Office of Planning and Budgeting

Over the past few months, we have been following the Department of Education’s attempts to overhaul the controversial gainful employment rule legislation on this blog. This week, the Department moved closer to releasing a final version of the law. Its new set of draft rules is very similar to that released in December, in that individual programs would be judged on a set of debt-to-earnings ratios and a program cohort default rate (CDR).  Specifically:

  • For debt-to-earnings ratios, a program would fail if its graduates’ loan payments equal more than 12 percent of their incomes or more than 30 percent of their discretionary incomes.  If a program failed both the annual and the discretionary standards twice in three years, it would lose eligibility for federal financial aid.
  • For the program CDR, a program would lose federal aid eligibility if 30 percent or more of its graduates who entered repayment defaulted on their loans within three years.

As with the previous draft, these two tests would operate independently from one another, meaning a program that passes one would not be safeguarded if it failed the other.

Although this is all consistent with the previous draft, there were a few noteworthy changes, including:

  • In order for a program to be held annually accountable to the debt-to-earnings measures, it must have at least 30 graduates—rather than 10, which was in the previous draft. Smaller programs will still have data aggregated over four years, thus accountability isn’t removed for them, just delayed.
  • Instead of assuming a 10 year repayment period for borrowers across the board, the new proposal extends it to 15 years for bachelor’s and master’s programs, and to 20 years for doctoral programs.

As a result of these two changes, the new proposal is very similar to the 2011 law; however, the inclusion of the cohort default rate remains an important difference. The 2011 law was struck down by a judge because the default calculation used in the original rules was deemed “arbitrary and capricious.” The Department believes the new policy will be more resilient to legal challenges because it holds programs to the same CDR standards to which institutions are held by the Higher Education Act.

Ed Central provides a very thorough analysis of some of the more subtle changes, and is an excellent resource for additional information.

Secretary of Education Arne Duncan estimates that under these rules, roughly 20 percent of current vocational programs at for-profits and community colleges would fail and 10 percent would be in “the zone”—meaning a program would have to warn its students that it could become ineligible for federal aid.

As can be expected, the for-profit sector was strongly opposed to the new rules, claiming they would limit access and opportunity for the neediest students. Community colleges, however, were happy to see the proposal would allow “in the zone” programs to appeal if less than half of its graduates take on debt.

Now that the rules have been released, there will be a 60 day public comment period on the draft legislation. The Department hopes to release its final proposal in a few months.

2014 Sup Budget Comparison v2

*Although the conference budget cuts state funding by $7.3 million, it also reduces the amount employers can spend on benefits per employee per month to $622, which essentially offsets the cut.

† The $1,200,000 figure is an estimate until OFM sends additional instructions.

Yesterday, March 4th, President Obama submitted his fiscal year 2015 budget request to Congress. The Institute for College Access & Success (TICAS) has published their analysis of the budget as has the Education Policy Program at New America.

TICAS states that the President’s proposal “takes important steps towards making college affordable for Americans by reducing the need to borrow and making federal student loan payments more manageable.” Specifically, his budget:

  • Invests in Pell Grants and prevents them from being taxed.  The budget provides funds to cover the scheduled $100 increase in the maximum Pell award, raising it from $5,730 in 2014-15 to $5,830 in 2015-16. TICAS notes that although this increase will help nearly 9 million students, “the maximum Pell Grant is expected to cover the smallest share of the cost of attending a four-year public college since the program started in the 1970s.”
  • Makes the American Opportunity Tax Credit (AOTC) permanent.  TICAS supports making the AOTC permanent as they note research suggests the AOTC is the most likely of the current tax benefits to increase college access and success.  New America, however, recommends the administration convert the tax credit to a grant program as they state researchers have found grants to be a more effective way to deliver aid to low-income families.
  • Improves and streamlines income-based repayment (IBR) programs. Under the President’s budget, more borrowers would be eligible to cap their monthly payments at 10 percent of their discretionary income and have their remaining debt forgiven without taxation after 20 years. The budget also adjusts the IBR programs to prevent debts forgiveness for high-income borrowers who can afford to pay their loans.
  • Requests funding for the College Opportunity and Graduation Bonuses.  The budget proposes establishing College Opportunity and Graduation Bonuses, which would reward schools that enroll and graduate low-income students on time. Both TICAS and New America note that, unless this proposal is thoughtfully designed, it could incentivize schools to lower their academic standards in order to make it easier for Pell students to graduate. Further, as this proposal is one of several different efforts to reward colleges that provide affordable, quality educations, it is unclear how its goals and formulas would interact with those of initiatives like the Postsecondary Education Ratings System.

The UW’s Federal Relations blog notes that the budget also proposes $56 billion for an “Opportunity, Growth and Security Initiative,” which “aims to effectively replace the remaining FY2015 sequestration cuts for nondefense discretionary programs – the programs we care about the most.” Please stay tuned to their blog for more information and updates.

We have updated the OPB brief we posted on February 27th, to reflect additional information regarding the employee health insurance related agency reductions. Both the House and Senate budget would decrease agency contributions for employee health benefits. The House budget cuts state funding by $7.6 million and the Senate budget cuts state funding by $4.4 million. However, both of these reductions are offset by lower per employee spending “limits” on benefits. The House budget would reduce monthly employer funding to $658 per eligible employee. The Senate budget would reduce monthly employer funding to $703 per eligible employee.

As you may have heard, President Obama recently announced his “Increasing College Opportunity for Low-Income Students” initiative, which aims to help more low-income and underrepresented minority students attend and complete college. On January 16th, the White House hosted a summit of the more than 100 colleges, universities, nonprofits, and foundations that made commitments to increase college opportunity. The Chronicle provides a detailed, sortable list of these commitments.

News coverage of the summit and the initiative includes the following:

After years of budget cuts, most higher education lobbyists across the country expect flat or slightly increased funding for higher education during upcoming state legislative sessions. According to a survey by the American Association of State Colleges and Universities, three-quarters of states increased spending on higher education by more than 3 percent in the current fiscal year. Despite these efforts, funding for public colleges and universities is still well below 2008 funding levels. Many experts believe that this may be the new normal—with continued economic uncertainty and many other programs, such as Medicaid, K-12 education, or state pensions, competing for the state’s resources, higher education may have to make do with less.

For those states that are increasing funding for higher education, the money is often coming with more strings attached. About 20 states have implemented performance-based funding, which ties state dollars to the accomplishment of certain goals, such as an increased graduation rate, lower student debt, or more STEM majors. Some states, including Washington, are also limiting tuition increases or requiring universities to divert more money to financial aid. While many higher education administrators welcome the chance to improve institutional efficiency and student outcomes, they are also wary of legislators setting unrealistic goals or failing to appreciate the complexity of their institutions.

Washington seems to be following the national trend, both in the expectation of flat or moderately increased funding in the coming session and in the likely adoption of performance-based funding. Governor Inslee’s proposed supplemental budget includes some modest funding for select UW initiatives, but no across-the-board increase. The public institution-led Technical Incentive Funding Model Task Force is exploring ways to implement performance-based funding in Washington. To read more about either of these, check out our blog post on Governor Inslee’s supplemental budget and the Technical Incentive Funding website. To learn more about state budgets and performance funding nationally, check out this article in the Chronicle of Higher Education and this piece in Inside Higher Ed.

Now that news sources are back from their holiday hiatus, we have a couple of noteworthy stories to bring you.  Both articles highlight the continuing trend toward greater accountability.

Florida’s new rules linking tenure with student success are upheld:  Last week in Florida, a judge upheld new rules by the State Department of Education that require tenure decisions—known in Florida as “continuing contracts”—to be contingent upon professors’ performance on certain student success criteria. The judge also upheld a new requirement that faculty must work for five years, rather than three, before being eligible for the contracts. The United Faculty of Florida had contested that the new rules were beyond the scope of the department’s powers, but the judge rejected that claim.

Senators propose penalties for colleges with high student-loan default rates:  On Thursday, three Democratic senators introduced a bill dubbed “the Protect Student Borrowers Act of 2013,” which would impose a fine on colleges with high student-loan default rates and federal student-aid enrollment rates of at least 25 percent. Penalties would be on a sliding scale. On the low end, colleges with default rates of 15 to 20 percent would incur a fee equal to 5 percent of the total value of loans issued to their students in default. On the high end, schools with default rates of 30 percent or more would incur a 20 percent penalty.  The Education Department currently cuts off federal funds for institutions with high default rates, but the senators argue it punishes only “the most extravagant, outrageous schools.” The Chronicle writes, “The proposed legislation would hit for-profit institutions the hardest, as their graduates have the highest default rates, on average.”

Student Exchanges Hit Record High.  According to the Open Doors Report on International Educational Exchange, the number of international students at U.S. colleges and universities and the number of American students studying abroad are at record highs. In 2012-13, 820,000 foreign students attended American higher ed institutions, a 55,000 increase (7.2 percent) from the previous year. Chinese undergraduates exhibited the biggest increase, 26 percent, bringing the total number of Chinese students studying in the U.S. (undergraduates and graduates) to 235,000. In 2011-12 (the most recent year for which data are available) 283,000 American students went abroad for credit university courses, up 3.4 percent from the prior year.  For institutions hosting the most international students, the UW ranked 14th in the country.

New Studies Cast Doubt on Effectivenessof State Performance-based Funding.  Now that economies are recovering from the Great Recession, state legislators across the country have been hurrying to adopt systems that link state funding for higher education to student outcomes like degree production and completion rates. However, several research papers presented at the annual meeting of the Association for the Study of Higher Education question the effectiveness of these “performance-based funding” systems. See Inside Higher Ed for a summary of the findings.

College Completion Rates See Little Improvement.  College-completion rates remained largely unchanged this year, according to the National Student Clearinghouse Research Center. Of the first-time students who entered college in fall 2007, 54.2 percent earned a degree or certificate within six years—up 0.1 percentage points from the 2006 cohort. In the public sector, completion rates rose by 1.3 percentage points for students who started at public four-years and by 1.1 percentage points for those who began at public two-years. Unlike the federal government’s college-completion measure, the center tracks part-time students and students who transfer to a different college, sector, or state. Only 22 percent of part-time students earned credentials within six years, compared with 76 percent of those enrolled full time. The research center will issue its full report next month.

University of Michigan’s Shared Services Strategy Faces Opposition.  The University of Michigan is the latest campus to implement “shared services,” a cost-saving strategy that has academic departments rely on centralized staff, rather than department-level staffers. Theoretically, employees in the central pool could become more specialized, and thus more efficient, than departments’ jack-of-all-trades staff. Administrators at Michigan hoped to save $17 million by moving 275 staffers from their campus offices to a single building on the edge of town. However, not only are faculty and students speaking out in opposition, the plan is no longer expected to save nearly as much as once hoped and may barely break even in the short term. Read more at Inside Higher Ed.

Consumer advocates applauded the Department of Education’s second—and substantially more stringent—set of draft regulations for the “gainful employment” rule, released on Friday. They claim the metrics, which apply to vocational programs at for-profit institutions and community colleges, will better measure the program’s loan default and repayment rates. Programs that do not meet the Department of Education’s standards under the gainful employment rule will lose federal student aid eligibility.  

The Department of Education’s initial regulatory language, released in September, included two measures of debt-to-earnings ratios for graduates of vocational programs. However, these measures did not require the institutions to report debt-to-earnings ratios for students who dropped out of the program without earning a degree—an oversight that critics of for-profits believed would be misleading.

The new regulations would include a loan default ratio metric, as well as a measure of repayment rates across an academic program’s “portfolio” of loans. The law would require that the total principal balance of loans borrowed for an academic program is less at the end of the year than it was at the beginning. The measure will therefore capture repayment rates both for students who earn a credential and those who do not.

For-profit supporters are critical of the new language, saying their ideas and suggestions for crafting a metric for gainful employment were not taken into account. They claim that the new rules, if implemented, could deny needy students access to vocational programs that may help them get better jobs. Critics of for-profits counter that the rules will help students make more informed decisions about the likelihood that they will be able to repay their loans, as well as ensure that institutions that receive federal aid dollars are offering high-quality degrees.

While the gainful employment rule applies only to vocational programs at for-profit institutions and community colleges, President Obama’s proposed ratings system, which would tie federal financial aid funds to performance metrics, applies to all institutions that receive federal dollars. If implemented, the ratings system would hold all institutions accountable to similar standards—a prospect that worries many administrators who claim they cannot control their students’ career success or the labor market.

The second round of negotiations on the gainful employment rule begins this week. As always, we will keep you posted on their progress.

UNC institution may cut physics, political science, history

Elizabeth City State University, a historically black college in North Carolina, may discontinue its physics, political science, and history degree programs because they are considered “low productive.” Many higher education leaders are alarmed by this move, claiming that history education is fundamental to American higher education, particularly at a historically black university in the South. Read more about the potential cuts here.

Complete College America analyzes states’ performance funding models

Complete College America, a proponent of linking state funding for higher education to student outcomes like degree production and completion rates recently released a report that details and scores how states are implementing performance-based funding formulas. Sixteen states currently have performance funding strategies; the majority account for universities’ unique missions and reward institutions  that help underserved student populations succeed. The report argues that there is now enough knowledge about how to implement a successful performance-based funding program that such strategies could be adopted nation-wide. Check out this Inside Higher Ed article for more.

Coursera and U.S. government partner on world-wide MOOC service

One of the largest MOOC providers, Coursera, announced on Thursday that it is partnering with the federal government to establish “learning hubs” around the globe, where students can access MOOCs and attend weekly, in-person class discussions facilitated by local instructors. The learning hubs are intended to remedy the lack of reliable internet in certain countries as well as address the growing opinion that students are more successful when they discuss classwork and meet with their teachers in person. Read more at an article by the NY Times.

Flipping the classroom may have its limits

Flipping the classroom, a practice in which students listen to pre-recorded lectures at home and then engage in hands-on learning exercises in class, has gained popularity and esteem as a way to improve student performance. However, an experiment at Harvey Mudd College compared the outcomes of students in flipped STEM courses with those of students in traditional STEM courses and found no demonstrable differences. Professors also claimed they spent much more time preparing for the flipped classes (creating videotaped lectures and engaging classroom activities) than they had preparing for traditional classes. The findings are still preliminary, and the sample at Harvey Mudd is very small. The study could, however, highlight the fact that flipped classrooms may not be well-suited for every  context or class type. Certain conditions are likely to produce better results than others. Read more here.  

UC President announces aid for illegal immigrants

Janet Napolitano—former Secretary of Homeland Security and current president of the University of California (UC)—said Wednesday that the UC system would put $5 million toward special counseling and financial aid for students living in the country illegally. The NY Times reports the move is “aimed at disarming critics who worried she would be hostile to the small but vocal student population.”

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