(1) Social Insurance for College Costs

The families of undergraduates can borrow a minimum of $57,500 in federal Stafford loans.[1] Standard repayment for that level of debt equals approximately $660 per month, burdening young borrowers and constraining career choices. At no new cost, Congress can limit Stafford loan payments to 5 percent of post-college income so that young people "pay as they earn." Graduates would no longer be dissuaded from low-paying public service occupations. And those who attempt but do not complete a post-secondary degree program and land in low-paying jobs would be protected from crushing student loan debt. To finance the plan, Washington could increase government outlays by approximately $3 billion per year or shift the current in-school Stafford student loan interest subsidy into an improved post-graduation, income-contingent repayment benefit. Students would continue to be free from loan payments while in school, but interest would capitalize.

     Pros: Inspiring to youth (50 percent report career choices are constrained by student loan debt); middle class appeal; income-contingent repayment long favored by economists and higher education policy wonks over the in-school interest subsidy.

     Cons: Work disincentive; very high earning graduates will pay more per month, although not more over the long term, than under current law; suggested in-school interest offset is a benefit President Reagan unsuccessfully proposed to cut (use of the in-school interest subsidy as an offset can be characterized as ‘robbing Peter to pay Paul').

(2) Intern Scholarship Program

Each year, approximately 10,000 students cycle through Washington, DC as unpaid interns. They are overwhelmingly white and upper-income and often come from politically connected families. Congressional offices and others benefit from their unpaid labor. Interns receive an educational experience that bridges the gap between academia and practice and in addition get a leg up in accessing entry-level jobs upon graduation. Funded as a set aside through Congressional office management and administration allocations or as a separately authorized program, a modest stipend of $1,000 to $2,000 a month for low-income and minority interns would offset foregone earnings, help with expenses, and broaden access to public service. Funds could be directed to each Congressional office to sponsor Pell Grant eligible and minority students or driven to university-sponsored Washington internship programs with demonstrated records of expertise and experience in housing, placing, providing educational programs for, and overseeing Washington interns.[2]

     Pros: Supports expanded opportunity and diversity in public service; bridges the gap between academia and practice; low cost; tangible, constituent deliverable for Members of Congress.

     Cons: Small idea; Congressional offices can support an intern scholarship program with existing staff funds; creates another small federal education program.

(3) A "College Fund" for Every Student

Fifty states offer tax-preferred 529 College Savings Plans that primarily benefit upper-income families with disposable income to make tax-preferred contributions.[3] To make 529 accounts more progressive, however, several states including Michigan and Colorado, have instituted initial deposit, matching, and other features that encourage low-income family participation. Congress could build on these efforts by creating a personal "College Fund" for every needy 8^th grade student nationwide. Accounts cost as little as $25 a year to establish and could be seeded with federal GEAR UP funds, early Pell Grant funds,[4] or advance payment of the refundable American Opportunity Tax Credit.[5] As a default, all public funds should be placed in interest bearing, 100 percent secure Treasury bonds. In providing federal student aid early and through the mechanism of progressive 529 College Savings Plans, policymakers would heighten college aspirations, improve academic seriousness in high school, and leverage the benefits of tax-deferred growth. The 529 platform would act as a magnet for additional college savings, facilitating supplemental contributions by families, employers, religious groups, philanthropic organizations, and others. As per current law, 529 funds are dispersed only for post-secondary education expenses - at whatever age they're incurred - and can be transferred to dependents.[6]

     Pros:"Post-partisan" appeal to moderates; substantial support from investment houses; powerful financial literacy platform for high school students; facilitates early college awareness and academic seriousness in high school; relatively small cost.

     Cons:Bad economic environment to propose investment accounts; short time frame to enjoy compounded interest; fails to counter problem of runaway tuition.

(4) Bailout Accountability

With attention diverted by the $700 billion Troubled Assets Relief Program, little known is that Congress passed a separate, major student loan bailout law for the banking industry as well.[7] The student loan bailout gives the Education Department temporary authority to buy loans made by private lenders. In statute, Congress left the purchasing authority general in nature. In turn, the Bush administration gave lenders: a "put option" guaranteeing the sale of federal loans to the Education Department at an above market clearing price; a sweetheart line of federal credit as per "forward purchasing agreements" with a federal subsidy payment and federal guarantee against default on top as per underlying current law; and a commitment to purchase student loan asset-backed securities via a "commercial paper conduit." To date, the Department has issued no regulation governing reciprocal lender responsibilities. Congress should require lenders wishing to participate in the student loan bailout to agree to a series of warrants and covenants, such as: (1) limits on executive compensation and dividends; (2) a financial stake in participating for-profit companies like Sallie Mae and Nelnet; (3) limits on predatory private student loan marketing (e.g., lenders should have to make every reasonable effort to encourage borrowers to exhaust low-cost federal student loan options prior to assuming expensive private student loan debt); and (4) non-discrimination in lending against various sectors of higher education (JP Morgan Chase, for example, should no longer be able to deny federal student loans to community college students).[8]

     Pros: Protects taxpayers against fleecing; leverages student loan bailout funds for broad public interest; protects students against unnecessarily high interest private loans.

     Cons: Places new demands on a fragile banking industry; lenders will oppose and threaten to exit the student loan business.

(5) College Accountability

Students and families know it's critically important to go to college to get a good job, but they're limited in their ability to value a degree from any particular institution. Published rankings like those of US News & World Report pay significant attention to inputs and the top 10 percent of colleges and universities, but relatively little to outcomes and the vast majority of schools. The Department of Education can help. Congress recently required colleges to report their average net price after financial aid. A private website, Payscale.com, lists starting and mid-career salaries for over 300 institutions of higher education nationally. And the Department of Education knows the percentage of students leaving every institution who default on their student loans. Require the Department to expand and put the data together into a well-publicized value index, highlighting the best bangs for the buck and the biggest lemons. Or simply create a "lemon list" of schools that families should be warned about as risky financial investments. Similar to prescription drug advertisements and political campaign commercials, Congress could require a buyer beware warning prominently accompany all lemon college marketing materials. Example: "Warning: One in two 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 amounts of student loan debt to attend Acme College." To avoid being identified as a lemon, schools will be less quick to raise tuition and more interested in making sure their students get good-paying jobs.

     Pros:Consumer-oriented; cracks down on shoddy trade schools of which there are many examples; difficult to vote against a lemon law for higher education.

     Cons: Ex ante uncertainty as to which schools the Education Department will place on a lemon list; trade schools will portray the proposal as elitist; all college trade associations will portray the proposal as reducing higher education to an economic calculation; art and music schools will be at a particular disadvantage.

(6) Open University

Approximately 5 million adult workers displaced by global trade will need education and retraining over the next 10 years. There are millions of additional adults who have some college, but no degree-many of whom would like and should be encouraged to complete their studies. Modeled on Great Britain's 40-year-old and well-regarded Open University, Congress could seed a non-profit American Open University that provides low-cost, quality online education to undergraduate and graduate adult learners everywhere. Students would benefit from the flexible higher education course times and offerings associated with distance education programs. An American Open University would need to be seeded with $100 million over five years to begin operation and guarantee students access to financial aid. (Five years in, accreditation would attach, thereby enabling students to access the main federal financial aid programs.) Priority should be placed on proposals that partner with existing, accredited colleges and universities.

     Pros: Future-oriented, big idea; appeals to working class and professional adults wanting or needing to go back to school for undergraduate or graduate training; successful model in the existing Western Governors University started by Governors Roy Roemer (D-CO) and Mike Leavitt (R-UT); low cost.

     Cons: Traditional higher education community will oppose competition claiming inadequate quality assurance and duplication of both for-profit University of Phoenix and non-profit university distance education offerings (e.g., University of Maryland); United States Open University failed in 2001 when British financing was pulled before the school was accredited-a problem avoided here with seed financing.

Moderate Alternative: American Open University grant funds could instead be distributed to existing state colleges and universities to develop and expand distance education course and degree programs. Priority would be given for programs directed at degree and certificate completion for those adults with some prior college credit. This moderate alternative removes most of the traditional higher education community's expected opposition, but reduces visionary appeal.

(7) Debt Swap

In May 2008, Congress raised federal Stafford loan borrowing limits by $8,000 per student in order to provide a better option for those otherwise reliant on expensive private student loans. The increase in federal loan limits, however, only applies to new borrowers. Existing, out-of-school borrowers continue to be burdened by expensive private student loan debt with interest rates that reach in excess of 20 percent per year, far higher than unsubsidized federal Stafford loans that carry a 6.8 percent fixed interest rate. Moreover, unlike private student loans, federal Stafford loans come with deferment, forbearance, and other pro-borrower repayment options. Congress could make new federal Stafford loans available to all borrowers (out-of-school or in-school) who have existing private student loan debt and untapped Stafford loan eligibility up to the current federal borrowing limits. Old borrowers would have to use new Stafford funds to pay off existing private loan debt. The resulting "debt swap" would ease the financial burden associated with private student loans for existing borrowers and infuse liquidity into the private student loan market. A typical working or middle class borrower with $8,000 in private student loans would cut their average interest rate in half and save over $2,000 in interest payments over the life of a typical student loan.

     Pros:Middle class deliverable at no taxpayer cost (in fact, unsubsidized Stafford loans generate a small amount of savings due to a windfall profits provision associated with the Federal Family Education Loan program and the structure of the Direct Loan program); approximately 10 million borrowers eligible to receive help.

     Cons: Adds default exposure to federal books; moral hazard; relatively small amount of debt relief ($8,000) for borrowers; private student loan prepayment hurts fragile banks.

(8) Supplemental, Class-Based Affirmative Action

There are more legacies enrolled at elite institutions of higher education than low-income students. Only 8 percent of Harvard students, for example, are Pell grant recipients. Congress could authorize a $50 million incentive grant program for institutions of higher education in support of class-based affirmation action programs that supplement race-based preference policies. Schools would be free to use funds to develop supplemental, class-based affirmative action programs and provide financial aid in support of increased low-income student enrollment. A class-based admissions preference comparable in value to the more common legacy preference would increase low-income student enrollment at elite institutions by more than 50 percent, according to a recent Mellon foundation report.

     Pros: Defensive measure in response to anti race-based affirmative action state ballot initiatives; appeals to white, working class Democrats and non-liberal elites (e.g., New York Times' David Brooks and former Princeton President William Bowen are supportive); low cost; offers follow through to Obama's Philadelphia speech on race.

     Cons:Embraces identity politics; divisive; significant political problem with respect to low-income minority students: either they benefit twice (getting both a race and class based preference), which race-baiters may portray as Obama "taking care of his own" or low-income minority students are allowed to benefit only once, which the civil rights community could portray as a betrayal of race-based affirmative action.

(9) Target Aid on Needy Middle and High School Students

The federal government provides approximately $146 million a year in campus based aid to the 48 wealthiest private universities in the nation while dramatically underfunding the TRIO and GEAR UP early intervention programs for low-income secondary school students. The 48 wealthiest private institutions of higher education (one percent of the nation's total number of colleges) control over 50 percent of the nation's total post-secondary education endowment wealth. Each has an endowment in excess of $1 billion. The eight Ivy League colleges alone, which receive $35 million a year in federal campus based aid, account for one-quarter of nation's post-secondary education endowment wealth. These super wealthy institutions should fund campus based financial aid out of their own ample resources. They already enjoy generous support from the Internal Revenue Code as non-profit entities. Saved federal funds should redirected toward the TRIO and GEAR UP early intervention programs. In the future, should overall resources for federal higher education programs grow markedly, at that time the billion dollar plus endowment colleges should be eligible to receive Supplemental Educational Opportunity Grant, Federal Work Study, and Perkins loan capital infusions. Until then, scarce dollars are best directed to the neediest students unable to access support elsewhere.

     Pros: No cost; TRIO and GEAR UP have big constituencies and are popular with groups representing racial minorities and low-income communities; targeting of education funds tends to enjoy bipartisan support.

     Cons:Targeting can be portrayed as limiting access for poor students to elite institutions and "robbing Peter to pay Paul;" endowment wealth at elite schools is down due to the economic crisis; effectiveness of TRIO and GEAR UP have been questioned.

(10) Pell Grants, Not Refundable Tax Credits

There are at least 12 separate tax expenditures in support of higher education, almost none of which redound to the benefit of low-income families and community college students. To remedy that incongruity and promote college access, President Obama proposed a new, refundable American Opportunity Tax Credit that would be larger than and replace the existing HOPE Scholarship tax credit. Refundable tax credits, however, are difficult to administer, arrive long after tuition bills are due, and are not guaranteed to be spent fully on education expenses. Moreover, in the case of the HOPE credit, qualified education expenses do not include room and board expenses and are reduced for each dollar in Pell and other grant aid received. In the absence of reforming and consolidating all of the education tax credits, deductions, and other tax benefits, low-income students are best served by an increase in the maximum Pell Grant. Congress should continue the higher education tax credits for middle-class families, but in lieu of refundability grow Pell Grant funding. All Pell funds are dedicated to and spent on education needs. They're available for tuition, textbook, and room and board expenses and available when college bills are due.

     Pros: The Pell Grant is popular with the higher education community and a proven program; shifting the refundable element of the proposed tax credit into Pell facilitates the Obama campaign promise to ensure Pell funding keeps pace with tuition growth.

     Cons: Tax credits hold more bipartisan appeal than increased spending; future Pell funding is already growing as per the College Cost Reduction and Access Act of 2007 and American Recovery and Reinvestment Act of 2009.

[1] Traditional dependent undergraduate students may borrow up to $31,000 in Stafford loans. But dependent students whose parents are not eligible to receive a federal PLUS loan and independent students may borrow up to $57,500 in Stafford loans for their undergraduate education. Those eligible to receive a federal PLUS loan may borrow up to 100 percent of the cost of attendance.

[2] Existing internship programs are sponsored by Boston University, the University of Southern California, University of California Los Angeles, and George Washington University, among others.

[3] More than 7.3 million accounts exist with some $50 billion invested in a combination of government bonds and private securities.

[4] While a member of the U.S. Senate, Vice-President Joe Biden sponsored an Early Pell Grant demonstration program incorporated into the 2008 Higher Education Act reauthorization.

[5] Parents of middle-class 8^th grade students who make an early contribution with disposable income to their child's 529 College Savings account should be able to claim their tuition tax credit immediately upon deposit rather than subsequent to a tuition payment.

[6] Disbursement of President Obama's tuition tax credit funds can be conditioned on proof of community service as per the Obama-Biden campaign proposal.

[7] The one-year Ensuring Continued Access to Student Loans Act (ECASLA), passed in May 2008, was extended for a second year during the fall of 2008.

[8] Even if all 2,000 private and non-profit suppliers of federal loans went out of business because of economic concerns and aversion to the proposed warrants and covenants attaching to ECASLA, there is still zero danger that students would ever go without access to federal student loans. The Department of Education maintains its own federal loan delivery system, the Direct Loan program, which offers the same loans at the same interest rates as the bank based alternative. Further federal law establishes for the Federal Family Education Loan program, a "lender of last resort" backup system where federal capital is advanced to 35 guaranty agencies nationally so they can issue federal loans in the event of an emergency. In other words, the underlying ECASLA student loan bailout law is not and never was necessary to ensure continued student access to and participation in the federal college loan program. It was necessary, however, to ensure continued operation of a number of banks participating in the federal student loan program.