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September Revenue Forecast Predicts Continued Gains

It is tempting to copy and paste our post from into this one, as the cites many of the same themes: continued federal budget instability, rising house prices in conjunction with possible interest rate hikes, and likely economic losses in Asia could disrupt the slow recovery currently underway. However, modest regional employment gains, an uptick in real estate excise tax revenue, and positive personal income growth propelled collections and revenue projections $345 million higher than June’s forecast for the current, 2013-15 biennium.

Interestingly, the 2011-13 biennium closed with an estimated positive variance, $23 million higher than the June forecast.

The Governor will base his 2013-15 supplemental budget on the November forecast, so continued revenue growth will be critical. As in June, the
revenue forecast did not include tax collections related to the sale of cannabis.

 

ED Begins Negotiating New Gainful Employment Rule

On Monday, the U.S. Education Department (ED) began formal negotiations on the draft language of a . The rule, originally published in 2011, was designed to enforce a requirement of the Higher Education Act that states career education programs鈥攏on-degree programs at all colleges and most degree programs at for-profit colleges鈥攎ust 鈥減repare students for gainful employment鈥 in order to participate in federal student aid programs. The rule was meant to discourage these programs from misusing federal aid dollars and leaving students with debt burdens they are unable to repay. However, in 2012 a federal judge rejected major provisions of the rule, requiring that ED rethink its strategy.

Here鈥檚 a summary of the changes:

  • The proposed rule applies to programs with as few as 10 students, whereas the old rule counted only career-focused programs with 30 or more students. Because of this change, ED estimates that the new rule could cover 11,359 programs at for-profit and nonprofit colleges鈥攏early twice as many as the old rule covered鈥攁nd that 974 of those programs (9 percent) could fail to meet the proposed standards.
  • The draft regulation omits loan repayment as a criterion for federal student aid eligibility. The old rule severed federal aid to programs where too few students were repaying their loans or where graduates’ debt-to-earnings and debt-to-discretionary-income ratios were too high. The new rule removes the loan repayment standards, which the courts deemed “arbitrary and capricious,鈥 and relies only on the latter two measures.
  • Debt-to-earnings calculations would be based only on students who receive federal aid, rather than students who complete the program. The old calculations were based on all students who completed the program, whereas the proposed calculations are based on any students who receive federal student loans and Pell Grants, regardless of whether they complete the program. As the rule is designed to ensure that federal aid is used effectively, this seems a more appropriate approach.
  • Schools would have fewer chances to improve their performance before losing federal aid eligibility. Under the previous rule, programs that failed the measures in 3 out of any 4 years would be ineligible for federal student aid. However, the new rule only lets programs fail in 2 out of any 3 years before they lose eligibility.

For details, see a prepared by the Education Department.听 Please continue to follow our blog as well as the for updates on this topic.

Oregon Passes Bill to Implement 鈥淧ay Forward, Pay Back鈥 Pilot Program

(This piece was originally posted on 07/11/2013, however听it was lost听due to听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.听But that鈥檚 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鈥檚 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?听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鈥檚 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鈥檚 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鈥 earning and unemployment rates; and
  • Create social and economic imbalance between Oregon and other states since students who expect to earn less鈥攅.g. social science and humanities majors鈥攚ould be incentivized to go to Oregon, and students expecting to earn more鈥攅.g. engineering and medical students鈥攚ould 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鈥檚 already exists in Australia. However, Australia鈥檚 version is administered at the federal level, meaning many problems inherent in Oregon鈥檚 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鈥檚 version, it has yet to go anywhere.听 We鈥檒l keep you posted.

Obama Releases College Affordability Plan

Last week, President Obama toured several colleges and universities promoting his to make college more accessible and affordable for “middle class” students. As he noted during several stops, achieving a higher education remains one of the most critical means by which citizens achieve job security and financial听 stability.

For more detailed information about the central themes of the President’s plans, as well as information about which components require action from Congress, please review a on the topic, as well as a from Federal Relations. More about the plans and .

 

Critique of 鈥淔or Public College, the Best Tuition Is No Tuition鈥

In 鈥,鈥 a recent opinion piece published by The Chronicle, the author describes the merits of Finland鈥檚 no-tuition education system. In Finland, 鈥渁ll education became public and free鈥 during the 1960s as part of a multipronged strategy to reform and improve education. The other prongs of the strategy involved strengthening the country鈥檚 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鈥檚 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鈥檚 basic education system, the author concludes that the US should model its higher education system after Finland鈥檚. However, a higher percentage of the US鈥檚 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鈥檚, the no-tuition strategy is not nearly as feasible as the author suggests. To determine whether Finland鈥檚 approach would be 鈥渁ffordable鈥 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鈥檚 model. It is unclear whether the author accidentally left out private non-profits and for-profits鈥攚hich would be converted to public institutions and made free under Finland鈥檚 model.听 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鈥檚 system that isn鈥檛 contemplated by the author is Finland鈥檚 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鈥檛 clear whether a standardized test could serve as a barrier to entry without significantly and profoundly harming less prepared students.

We鈥檙e 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鈥檛 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鈥檚 not a silver bullet.

States Shift Financial Aid Money toward Need-Based Aid and Grant Aid

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

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

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

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

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

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

  • $7.0 billion (74%) was need-based鈥攗p 6.3% from last year; and
  • $2.4 billion (26%) was non-need-based鈥攄own 9.4%.

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

  • $4.7 billion (47%) was exclusively need-based鈥攗p 6.0%;
  • $2.0 billion (20%) was awarded on a mix of need and merit criteria鈥攗p 1.6% and surpassing, for the first time ever, aid awarded solely on merit;
  • $1.9 billion (19%) was exclusively merit-based鈥攄own 1.3%; and
  • $1.4 billion (14%) was special purpose awards and uncategorized aid鈥 a 3.0% drop.

Change in Total State-Awarded Student Aid
Percent change from 2010-11 to 2011-12
Type of Student Aid Dollar amount Portion of total
Grant aid 1.7% 0.8%
Non-grant aid -4.2% -0.8%
Total aid 0.7%
Change in State-Awarded Grant Aid
Percent change from 2010-11 to 2011-12
Type of Grant Aid Dollar amount Portion of total
Need-based 6.3% 3.0%
Non-need-based -9.4% -3.0%
Total grant aid 1.7%
Change in State-Awarded Undergraduate Aid
Percent change from 2010-11 to 2011-12
Type of Undergrad Aid Dollar amount Portion of total
Exclusively need-based 6.0% 2.7%
Mixed need & merit-based 8.5% 1.6%
Exclusively merit-based -6.5% -1.3%
Uncategorized & other -17.4% -3.0%
Total undergraduate aid 0.0%

Federally Subsidized Student Loan Interest Rates Set to Double on July 1

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鈥檛 end up paying the increased rates.听 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.听 As the lender of the student loans, it is within the federal government鈥檚 power to apply such a solution retroactively.

The increase was originally scheduled to occur a year ago.听 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 article and please stay tuned to the for updates.

Supreme Court Decision on Fisher v. University of Texas

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

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

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

The Supreme Court鈥檚 ruling did not displace its 2003 decision in , which found educational diversity to be of sufficient importance to overcome the government鈥檚 standard ban on racial consideration. However, as reports, legal experts believe the court鈥檚 demanding 鈥渟trict scrutiny鈥 requirements will make it difficult for UT and many other institutions to successfully defend their use of race in admissions.

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

Washington’s June Revenue Forecast Shows Small Improvements

On Tuesday, June 18, the Washington State Economic & Revenue Forecast Council (ERFC) released its quarterly update of General Fund-State (GFS) revenues. Compared听with the , expected GFS revenues are up $110 million for the current biennium (2011-13) and $121 million for the next biennium (2013-15), meaning legislators have an additional $231 million to factor into their budget negotiations.

While these changes are positive, they represent very minor adjustments. Under the updated forecast, the state is expected to take in $30.65 billion in the current biennium and $32.66 billion in the next, thus the increases represent adjustments of less than 0.5 percent each.

Most of the positive variance came from increases in forecasted housing construction, taxable real estate activity, and Revenue Act taxes. Real estate excise taxes came in $34 million (34 percent) higher than forecasted and Revenue Act taxes came in $54 million (2 percent) higher鈥攅xceeding the January 2008 pre-recession peak.听Lower than expected inflation and employment worked against these gains, but weren鈥檛 enough to negate them.听 Although Washington employment has been slowly increasing in most sectors (especially construction), aerospace and government employment are in decline.

It is important to note that much uncertainty surrounds the council鈥檚 2013-15 baseline forecast due to the Federal sequester, Europe鈥檚 recession, and China鈥檚 slowing economic growth. The ERFC gives its baseline a 50 percent probability and its optimistic and pessimistic alternative forecasts 20 percent and 30 percent respectively.听The optimistic forecast is $2.5 billion above the baseline and the pessimistic forecast is $2.5 billion below.

In addition, it should be noted that, like the March forecast, the June update did not assume any revenue from taxable marijuana sales as the Federal Government鈥檚 response to Initiative 502 is still unclear.

Some state lawmakers are optimistic that the new forecast will expedite their budget negotiations; however, the two sides鈥 have a ways to go before the end of the fiscal year on June 30th (12 days from now). 鈥淲e鈥檒l get closer as a result of this,鈥 said Representative Ross Hunter during a press conference Tuesday morning.

Senate Releases Revised Budget Proposal

On Saturday, the Senate released a , which closely resembles the budget they passed in April.听For the UW, the two budgets differ in just a few ways:

  • Unlike the original Senate budget, the revised budget does not include a $12.5M transfer away听from the 91探花Hospital Account;
  • The revised budget does not cut the 91探花by $3.2M for 鈥渁dministrative efficiencies鈥 that were assumed in the original budget; but
  • Compared to the original proposal, the revised budget provides the 91探花with $3.2M less in new funding.

The latter two changes essentially nullify each other.听A few additional changes occurred with regards to state employee health benefits; we are working to interpret the effects and will provide more information as soon as possible.

As mentioned, the revised Senate budget doesn鈥檛 stray far from the original. Just like the Senate鈥檚 original proposal, its revised budget:

  • Provides the 91探花with $479.6M (General Fund and Education Legacy Trust funds) for听the 2013-15 biennium鈥$10.2M of which is one-time performance-based funding;
  • Assumes 0% tuition increases for resident undergraduates;
  • Preserves tuition setting authority, but nullifies that authority if either SB 5883 or SB 5941 pass (the bills would require the 91探花to decrease resident undergraduate tuition rates by 3 percent for the 2013-15 biennium and limit future resident undergrad tuition growth to the rate of inflation); and
  • Generates 鈥渘ew鈥 funding for higher education by imposing a 20 percent tuition surcharge on international students at the state鈥檚 public colleges and universities.

For more information about the original Senate proposal, please see the .