Federal Grants

Bush Budget Questions

Ed Policy — Tue, 05 Feb 2008 00:00:00 -0500

Higher Ed Watch has some questions for the Bush administration about its Fiscal Year 2009 higher education budget: [slideshow]

1) The Federal Family Education Loan (FFEL) program and the Direct Loan program show similar per loan costs for 2008 and 2009, with the FFEL program showing a slight cost advantage for the first time. However, page 364 of the Budget Appendix notes that costs are higher for the Direct Loan program, because it holds nearly 100 percent of student loans that have defaulted (under FFEL and Direct Loans) and have been rehabilitated through consolidation.

Can per loan program costs be accurately compared when high-default risk FFEL loans are dumped into the Direct Loan program? If OMB and the Department of Education corrected cost estimates for this bias, how would the costs change? Which program would be cheaper for taxpayers if costs were controlled for borrower differences?

2) Federal funds held by state guaranty agencies used to pay loan default claims under the Federal Family Education Loan (FFEL) program nearly doubled to $1.1 billion in 2007 from $579 million in 2006. Are the federal funds held by guarantee agencies in excess of what is needed to pay default claims, and if so, would the administration recommend recalling those funds?

3) The budget proposes a change in the eligibility rules for the new Loan Forgiveness for Public Service Employees program created under the College Cost Reduction and Access Act last year. Borrowers who pursue public service careers and begin loan repayment after October 1, 2007 are eligible to have the remaining balance of their loans forgiven after 10 years. The benefit is available to Direct Loan borrowers and Federal Family Education Loan (FFEL) borrowers who refinance into direct lending.

The budget request would limit eligibility to new borrowers who take out loans after October 1, 2009. If the proposal is enacted, how many borrowers now eligible for public service loan forgiveness will lose eligibility? And what types of shifts in the loan volume does the administration foresee between direct lending and the program that the administration cites as the need for the change in eligibility rules?

4) The loans for short-term training proposal would create a new and relatively small loan program, subsidizing $362 million in loans in 2009 to help dislocated and unemployed workers obtain training. Given the administration’s overarching goal of reducing smaller and duplicative education programs, why not use existing student loan programs for the goal of helping workers access short-term training instead of establishing a new program administered by two agencies (the Departments of Labor and Education)?

5) The budget includes a $652 million cancellation of the $960 million Congress has made available for the Academic Competitiveness and SMART Grant programs, citing insufficient program participation rates. Why are participation rates in the ACG and SMART grant programs not high enough to use all available funding, and does the administration recommend any action to increase participation? Also, the programs expire after the 2010-11 academic year. Does the administration have a position on whether they should be extended?

6) The administration is proposing a new higher education tax credit worth up to $1,000 annually on contributions to 529 college savings plans, while maintaining other overlapping higher education tax benefits. Four years ago the administration wanted to "revise and simplify" rules regarding the three largest existing higher education tax credits. Why has the administration abandoned the goal of tax credit simplification, and what steps will be taken to ensure the 529 credit does not make the interaction between the higher education tax credits more confusing?

Bonus Question

** Did Senator Pell's family consent to use of his name on a private school voucher proposal? Were they even asked?

For all of the New America Foundation's Federal Education Budget Project questions on the FY09 Bush Education Budget, click here.

A Wobbly Stool: Turning Student Loan Default Rates into a Better Quality Measure

Ben Miller — Thu, 24 Jan 2008 00:00:00 -0500

The House version of legislation to reauthorize the Higher Education Act contains language that proposes to change how student loan defaults are calculated, a move that could have serious implications for schools and students’ access to federal student aid. This is a welcome change to the current shaky three-part system of accountability that fails to provide good information about the absolute and relative quality of a school’s education.

The Current System

The absence of national examinations leaves only three things with enough teeth to effectively judge colleges that are not meeting desired standards for higher education: (1) accreditation, (2) licensure, and (3) loan defaults. Failure to meet these requirements can cause the school to lose the ability to receive federal funds — meaning all its students will be denied Pell Grants, Stafford Loans, and other forms of aid. Unfortunately, these measures do little more than guard against diploma mills or fake schools, indicating nothing about the quality of an individual institution.

Accreditation appears to be the strongest of the three legs of this accountability stool, but in practice it is little more than a rubber stamp. To be accredited, an accreditation agency, which is typically one of six regional groups, looks at a school’s resources and goals. Yet, as a July 2007 report by the American Council of Trustees & Alumni points out, these visits generally consist of little more than seeing if a school is meeting certain inputs, such as enough highly-qualified faculty. Accreditation agencies pay little to no attention to the outcome-oriented measures.

State licensure operates in a similar manner to these regional accreditation bodies with universities required to meet certain benchmarks set by their state. In many respects, state licensure is even easier to meet than accreditation standards, as the requirements are only on the local level.

Of these three standards, loan default rates are by far the most complex, yet also possibly the best measure of quality. The Department of Education calculates the percentage of students repaying federal loans from every given graduation year, known as a cohort, that default on those loans within two years of leaving school (for example, the 2005 cohort is measured in 2006 and 2007). Defaults in the third year or later are not counted.

Schools with more than 30 individuals in a given repayment cohort are subject to sanctions if more than 10 percent of a cohort defaults. A default rate of 40 percent in a given year or 25 percent for three consecutive cohorts results in the school losing access to federal funds.

The connection between cohort default rates and quality is not as obvious as regional and state accreditation, but it plays just as important a role. Since students can defer payments due to certain forms of hardship, defaulting on a loan is a sign that a student took on too much debt or could not obtain a job that allowed him or her to meet monthly payments. A large number of students in default thus can expose a school as being overpriced, poorly preparing its students for the working world, or both.

Despite their utiltiy, default rates are also a weak accountability measure in their current form. As our colleagues at Education Sector point out, it takes some time for a loan to officially default, meaning that the two-year window really only reflects students who make no payments on their loans.

A Welcome Change

Within the House reauthorization of the Higher Education Act there is a provision that would extend the cohort default rate measurement window (page 91) by another year, meaning students that default any time in their first three years after graduation will be counted for accountability purposes.

An analysis of default rates by the Department of Education found that a longer-term snapshot could show that default rates are as much as 60 percent higher than with the two-year window. Under the proposed change, public schools would see their average default rate go from 4.7 percent to 7.2 percent, while private schools would edge up to 4.7 percent from 3.0 percent.

The biggest increase, however, would be at for-profit institutions, which would see their average default rate increase from 8.6 percent to an estimated 16.7 percent. Even more troubling, though, is the fact that were the cohort window extended to four years, for-profit colleges would have an average default rate of 23.3 percent. In other words, after four years, one out of every four for-profit students would likely have defaulted on their federal student loans.

The Career College Association, an organization of vocational private schools, is opposing the House provision (click on Background Information), claiming that defaults far into the future have "little to do with [the student’s] education and more with their personal behavior and responsibility, or the lack thereof." The group goes on to claim that socioeconomic status is the highest indicator of default and that institutions enrolling lower-income students are thus likely to have higher default rates.

Even taking this argument into account, the projected for-profit default rates are still much higher than community colleges and other public institutions that enroll a large number of low-income students. For-profit default rates with a four-year window would still be seven percentage points higher than two-to-three year public schools.

This raises some troubling questions about for-profit colleges, such as whether students may be taking on overly high levels of debt to pay for programs that carry little value in the job market. It adds credence to the assertion that for-profit schools’ unscrupulous admissions and marketing policies are having long-term detrimental effects on their students.

When nearly one-fourth of a school’s graduates default on their federal student loans, it’s not a sign of individual flaws. It’s a troublesome indicator of an institution that is failing its students. If Congress wants to actually measure the quality of an institution, it needs to adopt the three-year window and strengthen at least one part of these supposed accountability measures.

A Good Year for Pell Grants, A Great Year for Earmarks

Ed Policy — Thu, 29 Nov 2007 00:00:00 -0500

When Congress returns from its recess next week, unfinished fiscal year 2008 education funding legislation will be high on the agenda. Fiscal year 2008 began on October 1 and funding subject to appropriations for the fiscal year has…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Questions about TEACH Grants

Ed Policy — Thu, 18 Oct 2007 01:00:00 -0400

We've reported extensively on the reconciliation bill passed by Congress earlier this month and its student aid provisions that shift taxpayer subsidies from lenders to students. But, like all major pieces of legislation that go through Congress, this one has a lot of moving parts, some of which have received…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Roundup: Week of October 8 - October 12

Ed Policy — Fri, 12 Oct 2007 01:00:00 -0400

Hillary Clinton Includes Two New America Policy Proposals in Her Education Plan

Two New America policy proposals: required multi-year tuition levels and greater use of endowments to

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Paging Dancing with the Stars: Federal Student Aid Needs Help

Ed Policy — Thu, 11 Oct 2007 01:00:00 -0400

There's been discussion in Congress recently about how the tax code can be better used to encourage college attendance among low-income students. One proposal being considered by the Senate Finance Committee is to make higher education tax credits refundable - and thus available to people who now do not benefit…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Pell Grant Funding Up in the Air

Ed Policy — Thu, 04 Oct 2007 01:00:00 -0400

While the threatened showdown between Congress and President Bush over the College Cost Reduction Act never materialized, a different fiscal fight between the two branches of government is looming, this one over annual appropriations spending bills.

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Tough Choices Ahead on College Aid Plan

Ed Policy — Thu, 20 Sep 2007 01:00:00 -0400

The massive college aid bill that Congress passed earlier this month is headed to the President for signature. As the newest member of the Higher Ed Watch team and a budget hawk, I thought I would point out some of the loose ends that are going to have to be…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Merit Aid Explosion?

Ed Policy — Thu, 13 Sep 2007 01:00:00 -0400

Last week, Congress approved legislation that would transfer more than $20 billion over the next five years from over-subsidized banks to need-based student financial aid. The primary beneficiaries of the legislation are low- and middle-income students whose abilities to enroll in and complete college are restricted…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.

Showdown Looms on Student Loans

Ed Policy — Thu, 06 Sep 2007 01:00:00 -0400

Congressional Democrats took a bold step on Wednesday to fulfill their campaign promises: finalizing legislation that would cut the interest rate on federally subsidized student loans in half and provide a major boost to the maximum Pell Grant. The measure, which is expected to be approved in…

Note: This post pre-dates Higher Ed Watch's shift to a new publishing system. For the complete original post, including any comments, please click here.