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New Report Suggests Graduate Student Debt Deserves Legislative Attention

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A recent report by New America, titled , reveals that much of the nation鈥檚 鈥�$1 trillion in outstanding federal student debt鈥� 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鈥攏ot just business school and medical school鈥攃omprises some of the largest increases in student borrowing between 2004 and 2012.听Thus, the authors recommend that legislators, journalists, and the public at large adjust their understanding of student debt to recognize that it鈥檚 not just undergraduate problem.

Most news stories highlight the debt of graduate students鈥攚hich tend to have much larger loan balances鈥攜et journalists typically don鈥檛 differentiate graduate debt from undergraduate debt.听 makes a compelling argument for why this lack of differentiation is a problem and why it deserves legislative attention:

鈥淭he 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 鈥渃ollege,鈥� largely because a bachelor鈥檚 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鈥檚 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鈥檛 need a lot of public support to finance their next credential, which is why there are no Pell Grants for master鈥檚 degrees. That spike in debt for graduate degrees should also focus policymakers鈥� attention on an impending tidal wave of loan forgiveness for graduate students and the lack of loan limits for students pursuing graduate degrees.鈥�

You can read more about New America鈥檚 report at and .

Small Changes Made to Draft Gainful Employment Rules

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Over the past few months, the Department of Education鈥檚 attempts to overhaul the controversial gainful employment rule legislation on this blog. This week, the Department moved closer to releasing a final version of the law. Its new set of draft rules is very similar to , in that individual programs would be judged on a set of debt-to-earnings ratios and a program cohort default rate (CDR).听 Specifically:

  • For debt-to-earnings ratios, a program would fail if its graduates鈥� loan payments equal more than 12 percent of their incomes or more than 30 percent of their discretionary incomes.听 If a program failed both the annual and the discretionary standards twice in three years, it would lose eligibility for federal financial aid.
  • For the program CDR, a program would lose federal aid eligibility if 30 percent or more of its graduates who entered repayment defaulted on their loans within three years.

As with the previous draft, these two tests would operate independently from one another, meaning a program that passes one would not be safeguarded if it failed the other.

Although this is all consistent with the previous draft, there were a few noteworthy changes, including:

  • In order for a program to be held annually accountable to the debt-to-earnings measures, it must have at least 30 graduates鈥攔ather than 10, which was in the previous draft. Smaller programs will still have data aggregated over four years, thus accountability isn鈥檛 removed for them, just delayed.
  • Instead of assuming a 10 year repayment period for borrowers across the board, the new proposal extends it to 15 years for bachelor鈥檚 and master鈥檚 programs, and to 20 years for doctoral programs.

As a result of these two changes, the new proposal is very similar to the 2011 law; however, the inclusion of the cohort default rate remains an important difference. The 2011 law was struck down by a judge because the default calculation used in the original rules was deemed 鈥渁rbitrary and capricious.鈥� The Department believes the new policy will be more resilient to legal challenges because it holds programs to the same CDR standards to which institutions are held by the Higher Education Act.

provides a very thorough analysis of some of the more subtle changes, and is an excellent resource for additional information.

Secretary of Education Arne Duncan estimates that under these rules, roughly 20 percent of current vocational programs at for-profits and community colleges would fail and 10 percent would be in 鈥渢he zone鈥濃�攎eaning a program would have to warn its students that it could become ineligible for federal aid.

As can be expected, the for-profit sector was to the new rules, claiming they would limit access and opportunity for the neediest students. Community colleges, however, were happy to see the proposal would allow 鈥渋n the zone鈥� programs to appeal if less than half of its graduates take on debt.

Now that the rules have been released, there will be a 60 day public comment period on the draft legislation. The Department hopes to release its final proposal in a few months.

Special Report on State Disinvestment in Public Higher Education

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The Chronicle of Higher Education recently published a special report on public colleges, detailing how state funding declines and rising tuition have put increasing pressure on largely need blind public colleges and the students they enroll. The first section of the report, 鈥�,鈥� shows the decline in state funding for higher education through the eyes of six interested parties鈥攁 lobbyist, an anti-tax activist, a state Senate member, a Governor, a higher education advocate, and a university president. The second essay, 鈥�,鈥� cautions that state disinvestment in higher education has shifted the cost burden such that students and their families pay for more than half of their education in many states. The third piece, 鈥�,鈥� warns that public higher education no longer serves as a ladder for upward mobility, since college costs are often too much for low-income students to bear and financial aid has not kept up with rising tuition. The fourth and fifth sections, 鈥�鈥� and 鈥�鈥� contain info-graphics that show the decline in state support for public colleges between 1987 and 2012, as well as detail the cost sharing breakdown between students and the state.

The Office of Planning & Budgeting has done similar analyses in the past few years. Despite the fall in state support, the 91探花has remained committed to providing generous need-based financial aid. As a result, the net price of attending the 91探花is $9,395. Check out OPB鈥檚 analysis of net price at the 91探花and our peer institutions

To read the full special report, check out the Chronicle鈥檚 .

President Obama Releases His FY2015 Budget

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Yesterday, March 4th, President Obama submitted his fiscal year 2015 budget request to Congress.听 has published their听analysis听of the budget as has .

TICAS states that the President鈥檚 proposal 鈥渢akes important steps towards making college affordable for Americans by reducing the need to borrow and making federal student loan payments more manageable.鈥� Specifically, his budget:

  • Invests in Pell Grants and prevents them from being taxed. 听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, 鈥渢he 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.鈥�
  • Makes the American Opportunity Tax Credit (AOTC) permanent. 听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.听 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鈥檚 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.听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.听 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鈥檚 notes that the budget also proposes $56 billion for an 鈥淥pportunity, Growth and Security Initiative,鈥� which 鈥渁ims to effectively replace the remaining FY2015 sequestration cuts for nondefense discretionary programs 鈥� the programs we care about the most.鈥� Please stay tuned to their blog for more information and updates.

Updated House and Senate Supplemental Budget Brief

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We have updated the听听we posted on February 27th, to reflect additional information regarding the employee health insurance related agency reductions. Both the House and Senate budget would decrease agency contributions for employee health benefits. The House budget cuts state funding by $7.6 million and the Senate budget cuts state funding by $4.4 million.听However, both of these reductions are offset by lower per employee spending 鈥渓imits鈥� on benefits. The House budget听would reduce monthly employer funding to $658 per eligible employee. The Senate budget would reduce monthly听employer funding to $703 per eligible employee.

“Pay It Forward鈥� Is really 鈥淧ay It Yourself and Pay More Than Ever”

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On Thursday, The Equity Line, a blog by , posted a (PIF) that discusses some of PIF鈥檚 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 .

The Equity Line鈥檚 blog post highlights that although PIF is marketed as a 鈥渄ebt-free鈥� 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 鈥� who currently receive federal, state, and institutional grants to cover tuition and fees 鈥� 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鈥檚 budget, that student鈥檚 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 鈥淧ay It Forward,鈥� it鈥檚 really 鈥淧ay It Yourself and Pay More Than Ever.鈥�

House and Senate Release Supplemental Operating and Capital Budgets

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Leadership in both the House and Senate fiscal committees released supplemental operating and capital budgets this week, proposing technical corrections and appropriation changes to the current 2013-15 biennial budgets (primarily applicable to FY15). Please see the full for information on each proposal.

As a reminder, both budgets will be amended in respective committees, and possibly on each chamber floor, before negotiations begin towards a compromise budget.

 

News Roundup on 鈥淚ncreasing College Opportunity” Initiative

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As you may have heard, President Obama recently announced his “” initiative, which aims to help more low-income and underrepresented minority students attend and complete college. On January 16th, the White House hosted a summit of the more than 100 colleges, universities, nonprofits, and foundations that made commitments to increase college opportunity. The Chronicle provides a of these commitments.

News coverage of the summit and the initiative includes the following:

  • 91探花Today鈥檚 article gives an overview of the UW鈥檚 commitments and highlights how the 91探花already has many achievements related to the provision of accessible degrees to students of all economic backgrounds.
  • The Seattle Times published 鈥�,鈥� which focuses on the efforts and commitments of three Washington colleges who were invited to the summit to share lessons from their campuses鈥擫ake Washington Institute of Technology, University of Puget Sound, and Tacoma Community College. The 91探花is not mentioned.
  • The Chronicle put out an article titled, 鈥�.鈥� It comments on the important role community colleges play in improving access and notes the dearth of community college participants at the summit.
  • The Chronicle also published a piece called 鈥溾��. The article notes many optimistic comments made by participants. But it also discusses the composition of summit participants and, again, remarks upon the imbalance between elite four-years and community colleges.
  • And lastly, Inside Higher Ed鈥檚 article 鈥溾�� gives a thorough description of the summit events and describes, in a relatively balanced way, discusses both the praises and criticisms of participants and observers.

Trend Towards Flat Budgets, Performance-Based Funding in Higher Education

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After years of budget cuts, most higher education lobbyists across the country expect flat or slightly increased funding for higher education during upcoming state legislative sessions. According to a survey by the American Association of State Colleges and Universities, three-quarters of states increased spending on higher education by more than 3 percent in the current fiscal year. Despite these efforts, funding for public colleges and universities is still well below 2008 funding levels. Many experts believe that this may be the new normal鈥攚ith continued economic uncertainty and many other programs, such as Medicaid, K-12 education, or state pensions, competing for the state鈥檚 resources, higher education may have to make do with less.

For those states that are increasing funding for higher education, the money is often coming with more strings attached. About 20 states have implemented performance-based funding, which ties state dollars to the accomplishment of certain goals, such as an increased graduation rate, lower student debt, or more STEM majors. Some states, including Washington, are also limiting tuition increases or requiring universities to divert more money to financial aid. While many higher education administrators welcome the chance to improve institutional efficiency and student outcomes, they are also wary of legislators setting unrealistic goals or failing to appreciate the complexity of their institutions.

Washington seems to be following the national trend, both in the expectation of flat or moderately increased funding in the coming session and in the likely adoption of performance-based funding. Governor Inslee鈥檚 includes some modest funding for select 91探花initiatives, but no across-the-board increase. The public institution-led Technical Incentive Funding Model Task Force is exploring ways to implement performance-based funding in Washington. To read more about either of these, check out our on Governor Inslee鈥檚 supplemental budget and the Technical Incentive Funding . To learn more about state budgets and performance funding nationally, check out this in the Chronicle of Higher Education and this in Inside Higher Ed.