Higher Education

While Congress has debated extending the 3.4 percent interest rate on Subsidized Stafford loans issued this year to undergraduates, advocacy groups are gearing up for a debate on longer-term reforms. They know the odds don’t favor Congress adopting a one-year extension of the lower rate again next year. Besides, spending $6 billion to save college graduates $9 a month isn’t a great deal for borrowers or taxpayers. So it’s good that student aid advocates want a better plan. But they aren’t off to a great start. They are gathering support for an outrageously expensive proposal that turns a blind eye to far more worthy aid, like Pell Grants.

The student loan interest rate proposal that is dominating discussions among advocates and other stakeholders would provide borrowers with variable interest rates that would be capped at the current fixed rates of 6.8 percent on Stafford loans and 7.9 percent on PLUS loans for parents and graduate students.

The rate on all newly-issued federal loans would be adjusted annually based on interest rates on short-term (three month) U.S. Treasury debt, plus a markup of two to three percentage points to partially offset costs. Today, that would translate into an interest rate of about 3 percent. If short-term U.S. Treasury rates rise, the rate borrowers pay would too, though it would never exceed 6.8 percent. Such a proposal would represent a return to the policy of the 1990s and early 2000s, except the cap on the variable rate then was 8.25 percent.

This variable-rate-with-a-cap proposal would give borrowers a “heads-I-win, tails-you-lose” arrangement. If short-term rates stay low, borrowers benefit. If short-term rates rise, the loans convert to low, fixed rates and the borrower wins again. When short-term rates decline, the fixed-rate loan converts back to a variable rate, and the borrower wins again.

The policy effectively shelters borrowers from the financial tradeoffs that they would normally face when they choose between fixed and variable interest rates on loans in the private market. Variable rates are lower at first, but can go higher. Fixed rates might be higher on average, but they provide certainty.

The variable-rate-with-a-cap proposal doesn’t, however, make that fundamental tradeoff disappear. It just shifts the cost entirely onto taxpayers.

How much would taxpayers have to pay to provide borrowers with this no-lose insurance policy? According to sources on Capitol Hill, the Congressional Budget Office says it would cost $200 billion over 10 years.

To put this price tag in perspective, Congress could fund an $8,000 maximum Pell Grant (up from $5,550 today) for the next 10 years if it allocated an additional $200 billion to the program over that time period.

Still, there are other options for policymakers to modify student loan interest rates that would make meaningful improvements for borrowers without breaking the bank. One even generates savings (read more here).

Students and aid advocates would be wise to rally around some version of a more feasible interest rate reform proposal in the coming months. But if they really want to get behind a proposal that costs $200 billion, please make it one that supports the Pell Grant program rather than college graduates’ monthly budgets.

The topic of student loans is being debated in the Senate this week, with lawmakers on both sides of the aisle hoping to pass legislation that would curb rising interest rates. Without legislation, interest rates on federal student loans will double from their current rate of 3.4% to 6.8% beginning on July 1st. A recent article in the New York Times provides a good summary of this debate.

Hawaii teachers union leader wants to revisit contract members rejected earlier this year

Who would pay for proposed Michigan free-tuition plan with annual price tag in the billions?

University of Wyoming trustees hear that Gov. Mead’s request for 8 percent budget cuts will cost $15.6M

Louisiana panel rejects testing bill

Hawaii teachers union leader wants to revisit contract members rejected earlier this year
Facing the threat of losing $75 million in Race to the Top funds this year, the Hawaii State Teachers Association (HSTA) is asking teachers to reconsider a proposal for a new teacher evaluation system that incorporates student test scores in teacher ratings. HSTA members rejected the measure in January, citing that they didn’t have enough information or time to review the plan to make an informed decision. Without a comprehensive evaluation plan, the U.S. Department of Education is likely to rescind the state’s remaining Race to the Top funds. Hawaii governor Neil Abercrombie noted that a new “clear, current, and correct” agreement must be crafted and voted on because the original agreement is no longer valid. This time, HSTA will be invited to assist with development of the new teacher evaluation tools. More here.

Who would pay for proposed Michigan free-tuition plan with annual price tag in the billions?
This week, Democrats in the Michigan State Senate introduced legislation that would allow Michigan high school graduates to attend state colleges and universities for free. The proposal would be costly—an estimated $1.8 billion annually—and would be paid for with increased revenue from closing unspecified tax loopholes. Lou Glazer, founder of the think tank Michigan Future, testified that an investment in higher education is an investment in the economy. James Hohman from the Mackinac Center free-market think tank disagreed with Glazer’s analysis and contended that jobs, not better higher education, would strengthen the state’s economy. Based on the lack of support from Senator Jack Brandenburg (R-Harrison), the Finance Committee Chairman, the bill is unlikely to pass. More here.

University of Wyoming trustees hear that Gov. Mead’s request for 8 percent budget cuts will cost $15.6M
According to an order from Governor Matt Mead, Wyoming must make steeper cuts to its fiscal year 2013 budget than anticipated. The culprit is the drop in natural gas prices from an expected $3.25 to $2 per thousand cubic feet. For each dollar reduction in natural gas prices, the state loses $200 million in revenue. As a result, state agencies—who were already preparing for a 4 percent cut in their budgets—must now brace themselves for an 8 percent cut. The University of Wyoming, which is the only four-year public university in the state, will see its budget cut by $15.6 million in the 2013 fiscal year. Because approximately 80 percent of the university’s budget accounts for personnel costs, the university will likely have to make cuts to staff in addition to athletic recruiting, student services, class sizes, and scholarship money. More here.

Louisiana panel rejects testing bill
Louisiana’s House Education Committee rejected a Democrat- proposed bill that would allow students—with parental permission—to opt out of taking state academic assessments. The measure was rejected by a vote of three in favor to twelve against. Representative Patricia Smith (D-Baton Rouge), the bill’s sponsor, defended the bill by calling it a vehicle to increase parental choice. Erin Bendily, an assistant deputy superintendent for the state Department of Education, attacked the legislation and noted that testing requirements are mandated at the federal level, not the state level. More here.

This was originally posted on Higher Ed Watch's sister blog, Ed Money Watch.

Every year the Department of Veterans Affairs (VA) directs a huge chunk of federal spending to higher education for veterans education benefits — more than $1.7 billion in the 2009-10 school year alone. But VA education benefits are often overlooked in education policy discussions. This is largely because of a lack of transparency in the VA budget. The agency doesn’t make good accounting information readily available. On top of these opaque budgeting practices, little information is available on the effectiveness of the current iteration of the GI Bill, how schools spend that money, or the degree to which veterans actually benefit from these programs. That’s starting to change. But policymakers can do more.

President Obama issued an executive order last week to crack down on how schools use VA and Department of Defense (DoD) funds. (Benefits for veterans are provided through a slew of VA programs, most notably the Post-9/11 GI Bill. Active duty servicemembers receive funding through the Department of Defense’s Tuition Assistance Program, rather than through the G.I. Bill.)

Under the president’s order, all schools enrolled in VA’s Post-9/11 GI Bill program (approximately 6,000 institutions) will be encouraged—and all DoD Tuition Assistance participating institutions mandated—to improve transparency and provide documentation of tuition and fees, financial aid information, and details of student outcomes at the school – much like the Consumer Financial Protection Bureau’s (CFPB) proposed “Know Before You Owe” sheet. The order also restricts the recruiting practices of Institutions participating in veterans education benefit programs.

Every year the Department of Veterans Affairs (VA) directs a huge chunk of federal spending to higher education for veterans education benefits — more than $1.7 billion in the 2009-10 school year alone. But VA education benefits are often overlooked in education policy discussions. This is largely because of a lack of transparency in the VA budget. The agency doesn’t make good accounting information readily available. On top of these opaque budgeting practices, little information is available on the effectiveness of the current iteration of the GI Bill, how schools spend that money, or the degree to which veterans actually benefit from these programs. That’s starting to change. But policymakers can do more.

President Obama issued an executive order last week to crack down on how schools use VA and Department of Defense (DoD) funds. (Benefits for veterans are provided through a slew of VA programs, most notably the Post-9/11 GI Bill. Active duty servicemembers receive funding through the Department of Defense’s Tuition Assistance Program, rather than through the G.I. Bill.)

Under the president’s order, all schools enrolled in VA’s Post-9/11 GI Bill program (approximately 6,000 institutions) will be encouraged—and all DoD Tuition Assistance participating institutions mandated—to improve transparency and provide documentation of tuition and fees, financial aid information, and details of student outcomes at the school – much like the Consumer Financial Protection Bureau’s (CFPB) proposed “Know Before You Owe” sheet. The order also restricts the recruiting practices of Institutions participating in veterans education benefit programs.

The president’s executive order seeks to improve the quality of services the DoD and VA provide students by developing a complaint system whereby the agency quickly responds to concerns about funding or support services. Media reports earlier this year revealed disturbing figures concerning VA administrative failures. Tens of thousands of veterans education benefits were stalled in processing – as many as 62,000 applicants in one branch alone. As a result, tuition payments hadn’t reached many schools and housing stipends were delayed for months in many cases.  The VA argued that during peak enrollment periods, it often experiences backlog. 

Separately, a new report from the Center for American Progress (CAP), “Easing the Transition from Combat to Classroom,” provides some previously unavailable information on veterans education benefits that also helps to illuminate some of the delays in processing mentioned above. Largely thanks to the passage of the Post-9/11 GI Bill, VA has seen a dramatic increase in federal education funding in recent years commensurate with increasing numbers of veterans and major enrollment growth – 37 percent from 2009 to 2010.

But the administrative concerns that the president seeks to address in his executive order beg a larger question: What is the quality of VA oversight?

Though lawmakers funnel a significant amount of education benefits to veterans through the VA, limited access to information about those funds and programs mean veterans—and taxpayers—are often left in the dark. Public funds are spent with minimal information as to the success of federal efforts. The president’s order may shine a light on certain aspects of VA Post-9/11 GI Bill, but it may not go far enough to provide veterans what they were promised – access to equitable and high-quality education.  That’s going to require more oversight and regulation from the White House and Congress.

Yes, the interest rate on some federal student loans is set to double this July from 3.4 percent to 6.8 percent unless Congress acts. And every news story and sound bite on the issue tells us the big numbers at stake. Seven million borrowers will be affected… The rate hike will cost borrowers an additional $1,000… Outstanding student loans total $1 trillion… Maintaining the lower rate will cost taxpayers $6 billion a year. But now consider the small numbers at stake, the numbers that no one is talking about.

One year. That’s the number of years for which students have been able to take out loans at the 3.4 percent interest rate. Under current law, only Subsidized Stafford loans issued to undergraduate students for the 2011-12 school year qualify for the 3.4 percent rate. All loans issued earlier carry higher rates. It is also important to keep in mind that previously-issued loans will not be subject to the rate hike. The interest rate changes apply only to newly-issued loans.

One (more) year. That’s the number of years that borrowers would be able to take out Subsidized Stafford loans under President Obama’s proposal.  Loans issued in the following school year will again carry the 6.8 percent interest rate. Republican presidential candidate Mitt Romney supports the one-year extension, too. 

12 percent.  That is the share of dependent undergraduate students that will take out Subsidized Stafford loans who come from families earning incomes of $100,000 or higher. Eligibility rules for Subsidized Stafford loans take the “cost of attendance” into account, so students from high-income families attending the most expensive institutions of higher education can qualify for the lower rate. Meanwhile, students from families with lower incomes attending less expensive schools do not qualify for the 3.4 percent rate; they must pay the 6.8 percent rate.

The U.S. Department of Education this month announced that it has developed a preliminary plan to increase reporting requirements for graduation rates at colleges and universities. The “Action Plan for Improving Measures of Postsecondary Success” was developed around input from the Committee on Measures of Student Success (CMSS), a committee appointed by the Department of Education as required by the passage of the Higher Education Opportunity Act of 2008. The pending regulations, which the Department is crafting both for two-year and four-year colleges, are intended to provide a fuller picture of college completion rates. But although the new graduation rates will pull more students under their umbrellas, schools may struggle to meet the data collection needs they trigger.

Community colleges particularly stand to benefit from the new regulations because part-time and transfer students, currently excluded from completion rate calculations, make up a large portion of enrolled students. Returning students – those in degree- or certificate-granting programs who are not entering college for the first time – may also be counted in the new completion rates.

Under the current system by which schools report graduation rates to the Department of Education, the measure is limited to students who complete community college with a degree or certificate. The metric does not give community colleges any credit for students who transfer to four-year institutions, even though that fulfills a central goal of community colleges. Furthermore, schools are not necessarily required to report transfer-out rates, and those that do face difficulties caused by limited data or capacity to analyze existing data. Although the Integrated Postsecondary Education Data System (IPEDS) reports both graduation rates and transfer-out rates, it reports them separately.

Yes, the interest rate on some federal student loans is set to double this July from 3.4 percent to 6.8 percent unless Congress acts. And every news story and sound bite on the issue tells us the big numbers at stake. Seven million borrowers will be affected… The rate hike will cost borrowers an additional $1,000… Outstanding student loans total $1 trillion… Maintaining the lower rate will cost taxpayers $6 billion a year. But now consider the small numbers at stake, the numbers that no one is talking about.

One year. That’s the number of years for which students have been able to take out loans at the 3.4 percent interest rate. Under current law, only Subsidized Stafford loans issued to undergraduate students for the 2011-12 school year qualify for the 3.4 percent rate. All loans issued earlier carry higher rates. It is also important to keep in mind that previously-issued loans will not be subject to the rate hike. The interest rate changes apply only to newly-issued loans.

One (more) year. That’s the number of years that borrowers would be able to take out Subsidized Stafford loans under President Obama’s proposal.  Loans issued in the following school year will again carry the 6.8 percent interest rate. Republican presidential candidate Mitt Romney supports the one-year extension, too. 

12 percent.  That is the share of dependent undergraduate students that will take out Subsidized Stafford loans who come from families earning incomes of $100,000 or higher. Eligibility rules for Subsidized Stafford loans take the “cost of attendance” into account, so students from high-income families attending the most expensive institutions of higher education can qualify for the lower rate. Meanwhile, students from families with lower incomes attending less expensive schools do not qualify for the 3.4 percent rate; they must pay the 6.8 percent rate.

One-third. That’s the share of all newly-issued federal student loans that qualify for the 3.4 percent rate under current law and under the one-year extension proposed by the president. The loans are available only to undergraduate students who qualify for a Subsidized Stafford loan by meeting a family income and ‘cost of attendance’ test, a subset of borrowers who will account for one-third of all federal student loans next year. The remaining 66 percent of loans will be made to all other undergraduate and graduate borrowers through Unsubsidized Stafford loans at the 6.8 percent rate, and parents of undergraduates or graduate students who exhaust their Stafford loan eligibility borrowing through the PLUS loan program at a 7.9 percent interest rate.

3 percent. That is the approximate share of the $1 trillion in outstanding student debt that will carry the 3.4 percent interest rate extension this year. The lower rate applies only to newly-issued Subsidized Stafford loans to undergraduates, and therefore does not affect rates on the $1 trillion in outstanding loans. Newly-issued Subsidized Stafford loans to undergraduates will total about $30 billion this year.

$5,500. That is the maximum amount that third- and fourth-year students can borrow at the 3.4 percent interest rate under current law and under the proposed one-year extension of the policy.

$9. The amount a borrower will save each month with a 3.4 percent rate compared to the 6.8 percent rate, assuming he borrows the $5,550 maximum allowable amount as a third- or fourth-year student.

$3,500. The maximum a first-year student can borrow at the 3.4 percent interest rate under current law and under the proposed one-year extension of the policy.

$0. How much lower a first-year student’s monthly payment will be at the 3.4 percent compared to the 6.8 percent rate, assuming he borrows the maximum amount. Borrowers must make monthly payments of at least $50 in repaying federal student loans. The first-year borrowing limit of $3,500 is low enough that under either interest rate, the minimum monthly payment is $50. To be sure, a borrower will make 79 monthly payments of $50 instead of 90 monthly payments of that amount if the loan carries the 3.4 percent interest rate.

These ‘small numbers’ help illustrate that the stakes aren’t as big as many – including the president – claim they are with respect to extending the 3.4 percent interest rate on some student loans for one more year. Policymakers in Washington would do much better to focus their time and attention on designing a permanent solution to the $7 billion funding cliff the Pell Grant program faces in 2014 and developing student loan interest rates that are more than arbitrary numbers.

The U.S. Department of Education this month announced that it has developed a preliminary plan to increase reporting requirements for graduation rates at colleges and universities. The “Action Plan for Improving Measures of Postsecondary Success” was developed around input from the Committee on Measures of Student Success (CMSS), a committee appointed by the Department of Education as required by the passage of the Higher Education Opportunity Act of 2008. The pending regulations, which the Department is crafting both for two-year and four-year colleges, are intended to provide a fuller picture of college completion rates. But although the new graduation rates will pull more students under their umbrellas, schools may struggle to meet the data collection needs they trigger.

Community colleges particularly stand to benefit from the new regulations because part-time and transfer students, currently excluded from completion rate calculations, make up a large portion of enrolled students. Returning students – those in degree- or certificate-granting programs who are not entering college for the first time – may also be counted in the new completion rates.

Under the current system by which schools report graduation rates to the Department of Education, the measure is limited to students who complete community college with a degree or certificate. The metric does not give community colleges any credit for students who transfer to four-year institutions, even though that fulfills a central goal of community colleges. Furthermore, schools are not necessarily required to report transfer-out rates, and those that do face difficulties caused by limited data or capacity to analyze existing data. Although the Integrated Postsecondary Education Data System (IPEDS) reports both graduation rates and transfer-out rates, it reports them separately.

The Department of Education’s plan, following Committee recommendations, will include a requirement that institutions incorporate both graduates in degree or certification programs and students who transfer to a four-year degree-granting institution in its calculations of college completion rates. CMSS asserted that a combined graduation and transfer-out rate such as that one would provide a clearer picture of a school’s success.  

The Committee also recommended that institutions of higher education collect additional data, like the number of students earning a degree or certification in their two-year program who subsequently transferred to a four-year institution, those who transferred without completing their two-year program, and those who transferred after completing a two-year program but without earning a degree. Though the data collection requirements would be onerous, the information would provide a far more comprehensive view of schools’ outcomes. However, the Department did not adopt this recommendation in its plan. 

Recalculating graduation rates to include transfer-out students could bring community colleges much closer to President Obama’s goal—laid out in the American Graduation Initiative—of increasing the number of community college graduates by 5 million by 2020. According to the American Association of Community Colleges, counting those transfer students would increase the completion rate from 22 percent to 40 percent. (The Federal Education Budget Project, Ed Money Watch’s parent initiative, collects and displays the graduation and transfer-out rates for every community college that reports such data in its database.)

But perhaps the biggest hurdle for the new regulations is not defining them, but implementing them. To combat these challenges, the Committee recommended that the Department continue to incentivize states to create longitudinal data systems that track students’ postsecondary outcomes. And the Department’s action plan does, indeed, include references to the Statewide Longitudinal Data Systems grant program. It promises to help schools build capacity to collect and disseminate data.

Schools face significant challenges to implementation because there is no national system in place to track students’ transfers – something that would require substantial coordination across states and institutions. Even though some states might possess the capacity to track students within their own state, tracking that student across state lines becomes nearly impossible.

So the Committee also recommended that the Department establish a national data system requiring any school that administers federal student aid to collect and report to it comprehensive data on students (including those who transfer between schools). But such a system is explicitly disallowed under the Higher Education Opportunity Act of 2008 following outcries from privacy advocates and institutions wary of more extensive reporting requirements.

Although the Department has not yet issued a timeline on when it will start to implement the “Action Plan,” it remains to be seen whether schools will have the resources, time, and capacity to achieve the new standards without significant changes to their data collection and reporting systems. That would certainly be a costly endeavor in the current period of fiscal austerity. And without the ability to track students as they move around the country and across institutions, students—particularly those at the highest risk for jumping in and out of schools—could slip through the cracks.

The Federal Education Budget Project maintains the most comprehensive and easy-to-use database available on education funding, student demographics, and outcomes for every school district and institution of higher education in the country.Graduation rates and other data points for two- and four-year institutions are available from the Federal Education Budget Project here.

Going to college and getting an education has long been regarded as a reliable path out of poverty. And for good reason. Research by the Pew Economic Mobility Project shows that children in the bottom income quintile have a forty-five percent chance of remaining in the bottom quintile if they only have a high school education; those who get a college degree only have a sixteen percent chance. Likewise, the average college graduate makes $29,000 more per year than someone with only a high school diploma.

Yet when a college education isn’t even an option because of its excessive cost—as is increasingly the case for many U.S. families—this narrative falls apart. Today, the average American household must devote a significant portion of their annual income to tuition in order to make attending college a reality. Although in the long run the educational system needs greater structural changes, two policy reforms that would facilitate saving for college from a young age—the ASPIRE Act and improved 529 accounts—would allow a greater number of low-income students to access higher education.