It will soon be easier for students and parents with adverse credit histories to qualify for federal PLUS loans. Under new the Education Department’s (ED’s) new rules – which were released on Wednesday and are expected to take effect in March – ED will review only two years (rather than five) of a prospective borrower’s credit history to determine loan eligibility, and will excuse up to $2,085 in certain types of delinquent debt when running initial credit checks.
ED agreed to revisit the rules following pressure from many colleges and families who were angered after ED tightened the PLUS loan standards in 2011. The 2011 changes resulted in thousands of sudden loan denials and, consequently, enrollment declines and revenue losses at some institutions. According to Inside Higher Ed, department officials expect that the new standards will allow an additional 370,000 applicants to pass the initial credit check for PLUS loans.
Representative Chaka Fattah – Pennsylvania Democrat and co-chair of the Congressional Black Caucus Education Task Force – lauded the new standards; however others connected with historically black colleges have criticized ED for not moving quickly enough. Meanwhile, some policy analysts and consumer advocates argue that ability-to-pay criteria are necessary to prevent borrowers from being saddled with unmanageable debt, and that the new rules don’t do enough to safeguard against default.
If defaulting becomes an issue as a result of the new standards, the silver lining is policymakers will at least know about it and, hopefully, be able to do something. As part of ED’s changes to the PLUS program, the department will begin calculating and publishing annual cohort default rates for institutions receiving PLUS loans. That information should help illuminate whether borrowers are getting in over their heads.
Ultimately though, as EdCentral points out:
“The Department must do a better job reaching out to parents and helping them understand the terms and conditions of their loans, including the ability to repay their loan as a percent of their income if they consolidate into a Federal Direct Consolidation Loan. Better counseling won’t solve all the issues with the PLUS loan program. But it’s a start until we can ensure PLUS loans are a safe product for families and we can improve access to better aid options like grants for low-income families.”
 ED currently only calculates cohort default rates for colleges that receive Stafford loans.
The U.S. Department of Education (ED) recently 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 the UW’s CDR rose while the national CDR declined, the UW’s rate still remains well below that of the nation.
ED is in its first year of using only the more accurate three-year CDR measure – as opposed to the two-year CDR. Thus, this year’s report only includes the FY2011 three-year CDR, which represent the percentage of student borrowers who entered into repayment in FY2011, but failed to make loan payments for a 270-day period within three years of leaving school.
The Department provides breakdowns of its data by institution type, state and school. Here are some key findings:
- The national three-year CDR declined from 14.7 to 13.7 percent overall.
- The three-year rate decreased over last year’s rates for all sectors:
- Public institutions decreased very slightly from 13.0 to 12.9 percent,
- Private nonprofits decreased from 8.2 to 7.2 percent, and
- For-profits’ whopping 21.8 percent rate decreased to 19.1 percent.
- The UW’s three-year CDR increased slightly from 3.9 to 4.3 percent, but this is still nearly 10 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 (firstname.lastname@example.org, 206-543-6101). Students can also visit studentloans.gov to explore their repayment options.
On Thursday, the American Association of State Colleges and Universities (AASCU) released a policy brief examining the potential consequences of Pay It Forward (PIF) (please see our previous blogs for background information). The AASCU brief summarizes other, similar approaches to paying for college and analyses PIF as a potential state approach to financing public higher education.
The report describes the following “13 Realities of PIF College Financing Proposals”:
- Most students could pay more, not less, for college.
- Considerable uncertainty would be introduced into campus budgeting and planning efforts.
- The majority of college costs are not covered.
- Students from sectors with the heaviest student debt burdens would be ineligible to participate.
- The class divides in public higher education, and more broadly, in American society, could intensify.
- Costs borne by students pursuing privately financed degrees and higher-paying careers would increase dramatically.
- PIF is duplicative—there are existing public and private programs that calibrate student debt to earnings.
- PIF’s start-up costs would be enormous.
- Payment collection would be costly and challenging.
- Campus and state leaders would have strong incentives to promote programs leading to high-paying occupations, to the possible detriment of the liberal and applied arts, humanities, and public service careers.
- Underlying college cost drivers would not be addressed.
- Support for state and institutional student financial aid could dissipate.
- Support for maintaining existing state investment in public higher education would erode, creating a pathway to privatization.
In addition, the authors discuss “The Unknowns of ‘Pay It Forward’”:
- How will institutional financing gaps be addressed?
- How would payments be collected?
- Who would control PIF funds?
- How would PIF’s structure and revenue generation differ from campus to campus?
- How would PIF complement or conflict with federal higher education programs?
- How would transfer students be integrated into PIF?
- What would be the consequences for noncompleters?
- How would college savings change under PIF?
- How would PIF affect campus philanthropic campaigns?
The report’s conclusion reads, “Creating a lifelong tax and privatizing public higher education through pay it forward is not the solution to addressing college affordability.”
I recommend that readers review AASCU’s full report.
On Thursday, the American Association of State Colleges and Universities (AASCU) released its most State Outlook. According to the report, state operating support for public four-year colleges and universities is 3.6 percent higher for FY 2015 than it was for FY 2014. Of the 49 states that have passed a budget thus far, support for higher education increased in 43 states and decreased in only 6 states. Of those 6 states that reduced funding, all were under 3 percent: Alaska, Delaware, Kentucky, Missouri, Washington (0.8 percent decrease) and West Virginia.
There was a relatively small amount of variation between states in terms of their year-to-year funding changes. For FY 2015, the spread between the state with the largest gain and that with the largest cut was only a 24 percent—this is compared to 57 percent, 25 percent and 46 percent, respectively, in FYs 2012, 2013 and 2014. The report notes that this decreased volatility likely indicates “a continued post-recession stabilization of states’ budgets.”
Charitable contributions to U.S. colleges and universities increased 9 percent in 2013, to $33.8 billion—the highest recorded in the history of the Council for Aid to Education (CAE) Voluntary Support of Education (VSE) survey. In addition, college and university endowments grew by an average of 11.7 percent in FY 2013, according to a January 2014 study released by the National Association of College and University Business Officers and the Commonfund Institute. This represents a significant improvement over the -0.3 percent return in FY 2012.
The report also describes ten highlights/trends from states’ 2014 legislative sessions, those being:
- State initiatives linking student access to economic and workforce development goals.
- Tuition freezes or increase caps in exchange for state reinvestment—this occurred in Washington and another example is discussed in our previous post.
- Performance-based funding systems that attempt to align institutional outcomes with state needs and priorities.
- Governor emphasis on efforts to advance state educational attainment goals.
- Interest in policies related to vocational and technical education, including allowing community colleges to grant certain four-year degrees (as described in our previous post).
- Efforts to develop a common set of expectations for what K-12 students should know in mathematics and language arts.
- STEM-related initiatives, including additional funding for STEM scholarships in Washington.
- Financial support for the renovating and/or constructing of new campus facilities—unfortunately, Washington’s legislature did not pass a capital budget.
- Bills allowing individuals to carry guns on public college and university campuses—as of March 2014, seven states had passed such legislation.
- Legislation that extends in-state tuition or, as occurred in Washington, state financial aid to undocumented students.
Other noteworthy policy topics described in the report include:
- Student financial aid programs—some states broadened their programs while others limited them;
- Online and competency-based education reciprocity agreements;
- “Pay It Forward” Funding Schemes; and
- Consumer protection as it pertains to student recruitment, advertising and financial aid at for-profit colleges.
Temple University recently created a new partnership between students and the university to help students graduate on time and limit the amount of debt they accrue. Under the program, called “Fly in 4,” if an undergraduate student fulfills a set of requirements aimed at promoting on-time completion, but is still unable to graduate within four years, the university will pay for any remaining coursework (tuition and fees). Additionally, in each incoming class, 500 students with financial need will receive “Fly in 4 grants” of $4,000 per year to help reduce the hours they must put toward employment and increase those they can devote to studying. 
“What we’ve found is that students from low- and middle-income backgrounds tend to take longer to complete their degrees, in part because they spend a lot of time working,” Temple President Neil D. Theobald is quoted as saying.
Starting in Fall 2014, all incoming freshmen and all incoming transfer students who enter on track to graduate on time are eligible for the program; however, only those with demonstrated financial need are eligible for the $4,000 grants. To remain eligible for the grants and/or for Temple to pay for any remaining coursework, students must:
- Meet with an academic advisor each semester;
- Register for classes during priority registration;
- Advance annually in class standing; and
- Complete a graduation review at or prior to completing 90 credits.
President Theobald made six commitments to the Temple community in his October inaugural address, the first of which was to reduce student expenses. Fly in 4 is a part of that commitment.
“For nearly 50 years, researchers have shown that college students employed more than 15 hours per week during the school year earn much lower grades than do those working fewer hours for pay,” Theobald said. “In addition, time-to-graduation has become the primary determinant of student debt.”
To help fulfill its commitment and ensure students graduate on time, Temple has also invested heavily in advising (hiring 60 new full-time advisors since 2006, including 10 this year), created four-year graduation maps for every major, and trained faculty members to assist students with academic and career planning.
 For context, Temple’s 2013-14 undergraduate tuition rates were approximately $14,100 for residents and $23,400 for non-residents (depending on program and year of study).
 Contrary to a number of media reports, it does not appear that students are required to commit to working 10 hours per week or less in order to be eligible for the Fly in 4 grants. Temple University’s website makes no such statement.
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.
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.”
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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