an AGI under $50,000, while one-fourth come from families with an AGI between $50,000 and $100,000.

The Policy Problem

There is a fundamental issue with the interest rate cut. Eligibility for the reduced interest rates is calculated based on the pre-college income of the student's family, with no regard for the student's earnings after graduation day. Moreover, the borrowers who qualify for the loan will not benefit while in school, but over the 10 to 20 years the loan is in repayment.

The NCES Baccalaureate and Beyond Survey suggests that years after graduating, the incomes of students with subsidized Stafford loans and those with non-subsidized Stafford loans are the same. Therefore, the interest rate cut provides a subsidy to students who come from low-income families, despite the fact that over the years of repayment they earn just as much as the borrowers who did not qualify for the lower rate loans. Is anyone surprised? After all, college is supposed to equalize earnings and employment opportunities. In short, the lower rates are a poorly targeted subsidy.

In sum, the interest rate cut isn’t as much of benefit as advertised, nor is it targeted to those students who need it most, at the time when they need it most.

College Costs

Our Biggest Disappointments (With Final Higher Ed Bill)

Easing Restrictions on Trade Schools

Taking the Truth Out of Tuition Calculations

Keeping a Veil on Institutional Aid Policies

Growing Guarantor Roles

Leaving States to Define "Low-Performing" Teacher Prep

Ensuring that Default Rates Remain Toothless