The College Board recently published “Education Pays 2013: The Benefits of Higher Education for Individuals and Society,” which provides data on U.S. adults’ level of education and its impact on earnings, employment, health-related behaviors, reliance on public assistance programs, civic participation, and more. The goal of the report, the authors say, is to highlight the ways in which individuals and society benefit from increased levels of education. The authors note, “Financial benefits are easier to document than non-pecuniary benefits, but the latter may be as important to students themselves, as well as to the society in which they participate.”
Many old trends continue to hold true. Having a college education increases one’s chances of: being employed, earning a higher income, receiving health insurance and pension benefits, climbing the socioeconomic ladder, being an engaged citizen, and of leading a healthier lifestyle. These individual benefits translate to larger, societal benefits, including less government spending on public assistance programs, more tax revenue, and greater civic involvement.
A few noteworthy data points about earnings include:
- In 2011 (the most recent year for which income data is available), the median pre-tax earnings of full-time workers with a bachelor’s degree* were $21,100 higher than those of full-time workers with only a high school diploma.
- As workers age, earnings increase more quickly for those with higher levels of education. For instance, at ages 25-29, full-time workers with a bachelor’s degree earn 54 percent ($15,000) more than their high school graduate counterparts; but at ages 45-49, they earn 86 percent ($32,000) more.
- During a standard 40-year full-time working career, median earnings are 65 percent higher for those with a bachelor’s degree than for those with only high school diploma.
- “Compared to a high school graduate, the median four-year college graduate who enrolls at age 18 and graduates in four years can expect to earn enough by age 36 to compensate for being out of the labor force for four years and for borrowing the full tuition and fee amount without any grant aid.”
The report also provides some interesting facts about participation and success in higher education, such as:
- Large gaps in enrollment rates and patterns persist, particularly with lower income students. However, gaps between the enrollment rates of black and Hispanic high school graduates and those of white high school graduates narrowed significantly between 2001 and 2011.
- Although educational attainment rates are increasing, attainment rates and patterns vary noticeably by demographic groups. For example, the percentage of black females ages 25 to 29 who have a bachelor’s degree doubled between 1982 and 2012—going from 12 to 24 percent—whereas the percentage of black males increased from 11 to 16 percent.
- In the U.S., public funding makes up a smaller percentage of total funding for higher education than in most other developed countries.
* “Bachelor’s degree” means a bachelor’s degree, but not a more advanced degree.
The College Board released its 2013 edition of “Trends in College Pricing” on Tuesday. The report provides information on what colleges and universities are charging in 2013-14; how prices vary by state, region, and institution type; pricing trends over time; and net tuition and fees—what students and families actually pay after accounting for financial aid.
Here are a few noteworthy points about prices at public four-year institutions:
- The average published tuition and fees for full-time resident undergraduatesat public four-years increased by 2.9 percent between 2012-13 and 2013-14, going from $8,646 to $8,893—this is the smallest percentage increase in over 30 years.
- In 2013-14, full-time students at public four-years will receive an estimated average of $5,770 in grant aid and tax benefits.
- Thus, average net tuition and fees for full-time resident undergrads at public four-years will be about $3,120 in 2013‑14—up from a temporary low of $1,940 (inflation-adjusted dollars) in 2009-10.
And a few key points about private nonprofit four-year institutions:
- The average published tuition and fees for full-time students at private nonprofit four-years increased by 3.8 percent between 2012-13 and 2013-14, going from $28,989 to $30,094.
- In 2013-14, full-time undergrads at private nonprofit four-years will receive an estimated average of $17,630 in grant aid and tax benefits.
- Thus, average net tuition and fees for full-time undergrads at private nonprofit four-years will be about $12,460 in 2013-14—up from a temporary low of $11,550 (inflation-adjusted dollars) in 2011-12, but down from $13,600 a decade earlier.
Average net prices in all sectors took a noteworthy dip around 2010 due, in part, to significant increases in Pell Grants and veterans benefits that occurred in 2009‑10 as well as the 2009 implementation of the American Opportunity Tax Credit. However, some of those benefits have been scaled back since their initial launch. Moreover, total state appropriations declined by 19 percent between 2007-08 and 2012-13 and FTE enrollment in public institutions increased by 11 percent over that same time. Consequently, net prices have risen in the last few years for all sectors, but most noticeably in the public sector. It is important to remember that there are many variations by institution, region, and state. Even within institutions, different students pay different prices based on their financial circumstances, program of study, year in school, academic qualifications, athletic ability, etc.
See Inside Higher Ed and The Chronicle for additional analysis and discussion of the report.
On Monday, the U.S. Department of Education (ED) released its annual update on federal student loan cohort default rates (CDRs), which measure the frequency with which student borrowers at all levels (undergraduate, graduate, etc.) default on their federal loans. Although both national and UW CDRs rose, the UW’s rates remain well below those of the nation.
As ED is in its second year of switching to the more accurate three-year CDR measure, this year’s report includes both the FY 2011 two-year and the FY 2010 three-year CDRs. These rates represent the percentage of student borrowers who failed to make loan payments for 270 days within two or three years, respectively, of leaving school.
The Department provides breakdowns of its data by institution type, state and school. Here are some key findings:
FY 2010 three-year CDR:
- The national three-year CDR increased from 13.4 to 14.7 percent overall—public institutions increased from 11.0 to 13.0 percent, private nonprofits increased from 7.5 to 8.2 percent, but for-profits’ whopping 22.7 percent rate decreased slightly to 21.8 percent.
- The UW’s three-year CDR increased slightly from 3.1 to 3.9 percent, but this is still nearly 11 percentage points below the national average.
FY 2011 two-year CDR:
- The national two-year CDR increased from 9.1 to 10.0 percent overall—public institutions increased from 8.3 to 9.6 percent, for-profits increased from 12.9 to 13.6 percent, but private nonprofits held steady at 5.2 percent.
- The UW’s two-year CDR increased from 2.1 to 3.2 percent, but this is still nearly 7 percentage points below the national average.
While this is good news, many students still struggle to afford ever-increasing tuition fees and/or to repay their student loans. The UW reaches out to our former students at risk of default on their Stafford Loans and helps identify federal repayment options that could benefit them. Former UW students who are in default or experiencing difficulties repaying their loans can contact the Office of Student Financial Aid for assistance (email@example.com, 206-543-6101). Students can also visit studentloans.gov to explore their repayment options.
(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.
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.
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.
The Gates Foundation has joined the nation’s financial aid conversation and is attempting to rethink how policies and practices can not only help maintain access (in the face of flagging state support and rising tuition prices), but also help students succeed. In September of last year, the Gates Foundation launched its Reimagining Aid Design and Delivery project, which provided 16 organizations with funding to develop and publish innovative financial aid strategies aimed at encouraging college completion. One of the 16 organizations, the New America Foundation, recently released its white paper, which recommends bolstering Pell Grants, limiting student loan options, and removing higher ed tax benefits.
To improve “both the effectiveness and sustainability of Pell Grants,” the New America Foundation recommends:
- Making the Pell program a mandatory federal budget item;
- Increasing the maximum grant faster than is currently scheduled while restoring summer grant support;
- Limiting Pell eligibility to 125 percent of a program’s length;
- Providing additional federal funding to public and private-nonprofit colleges that have a large proportion of low-income students and high graduation rates; and
- Requiring four-year colleges that enroll a small percentage of low-income students and charge more than $10,000 per year (after financial aid) to match some of the Pell dollars they receive with need-based aid from institutional funds.
The plan, which is intended to be “budget neutral,” recommends that the Pell Grant changes be funded by:
- Eliminating the American Opportunity and Lifetime Learning tuition tax credits, tax-advantaged savings plans for education, and the student loan interest deduction;
- Ending the Supplemental Educational Opportunity Grant program; and
- Encouraging borrowers to refinance old student loans into direct lending.
The authors also recommend consolidating federal student loan programs into a single, “enhanced” Stafford Loan system as a means of simplifying the student loan system and reducing the potential for default. This would involve:
- Automatically enrolling all federal student loan borrowers in income-based repayment plans;
- Eliminating subsidized undergraduate loans;
- Setting student loan interest rates via a fixed formula that adjusts to market conditions;
- Ending the Grad PLUS and Parent PLUS loan programs;
- Increasing borrowing limits slightly to $40,000 total for undergrads and $25,500 per year for grads; and
- Limiting federal student loan eligibility to 150 percent of a program’s length.
Although some (if not many) of these ideas are politically unpopular, the authors argue that their recommendations must be implemented together in order to be effective. However, it seems more likely that Congress will cherry-pick specific suggestions to pursue or perhaps ignore the report’s policy proposals altogether. The Gates Foundation hopes their project will, at the very least, stimulate discussion about reforming financial aid.
Two years ago at the annual Council of Independent Colleges, a group of private-college presidents advocated for limiting the amount of financial aid awarded on criteria other than need—usually referred to as “merit-based” financial aid. Although the presidents received an enthusiastic response from the Council, little action followed. However, last Saturday at this year’s Council meeting, the conversation was revisited and two encouraging developments suggest progress may be more conceivable this time.
First, the presidents unveiled a draft “statement of principle,” which they hope will unite colleagues who believe that meeting financial need should be the highest priority of aid policies. Titled “High Tuition/High Discount Has No Future,” the statement articulates that the merit-aid/tuition discounting model is unsustainable and those signing their support acknowledge they’ve contributed to the problem. The statement cites a 2009 study that found “the increased use of merit aid is associated with a decrease in enrollment of low-income and minority students, particularly at more selective institutions.”
Second, David L. Warren, president of the National Association of Independent Colleges and Universities, revealed information from preliminary conversations with U.S. Justice Department officials regarding ways in which groups of presidents could discuss their tuition and/or financial aid policies without penalty and, hopefully, reach collective agreements to make college more affordable. This is significant as the Overlap Group, a set of elite universities that joined forces on admissions and financial-aid decisions for several years, faced antitrust charges by the federal government in 1991. The federal case effectively ended any meaningful collaboration on such topics, keeping schools in the dark about each other’s financial aid and admissions strategies.
“The fear, obviously, is that unilateral disarmament” in the merit-aid race won’t work, said one of the efforts’ leaders according to The Chronicle. Presidents worry that increasing need-based aid and decreasing merit aid, which is used to attract top students, will result in less robust enrollment and less prestige. But hopefully between the statement of principle, which could align presidents behind common goals, and discussions with the federal government, which could result in permissible collaboration, some progress will be made and the game of financial-aid chicken can end.
A bill introduced to the House of Representatives earlier this month by Rep. Thomas E. Petri, a Wisconsin Republican, would overhaul the federal student-loan programs. Under the proposal:
- Monthly payments would be capped at 15 percent of discretionary income—the new income-based repayment program currently caps payments at 10 percent of discretionary income.
- Payments would be withheld directly from paychecks—essentially eliminating the potential for defaulting, a welcome thought for schools with high default rates (predominately for-profits) which are at risk of losing eligibility to participate in federal aid programs.
- Interest accrual would be capped at 50 percent of a loan’s total at the time of graduation—good news for borrowers, often low-income, who take upwards of 10 years to repay loans.
- Subsidies would be eliminated that currently pay interest while undergraduates are in college—a means of offsetting the cost of capping interest, but potentially detrimental to low-income students.
- Loan forgiveness after a certain number of years (usually 20 or 25) would be eliminated—this could dissuade students from entering public-service careers for which loans are currently forgiven after 10 years.
The proposed system resembles those used in the U.K., Australia, and New Zealand. If passed, the new rules would only impact new loans.
While some components of the bill could be beneficial, such as the cap on interest accrual, many other components appear problematic. The Chronicle reports that the National Association of Student Financial Aid Administrators expressed support for the proposal saying, “We need to make it as easy as possible for borrowers to stay on the straight and narrow.” But others, such as the advocacy group Institute for College Access & Success, worry the bill would “take away some key tools for managing federal student debt,” such as forbearance and deferments.
Since similar proposals from Rep. Petri have had little success in the past and since his latest bill has no cosponsors, the bill is unlikely to be passed. However, it could be discussed during next year’s Congressional debate over reauthorizing the Higher Education Act, which expires at the end of 2013.
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