Office of Planning and Budgeting

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.”

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.

 

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