Office of Planning and Budgeting

(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.

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.

According to an annual survey released on Monday by the National Association of State Student Grant and Aid Programs (NASSGAP), the amount of state dollars going toward financial aid remained relatively stable between 2010-11 and 2011-12. In 2011-12, states awarded about $11.1 billion in state-based financial aid, a slight increase (0.7 percent) over the $11.0 billion awarded in 2010-11. That growth has not kept pace with rising enrollments or the overall increase in students’ financial need; however, it’s encouraging to see growth of any size given that general state appropriations for higher education fell by 7 percent during that same time period.

The state-by-state data show that Washington, New Jersey, New York and California gave out the most need-based aid on a per-student basis. Oregon more than doubled the amount it spent on need-based grants, to nearly $44-million, and Washington increased its need-based grants by 26 percent. However, 23 states cut need-based aid from 2010 to 2011 and four states reported no need based aid programs at all.

What’s most intriguing, in my opinion, is that even though states collectively put only slightly more money toward their financial aid programs, they shifted a larger portion of those aid dollars toward need-based aid and grant aid (see the tables below). This finding suggests that states are attempting to maintain access in the face of rising tuition rates and to reduce the amount of debt their students accumulate.

Of the $11.1 billion in total state-awarded student aid:

  • $9.4 billion (84%) was grant aid—up 1.7% from 2010-11; and
  • $1.7 billion (16%) was non-grant aid (loans, work-study, tuition waivers, etc.)—down 4.2% from the previous year.

Of the $9.4 billion in state-awarded grant aid:

  • $7.0 billion (74%) was need-based—up 6.3% from last year; and
  • $2.4 billion (26%) was non-need-based—down 9.4%.

Of the $10.1 billion in state-awarded undergraduate aid (both grants and non-grants):

  • $4.7 billion (47%) was exclusively need-based—up 6.0%;
  • $2.0 billion (20%) was awarded on a mix of need and merit criteria—up 1.6% and surpassing, for the first time ever, aid awarded solely on merit;
  • $1.9 billion (19%) was exclusively merit-based—down 1.3%; and
  • $1.4 billion (14%) was special purpose awards and uncategorized aid— a 3.0% drop.
Change in Total State-Awarded Student Aid
Percent change from 2010-11 to 2011-12      
Type of Student Aid Dollar amount Portion of total
Grant aid 1.7% 0.8%
Non-grant aid -4.2% -0.8%
Total aid 0.7%  
Change in State-Awarded Grant Aid
Percent change from 2010-11 to 2011-12      
Type of Grant Aid Dollar amount Portion of total
Need-based 6.3% 3.0%
Non-need-based -9.4% -3.0%
Total grant aid 1.7%  
Change in State-Awarded Undergraduate Aid
Percent change from 2010-11 to 2011-12      
Type of Undergrad Aid Dollar amount Portion of total
Exclusively need-based 6.0% 2.7%
Mixed need & merit-based 8.5% 1.6%
Exclusively merit-based -6.5% -1.3%
Uncategorized & other -17.4% -3.0%
Total undergraduate aid 0.0%  

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.

On Monday, the Supreme Court ruled that Fisher v. University of Texas (UT), the case on UT Austin’s race-conscious admissions policy, be sent back to an appeals court for further scrutiny. The case stemmed from a lawsuit by Abigail Fisher, a white applicant to the university who claimed she was unfairly rejected due to UT Austin’s affirmative action admissions program. For more background on this case, please see our previous two posts, found here and here.

The court’s 7-to-1 decision did not provide a direct answer about the constitutionality of UT Austin’s admissions practices. Instead, it ordered the U.S. Court of Appeals for the Fifth Circuit to reconsider the case on the grounds that the appeals court had failed to apply “strict scrutiny” (a rigorous standard requiring that both an important goal and a close fit between means and ends be identified) in its review of the case and subsequent ruling in favor of UT. Justice Ruth Bader Ginsburg was the only dissenting voice; she argued that the appeals court was right to support UT’s policies.

According to the NY Times, Justice Kennedy wrote for the majority that courts reviewing affirmative action programs must, “verify that it is necessary for a university to use race to achieve the educational benefits of diversity.” This necessitates, he said, “a careful judicial inquiry into whether a university could achieve sufficient diversity without using racial classifications.”

The Supreme Court’s ruling did not displace its 2003 decision in Grutter v. Bollinger, which found educational diversity to be of sufficient importance to overcome the government’s standard ban on racial consideration. However, as Inside Higher Ed reports, legal experts believe the court’s demanding “strict scrutiny” requirements will make it difficult for UT and many other institutions to successfully defend their use of race in admissions.

The debates surrounding Fisher v. UT and affirmative action in higher education as a whole are far from over. Many expect the Texas case to return to the Supreme Court after a new review by the appeals court.  We will keep you posted with any updates.

The U.S. Supreme Court has agreed to consider whether a 2006 Michigan referendum to ban public colleges from using race or ethnicity in admissions is constitutional. This is the second affirmative-action case on the court’s docket —the first being Fisher v. University of Texas at Austin (discussed in a previous blog). If the Supreme Court declares the ban, known as Proposition 2, unconstitutional, similar bans in Washington and five other states could also be invalidated.

Inside Higher Ed nicely summed up the difference between the two affirmative action cases: “The Texas case is about the extent to which public colleges and universities may consider race and ethnicity in admissions, while the Michigan case is about the extent to which voters can bar such consideration.”

The Supreme Court accepted the Michigan case, Schuette v. Coalition to Defend Affirmative Action, after the state’s attorney general, Bill Schuette, appealed a November ruling by the U.S. Court of Appeals for the Sixth Circuit. The appeals court struck down Proposition 2 in an 8-7 vote, on the grounds that it “undermines the Equal Protection Clause’s guarantee that all citizens ought to have equal access to the tools of political change.” Under Proposition 2, minority citizens who want public university admissions to consider race must launch a burdensome ballot campaign, whereas groups seeking other university policy changes are free to simply lobby.

Schuette argues that Michigan’s measure and the Equal Protection Clause both protect a fair political process, whereas “preferential treatment based on race (which necessarily means discrimination against other races)… focuses entirely on achieving a particular outcome (here, an admissions outcome), even at the expense of making the process discriminatory.” Michigan’s measure, he says, “does not endorse race-based policies; just the opposite, it stops discrimination based on race.”

The Supreme Court will hear the Michigan case in its term starting in October.  Its ruling in the Texas case is expected this spring or summer, but could occur at any time.

Although there are many types of financial aid, it is typically awarded on the basis of either need or merit. Need-based aid is largely a result of a federal calculation and is somewhat predictable:  to ensure access, students with more financial need receive more financial aid of various forms. And, although there is no universal definition of the merit aid, it traditionally describes scholarship money used to attract top academic achievers. However, Kevin Carey, director of education policy at the New America Foundation, asserts in a recent commentary for The Chronicle that a significant portion of merit aid is actually used to attract “academically marginal students with wealthy parents.”

Carey cites evidence of this trend. A 2011 U.S. Department of Education study found that of the full-time students at four-year institutions who received “merit” aid in 2007-08, almost 20 percent had entered college with a combined SAT score of less than 700 and 45 percent had scored below 1000 (out of a possible 1600). The study also shows that although the percentage of private college students receiving need-based aid showed a slight decline from 1995 to 2007 (going from 43 to 42 percent), the proportion receiving “merit” aid nearly doubled during that time span (from 24 to 44 percent).   At public universities, the percentage of students getting need-based aid increased from 13 to 16 percent, but the growth in merit aid outpaced it, going from 8 to 18 percent.  Thankfully, as discussed in a previous post, a group of private-college presidents has been calling on its peers to limit the amount of financial aid awarded on criteria other than need.

The National Association of State Student Grant and Aid Programs’ (NASSGAP) Annual Survey Report on State-Sponsored Student Financial Aid and Brookings’ Beyond Need and Merit: Strengthening State Grant Programs provide corroborating evidence that merit-aid is becoming more prevalent, while need-based aid is diminishing.  However, neither discusses the academic strength of the students receiving merit aid.

So why is this happening?  If a college offers good scholarships and financial aid packages to an affluent family, it may incentivize them to choose that school.  Even though that family’s son or daughter may be a low academic achiever who has a decent chance of dropping out, it is still lucrative for the school to attract those students.  Noel-Levitz, a higher ed consulting firm, revealed that one of its client colleges was able to generate over $10,000 more per low-achieving student than they could per top-achieving student.

Carey hopes that as taxpayers, the news media, and affiliates of universities become aware of this trend, their vigilance will keep institutions in check.

Many of the white papers sponsored by the Bill & Melinda Gates Foundation’s Reimagining Aid Design and Delivery project have focused on modifications to the Pell program and/or student loans and repayment (including the two I summarized previously, found here and here). However, the white paper released on Wednesday by the Center on Postsecondary and Economic Success takes a different approach.  It argues that by making tax-based student aid more beneficial to low and middle-income students, the federal government could save billions of dollars, direct those savings to the Pell program and improve the financial aid system as a whole.

Current tax-based financial aid provides high-income families with much larger tax deductions, since the value of the deductions is linked to a family’s marginal tax rate. As The Chronicle notes, “a $100 tax deduction, for example, is worth early $40 to a high-income household but only $10 to a lower-earning family.”  To remedy this issue and refocus the benefits of aid onto low-income families, the Center proposes increasing the refundable portion of the American Opportunity Tax Credit (AOTC). The Center also recommends eliminating nonrefundable tax credits, such as the Lifetime Learning Credit (LLC), since they do not benefit households that pay no income tax (i.e. low-income families).

The table below shows the percent distribution of student aid by type and income category in 2013. As you can see, Pell Grants (in blue) primarily benefit low-income families, whereas tax-based student aid (in purple) does the opposite.  Another interesting table from the Tax Policy Center can be found here.

The paper includes three alternative proposals for making tax-based aid more helpful to low-income students and simultaneously boosting college access and completion.  It also discusses three options for improving performance measures used in student-aid policies.

Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success” is the Institute for College Access & Success’s (TICAS) white paper for the Reimagining Aid Design and Delivery project, sponsored by the Bill & Melinda Gates Foundation (see our recent post for more information). Some of the report’s suggestions have been echoed in other white papers and publications, such as simplifying the federal financial aid application process, making the Pell program a mandatory federal budget item, and fostering more understandable and comparable reporting of college costs. The paper’s others recommendations include:

  • Holding colleges accountable not only to the percentage of student borrowers who default on loans (represented by the currently-used cohort default rates), but also to the percentage of students who take out loans in the first place. TICAS proposes denying federal aid to colleges that score below a certain threshold on a combined index of the two measures. The group also recommends increasing federal aid to colleges scoring above a certain threshold. The amount of additional aid would be determined by how much Pell funding their students receive.
  • Shoring up the Pell Grant. TICAS proposes doubling the maximum Pell grant award, to about $11,000 a year, and extending the eligibility timeframe from 6 years to 7.5.
  • Creating a single federal student loan with no fees and a fixed interest rate. The rate would be low while students are in school and would rise, by a fixed amount with a cap, when they leave.
  • Streamlining repayment plans, replacing multiple options for income-based plans with only one. Delinquent borrowers would automatically be placed in the income-based plan; but, a non-income-based option would be available to other borrowers. TICAS wants to leave borrowers with a choice, but argues they need real counseling—not just disclosure—to help them decide.
  • Eliminating higher education tax benefits and sending the savings to Pell Grants and monetary incentives for states and colleges.  If tax benefits are preserved, the group recommends restructuring them into an upgraded American Opportunity Tax Credit aimed at helping low- and moderate-income students.

TICAS’ paper outlines a few ways the government could fund these proposals in addition to potentially eliminating higher ed tax benefits.  As The Chronicle nicely summarized, those options include, “limiting the benefit of itemized tax deductions, taxing private equity and hedge-fund income like other income, and removing or reforming tax-exempt bonds for private nonprofit colleges.”

Back in November, the American Council on Education (ACE) revealed a “wide-ranging” project to evaluate MOOCs’ academic potential and determine whether some MOOCs should be eligible for college credit. Our previous blog post provides additional background information. In the 11 weeks since that announcement, ACE reviewed five MOOCs offered by Coursera (one of the largest MOOC providers) and, today, announced it has recommended all five MOOCs for credit.

The endorsed MOOCs are:

  • “Pre-Calculus” and “Algebra” from the University of California at Irvine;
  • “Introduction to Genetics and Evolution” and Bioelectricity: A Quantitative Approach” from Duke University; ” and
  • “Calculus: Single Variable” from the University of Pennsylvania.

Courses were reviewed on their substance, quality of educational experience, and the value and security of their tests and assessments tools. To meet standards for the latter, Coursera established a series of identity verification measures and partnered with a remote monitoring service called ProctorU. Some MOOCs use peer assessments to score student work, a method which has been criticized for uncertain reliability. But given the STEM focus of these five courses, they all rely on objective scoring systems rather than peer assessments.

Although ACE’s validation of the MOOCs is noteworthy, it’s up to the Council’s 1,800 member colleges to individually decide whether they’ll actually offer credits for the courses.  For now, students at Duke, Irvine and Penn will not receive credit for taking their institutions’ ACE-approved courses. Inside Higher Ed reports that UC-Irvine does not consider its MOOCs to currently be worthy of its credit because neither the learning environment nor the academic commitment of a course’s thousands of students can be controlled. “Those anybodies can influence negatively the learning environment of students who are serious about taking it,” said Gary Matkin, UC-Irvine’s dean of continuing education. Similarly, Duke believes its traditional courses offer “an entirely different kind of educational experience” than MOOCS, including “substantial interactions between students and the faculty member.”

While other colleges decide whether to accept Coursera’s MOOC certificates for credit, ACE is reviewing courses from Udacity (another MOOC provider) for possible credit recommendations.

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