Office of Planning and Budgeting

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.

As of last Thursday, select California community colleges can charge differential tuition for their most popular extension courses. California’s Governor Jerry Brown supported the bill as an “experiment” that would give a limited number of colleges some flexibility to offer more sections of their most popular courses. The system, which has suffered many years of deep budget cuts, currently turns away as many as 600,000 students because colleges cannot afford to offer enough courses to accommodate them.

The new California law allows six community colleges to charge students for the “actual” cost of the courses, including instruction, equipment, and supplies, rather than the heavily subsidized $46 per credit that they currently assess. The rates are expected to be more than three times higher than the current rate for residents. In order to participate in the program, the colleges must be over-enrolled and the new sections they offer cannot replace the original class. The original class must maintain the current tuition rates, but if the course is full, new sections of the course can be more expensive. The law also requires that a third of the revenue gained from the extension courses be returned back to financial aid.

Critics of the program believe that the law is a first step towards eroding California’s strong commitment to affordable and accessible community colleges. They argue that this program is merely a “toll road for the economically privileged” that will put low-income students at a severe disadvantage. Supporters counter that the program, at the very least, expands access to popular courses and, at best, might even help low-income students because of the 33 percent return-to-aid requirement.

To read more about the program, check out this Inside Higher Ed Article or read the law itself.

On Tuesday, the U.S. Supreme Court appeared to be in favor of upholding a Michigan referendum, known as Proposition 2, which banned the use of affirmative action in the state’s public colleges and universities. The case, Schuette v. Coalition to Defend Affirmative Action, is not about whether it is permissible for public colleges to consider race and ethnicity in admissions, but whether it is legal for voters to bar such consideration. For background information about this case, please see our previous post.

Tuesday’s arguments focused primarily on a piece of the Equal Protection Clause, known as the “political process doctrine,” which states that political processes cannot be altered in a way that puts minorities at a disadvantage. Opponents of Proposition 2, contend that, under the measure, minority groups who want to reinstate affirmative action must launch a difficult and expensive campaign to re-amend the state constitution, whereas Michigan citizens seeking changes to other university admissions policies are free to simply lobby university regents. This, they argue, places an unfair and disadvantageous burden on minorities.

Swing vote, Justice Anthony M. Kennedy, expressed doubts about whether Proposition 2 truly violates the political process doctrine and only two liberal members of the court voiced major criticisms of the Michigan measure. Thus, with Justice Elena Kagan recused from the case, the numbers point toward the court upholding Proposition 2. Such a decision would effectively preserve similar bans adopted by voters in Arizona, California, Nebraska, Oklahoma, and Washington; by lawmakers in New Hampshire; and by the public university governing board in Florida. In addition, it could theoretically embolden campaigns for similar ballot measures
elsewhere.

While it seems clear the Justices will rule in favor of Michigan, it is less clear whether the Justices are interested in reversing the political process doctrine, which dates back more than 40 years. In 1982, for example, the justices ruled against a Washington referendum that attempted to prevent Seattle from using a local busing program to desegregate schools. NPR reports that Michigan Solicitor General, John Bursch, “urged the Supreme Court to reverse the Seattle decision and others like it, if necessary.”

We’ll post updates as more information becomes available.

In anticipation of last Monday’s “Pay It Forward” working conference in Philadelphia, national education groups and nonprofit organizations released a joint statement opposing the proposal. The joint statement is available here. For more information about PIF, please review our post about Oregon legislation requiring “consideration” of a “Pay It Forward, Pay Back” pilot. A comprehensive brief about the proposal’s UW application is available here.

Last week, the College Board released its 2013 Report on College and Career Readiness, which found that the percentage of students who are unprepared for college-level work has remained essentially unchanged for the past five years. According to the College Board, only 43 percent of graduating seniors in 2013 had achieved their “SAT College and Career Readiness Benchmark,” defined as scoring a 1550 or above on the SAT. While there have been some achievements—more minority students are taking the test, and both African-American and Hispanic students are scoring higher—scores are not improving on the whole.

In order to improve students’ college readiness, College Board president David Coleman believes the College Board must partner with schools to implement the Common Core, a set of standardized guidelines detailing what students should learn in each grade. He believes this will help students be better prepared both to take the SAT and to perform at the college level. In addition, the College Board is considering making changes to the SAT. According to a Kaplan Test Prep survey, more than 72 percent of college admissions officers think the SAT should change in order to be better aligned with high school curricula, correct perceived socioeconomic and cultural biases, and make the writing section more relevant. Coleman has promised to address these concerns with an overhaul of the SAT in 2015, which will include a stronger emphasis on analysis, a revamped writing section, and more curriculum-based questions.

As the College Board makes changes to the SAT, the test is becoming ever more similar to the ACT—its biggest competitor—which overtook the SAT in market share for the first time last year, according to the NY Times.  The ACT, which is known for more straightforward questions, emphasizing grammar and mechanics over vocabulary, and testing curriculum-based content, has also made some changes in recent years. The test is now available in a computer-based format and features some free response questions in which students carry out virtual experiments and detail their observations. Experts believe the SAT will likely move towards a computer-based delivery system with its revamp in 2015, and many hope the writing section will be optional, as it is on the ACT.

To read more about the coming changes to the SAT, check out this New York Times article. To read the College Board’s report, please click here.

On Monday, the U.S. Education Department (ED) began formal negotiationson the draft language of a proposed new  “gainful employment” rule. The rule, originally published in 2011, was designed to enforce a requirement of the Higher Education Act that states career education programs—non-degree programs at all colleges and most degree programs at for-profit colleges—must “prepare students for gainful employment” in order to participate in federal student aid programs. The rule was meant to discourage these programs from misusing federal aid dollars and leaving students with debts burdens they are unable to repay. However, in 2012 a federal judge rejected major provisions of the rule, requiring that ED rethink its strategy.

Here’s a summary of the changes:

  • The proposed rule applies to programs with as few as 10 students, whereas the old rule counted only career-focused programs with 30 or more students. Because of this change, ED estimates that the new rule could cover 11,359 programs at for-profit and nonprofit colleges—nearly twice as many as the old rule covered—and that 974 of those programs (9 percent) could fail to meet the proposed standards.
  • The draft regulation omits loan-repayment as a criterion for federal student aid eligibility. The old rule severed federal aid to programs where too few students were repaying their loans or where graduates’ debt-to-earnings and debt-to-discretionary-income ratios were too high. The new rule removes the loan repayment standards, which the courts deemed “arbitrary and capricious,” and relies only on the latter two measures.
  • Debt-to-earnings calculations would be based only on students who receive federal aid, rather than students who complete the program. The old calculations were based on all students who completed the program, whereas the proposed calculations are based on any students who receive federal student loans and Pell Grants, regardless of whether they complete the program. As the rule is designed to ensure that federal aid is used effectively, this seems a more appropriate approach. 
  • Schools would have fewer chances to improve their performance before losing federal aid eligibility. Under the previous rule, programs that failed the measures in 3 out of any 4 years would be ineligible for federal student aid. However, the new rule only lets programs fail in 2 out of any 3 years before they lose eligibility.

For details, see a comparison of the two versions prepared by the Education Department.  Please continue to follow our blog as well as the Federal Relations blog for updates on this topic.

(This piece was originally posted on 07/11/2013, however it was lost due to technical issues and is therefore re-posted here.)

Last week, the Oregon legislature passed a bill that, if signed by the governor, will implement a pilot program to study the effects and feasibility of substituting upfront tuition payments with income-based, post-graduation payments. For 24 years after graduating, four-year college students would pay back 3 percent of their income and community college students would pay back 1.5 percent. Students who do not graduate would pay back a smaller percent determined by how long they were in school.

If, after several years of study, Oregon decides to adopt a plan (or some form of it), it would signify a major shift in the funding paradigm for public institutions. But that’s a big IF. The plan has received considerable criticism due to a multitude of unanswered questions that could pose significant logistical barriers. For example:

  • How would institutions and/or the state pay for the plan’s implementation (i.e. the several years of foregone tuition revenue between when a student enters school and when they graduate and start earning pay)?
  • How would the state efficiently collect accurate income data on students who move out-of-state?
  • How would the state go about collecting and enforcing payments?
  • How would the plan account for and apply to part-time students, transfer students, mid-career students, and other non-traditional students?
  • How would the plan work with federal and state financial aid programs? Would low-income students be accommodated so as to avoid creating barriers to entry?
  • How does one pilot a 24-year repayment program in just 2 or 3 years?

Even if Oregon’s higher education commission, which is tasked with implementing the pilot program, can find viable answers to those questions, the plan still has a number of possible (if not likely) negative consequences. For instance, the plan may:

  • Magnify the public’s view of higher education as a private good (only benefiting the individual) rather than a public good (benefits for many) which, in turn, could spur the continuing and problematic trend of replacing state dollars with tuition revenue;
  • Make institutions even more vulnerable to economic variations and recessions as their revenue would be tied to graduates’ earning and unemployment rates; and
  • Create social and economic imbalance between Oregon and other states since students who expect to earn less—e.g. social science and humanities majors—would be incentivized to go to Oregon, and students expecting to earn more—e.g. engineering and medical students—would likely go elsewhere.

Granted, the idea of basing college payments on graduates’ income is not a new one. Some federal student loans are eligible for income-based repayment and a program similar to Oregon’s already exists in Australia. However, Australia’s version is administered at the federal level, meaning many problems inherent in Oregon’s plan (tracking students who move around the country, imbalance between states, etc.) are avoided.

The Economic Opportunity Institute, a liberal think tank in Seattle, proposed a version of the plan for Washington in October 2012; but, unlike Oregon’s version, it has yet to go anywhere.  We’ll keep you posted.

Last week, President Obama toured several colleges and universities promoting his plans to make college more accessible and affordable for “middle class” students. As he noted during several stops, achieving a higher education remains one of the most critical means by which citizens achieve job security and financial  stability.

For more detailed information about the central themes of the President’s plans, as well as information about which components require action from Congress, please review a brief on the topic, as well as a blog from Federal Relations. Read more about the plans here and here.

 

In “For Public College, the Best Tuition Is No Tuition,” a recent opinion piece published by The Chronicle, the author describes the merits of Finland’s no-tuition education system. In Finland, “all education became public and free” during the 1960s as part of a multipronged strategy to reform and improve education. The other prongs of the strategy involved strengthening the country’s basic education by providing teachers with better pay and training, ensuring that students have individual attention at a young age, and by making education more interactive and experience-based. Forty years later, the country ranks 1st in Pearson’s Global Index of Cognitive Skills and Educational Attainment, which is based on results from a variety of international tests of cognitive skills as well as measures of literacy and high school graduation rates. The US ranked 17th. Though the accolades go to Finland’s basic education system, the author concludes that the US should model its higher education system after Finland’s. However, a higher percentage of the US’s population has attained tertiary education (42 percent, ranked 5th, versus 39 percent in Finland, ranked 9th) and a higher percentage has entered into higher education (72 percent, ranked 8th, versus 68 percent in Finland, ranked 13th).

Even if the US should model its higher ed system after Finland’s, the no-tuition strategy is not nearly as feasible as the author suggests. To determine whether Finland’s approach would be “affordable” for the US, the author multiplies the number of US public students in 2008-09 by the average cost of public tuition, room, and board in 2009-10. By his calculations, the program would cost $130 billion annually which, he notes, is more or less equivalent to what the federal government spent on Pell grants and student loans in 2010 ($134 billion). His approach, however, has some serious flaws:

  • First, what he is analyzing here is the cost of all public education becoming free, not all education becoming public and free, which is Finland’s model. It is unclear whether the author accidentally left out private non-profits and for-profits—which would be converted to public institutions and made free under Finland’s model.  But if the other sectors are added into the equation, the program costs increase significantly.
  • Second, undergraduate tuition and fees have increased since 2008-09. Between 2009-10 and 2012-13, adjusting for inflation, undergraduate tuition and fees increased by about 5 percent per year at public institutions and by an average of 2 percent per year at private non-profits. During that the same time, federal spending on Pell grants and undergraduate financial aid remained relatively stable after adjusting for inflation, meaning the costs would not be nearly as interchangeable as the author suggests.
  • Lastly, completely eliminating the price of tuition would stimulate demand, which would increase enrollment at public institutions and, thus, the cost to taxpayers. Not only would there be a per-student cost (tuition, room, board, etc.) for each additional student, more students would also require more buildings, classrooms, labs, housing and other capital investments.

Another significant feature inherent in Finland’s system that isn’t contemplated by the author is Finland’s use of a barrier to entry. Finland has limited enrollment spaces and, thus, requires that students pass certain standardized tests at specified levels, depending on the program. This works well in Finland due to their exceptional K-12 system, which ensures that all students are thoroughly prepared for college regardless of personal income or community wealth. The same cannot necessarily be said about our basic education system in the US. Thus, it isn’t clear whether a standardized test could serve as a barrier to entry without significantly and profoundly harming less prepared students.

We’re trying to create a system in which students of all backgrounds and privileges have access to higher education, but substituting price for a proxy barrier like college preparedness may not get us very far. College preparedness would be a preferable barrier in that naturally-talented low-income students would have a better chance of attending college than they currently do; but what would happen to the students who don’t have the resources they need to succeed? Would they be denied access to higher education?

There are costs and tradeoffs associated with every higher education system and reform plan, free tuition is no exception. Free tuition may be a viable option, but it’s not a silver bullet.

Thursday night, time ran out for Congress to reach a deal to keep federally subsidized student loan interest rates from doubling. The Senate adjourned for its Fourth of July recess without voting on a plan; thus, the interest rates on new federally subsidized loans will double to 6.8 percent on Monday July 1st (the same rate as unsubsidized federal student loans).

It is possible, however, that students won’t end up paying the increased rates.  There has been a push from some legislators to enact a one-year fix that would temporarily adjust/lower the interest rates after the fact.  As the lender of the student loans, it is within the federal government’s power to apply such a solution retroactively.

The increase was originally scheduled to occur a year ago.  But, thanks to an election-year alliance of student advocates and the Obama administration, the rate increase was delayed by a year.

For more information, see the Inside Higher Ed article and please stay tuned to the Federal Relations website for updates.

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