Representative Paul Ryan, the House Budget Chairman, released his FY15 budget proposal on Tuesday. The proposal would remove the in-school interest subsidy for all subsidized undergraduate student loans, eliminate mandatory funding for Pell Grants, and freeze the maximum Pell Grant award at $5,730 for the next 10 years.
As Office of Federal Relations put it in their blog post, “That essentially means that $870 in the maximum grant would have to be funded by increased discretionary funds or the maximum be cut from $5,730 to $4,860.”
Please see the Federal Relations website for more information, and check out articles by Equity Line, Inside Higher Ed, and The Chronicle.
A recent report by New America, titled The Graduate Student Debt Review, reveals that much of the nation’s “$1 trillion in outstanding federal student debt” is the result of expensive graduate and professional degrees, rather than unaffordable undergraduate educations.
The report, which analyses recently publicized data from the Department of Education, shows that around 40 percent of recent federal loan disbursements are for graduate student debt. Moreover, the paper shows that graduate student debt across a variety of fields—not just business school and medical school—comprises some of the largest increases in student borrowing between 2004 and 2012. Thus, the authors recommend that legislators, journalists, and the public at large adjust their understanding of student debt to recognize that it’s not just undergraduate problem.
Most news stories highlight the debt of graduate students—which tend to have much larger loan balances—yet journalists typically don’t differentiate graduate debt from undergraduate debt. EdCentral makes a compelling argument for why this lack of differentiation is a problem and why it deserves legislative attention:
“The failure to distinguish between undergraduate and graduate debt in discussions of college costs is a serious flaw in how we think about student debt. Students, families, and taxpayers invest significant resources in financing “college,” largely because a bachelor’s or associate degree is a must for anyone who wants to secure a middle-class income… But arguments for high levels of subsidy for students who attend graduate and professional school are on shakier ground. While a graduate or professional degree boosts a student’s earnings prospects and the economy at large, it is not the foundation for economic opportunity and middle-class earnings that a two- or four-year degree now provides. Students pursuing graduate degrees should be far more informed consumers. Therefore, they shouldn’t need a lot of public support to finance their next credential, which is why there are no Pell Grants for master’s degrees. That spike in debt for graduate degrees should also focus policymakers’ attention on an impending tidal wave of loan forgiveness for graduate students and the lack of loan limits for students pursuing graduate degrees.”
You can read more about New America’s report at The Chronicle and Inside Higher Ed.
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.
*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.
The Chronicle of Higher Education recently published a special report on public colleges, detailing how state funding declines and rising tuition have put increasing pressure on largely need blind public colleges and the students they enroll. The first section of the report, “An Era of Neglect,” shows the decline in state funding for higher education through the eyes of six interested parties—a lobbyist, an anti-tax activist, a state Senate member, a Governor, a higher education advocate, and a university president. The second essay, “The Tipping Point,” cautions that state disinvestment in higher education has shifted the cost burden such that students and their families pay for more than half of their education in many states. The third piece, “Equalizers No More,” warns that public higher education no longer serves as a ladder for upward mobility, since college costs are often too much for low-income students to bear and financial aid has not kept up with rising tuition. The fourth and fifth sections, “Explore State Support by College” and “Who Foots the Bill?” contain info-graphics that show the decline in state support for public colleges between 1987 and 2012, as well as detail the cost sharing breakdown between students and the state.
The Office of Planning & Budgeting has done similar analyses in the past few years. The graph below shows the trajectories of state funding and tuition over the period from 1999-2015. Despite the fall in state support, the UW has remained committed to providing generous need-based financial aid. As a result, the net price of attending the UW is $9,395. Check out OPB’s analysis of net price at the UW and our peer institutions here.
To read the full special report, check out the Chronicle’s website.
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.
On Thursday, The Equity Line, a blog by The Education Trust, posted a critique of Pay It Forward (PIF) that discusses some of PIF’s major flaws. As a reminder, under PIF, instead of paying tuition and fees upfront, students would pay back a certain percent of their adjusted gross income for 25 years. For more information about PIF and how its supporters have applied PIF to the UW, please see the full OPB brief.
The Equity Line’s blog post highlights that although PIF is marketed as a “debt-free” way to pay for college, it is actually just another student loan program:
- It is estimated (by the author and the UW) that many students would pay more under PIF than they currently do to pay back student loans.
- Students with significant need – who currently receive federal, state, and institutional grants to cover tuition and fees – may have their grants (which do not need to be paid back) replaced with loans (which do).
- Students would not be able to cover these other education costs with federal or state need-based grants because by removing the cost of tuition and fees from a student’s budget, that student’s level of calculated need would fall as would their eligibility for federal and state need programs. Thus, students would have to take out more loans (or find a way to pay upfront) for these expenses.
As the author notes, rather than “Pay It Forward,” it’s really “Pay It Yourself and Pay More Than Ever.”
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.”
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