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With so many Americans concerned about college costs and student loan debt, there are more and more proposals to improve college affordability and reduce or even eliminate students’ need for loans. Yet most of the proposals are not very detailed at this point, and the details matter.

One critical detail is which costs are covered. To make a real difference for low-income students, any debt-free college plan must take the full cost of going to college into account, including textbooks, transportation, and living costs like food and housing. These non-tuition costs make up the majority of the full cost of attending a public two- or four-year college (61%-79%), yet their importance is too frequently overlooked. Students may only need to pay the tuition bill to enroll in college, but to succeed in school and graduate they need to be able to cover the other costs, too. Students who can’t get to campus or can’t get the required books won’t benefit from their classes. Students who have to work long hours to pay for rent or child care don’t have enough time to study.

Students can use grants like the federal Pell Grant to help pay for either tuition or non-tuition costs. But many lower income students have to take out loans because available grants don’t cover their total costs. In fact, national data show that lower income students (those with incomes at or below the median) who attend public colleges “tuition free” are currently much more likely to borrow than higher income students who pay for some or all of their tuition bill. This underscores why plans to eliminate debt cannot just focus on tuition.

 

This is worth repeating: low-income students who are already attending college “tuition free” are more likely to need loans. To understand why, we have to look at students’ total net costs (cost of attendance after grant aid) as a share of family income.

Data show that the net costs of attending public two-year and four-year colleges account for a much larger share of income for lower income families than for higher income families. As a result, more lower income students have to borrow to get their degree. For instance, as shown below, community college students with family incomes under $30,000 are expected to dedicate 22% of their income toward paying for college. Unsurprisingly, graduates in this income range are more likely to leave school with debt than students from families who can better absorb net college costs. 


This is why ensuring a debt-free college option requires more than covering tuition costs.  It requires providing additional grant aid for lower income students who may already be going to college “tuition free,” and as we have discussed before, it requires a state “maintenance of effort” provision to ensure states hold up their end of the bargain.  

 

Calculations by TICAS on data from the U.S. Department of Education, National Postsecondary Student Aid Study, 2011-12. Median income is based on family incomes for students enrolled in college in 2011-12. Students are classified as attending tuition-free if their tuition net of grant aid is zero, and as paying tuition if their tuition net of grant aid is greater than zero.

U.S. Department of Education calculations of 2012-13 net price for first-time, full time undergraduate recipients of federal Title IV financial aid, from http://nces.ed.gov/pubs2014/2014105.pdf, based on figures reported by colleges to the Department via the Integrated Postsecondary Education Data System. To calculate the shares of income needed to pay the net price, we used the upper bound of the income range (i.e., $30,000 for the $0-30,000 group) when available, and $145,000 for the income range of $110,001 and above which is approximately the median income for students in this group. Graduates’ debt figures from U.S. Department of Education, NPSAS, and include undergraduate students who completed a degree or certificate in 2011-12. Both net price and debt calculations are the most recent available of their kind. 

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Many low-income students who get enough aid to cover their tuition still struggle to pay for other basic college costs, including textbooks, transportation, room and board. These make up most of the cost of college for students at public four-year and community colleges. That’s why free tuition alone won’t solve the college affordability problem. The America’s College Promise Act introduced yesterday recognizes this by adding something with the potential to be far more transformative: a "maintenance of effort" provision aimed at making states hold up their end of the bargain when it comes to college funding.

States are critical players in keeping college affordable, but they have also been complicit in the rise of tuition and student loan debt by letting higher education get squeezed out of state budgets. The decline in per-student state funding for higher education has been well documented, as has the resulting impact on public college costs. Without federal intervention, higher education funding is likely to keep getting squeezed out, to the detriment of students, families and our economy. The legislation introduced yesterday includes such an intervention: it requires states to keep their funding levels up, in addition to eliminating tuition at community colleges, if they want to access new federal dollars. That’s why the state maintenance of effort requirement in the legislation is so important.

States can adopt proposals labeled “free college” that do little or nothing to make college more affordable for low- and moderate-income students. That’s what happened in Tennessee: it created a “last-dollar scholarship” that only helps students who don’t get enough from other grants to cover tuition. Oregon is poised to do something similar with $10 million, although some students will receive up to $1,000 for non-tuition expenses. Significantly, Oregon also increased need-based grant aid for low-income students by $27 million, which is critical because only one in five poor students who apply receives this state grant aid due to lack of funding.

We want states to invest in college affordability and debt-free college options, not in programs that may sound good but don’t make college more affordable for low- and moderate-income students. If we’re serious about increasing affordability and reducing debt, we need to help low-income students cover more of their costs. The America’s College Promise Act would free up community college students’ federal Pell Grants to cover non-tuition expenses by requiring states to waive tuition. This helps low-income students cover non-tuition expenses; using Pell Grants to declare tuition “free” for low-income students does not. After all, Pell Grant recipients, most of whom have family incomes under $40,000, are currently more than twice as likely to have to borrow and they graduate with more debt.    

Making college affordable requires state investment in higher education.  We commend the bill’s sponsors for tackling state disinvestment in public colleges—the primary driver of rising college costs and student debt in America. 

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The 2015-16 California budget agreement announced today includes much needed and long-overdue increases to need-based state financial aid.

First, the agreement includes the first-ever increase to the number of competitive Cal Grants, which TICAS and 17 other organizations called one of the “most effective financial aid investments the state can make." Competitive grants are available to students more than one year out of high school, but there are currently 17 eligible applicants for every grant. The budget agreement increases the number of grants by nearly 15%, from 22,500 to 25,750. While the overwhelming majority of competitive grant applicants will continue to be turned away even with this increase, it is an enormously important step that will help make college more affordable for thousands of additional students.

The agreement also includes $39 million in financial aid for full-time community college students, to be distributed as supplements to the Cal Grant B access awards which help students cover non-tuition costs of attendance like textbooks and transportation, and $3 million in administrative funds for community college financial aid offices. The creation of these supplemental awards, an idea championed by the Assembly, targets necessary support to the students who most need to limit their work hours to study, and at the colleges where state and institutional grant aid is particularly scarce. In 2012-13, community colleges enrolled almost two-thirds of the state’s undergraduate students yet received just 6% of Cal Grant dollars. With the purchasing power of the Cal Grant B access award having fallen to just one-quarter of its original value ($1,656 in 2015-16 compared to an original grant value of over $6,000 in 2015 dollars), these stipends will help make up some of the difference for full-time community college students.

While these changes alone aren’t going to solve the state’s affordability challenges, they are hugely important steps in the right direction. The same is true about agreed-upon changes to the state’s Middle Class Scholarship program, including the imposition of time limits and asset ceilings, which begin to bring the program more in line with Cal Grants. We thank the Legislature and Governor for recognizing the importance of investing in need-based financial aid, and look forward to working with them to build on these investments in the coming year.

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Before making decisions about college, consumers ought to be armed with information about costs, outcomes, and debt. Nutrition labels tell us what we’re putting into our bodies; the Kelley Blue Book helps buyers find a fair deal on a car; and medicines warn patients about potentially dangerous side effects. Students also need basic consumer information to help them decide where to go to college and how to pay for it, including how much they are likely to end up having to borrow and the types of loans available to them. Unfortunately, these critical facts aren’t available for all California schools.

California Assembly Bill 721, introduced by Assemblymember Jose Medina, would help to ensure that students have clear and comparable information about student loans and debt, so they can decide where to enroll and how to pay for it. Specifically, AB 721 would require California colleges to do the following:

  1. Annually calculate and disclose college graduates’ debt at graduation. For the class of 2013, colleges representing 89% of bachelor’s degree recipients from public and nonprofit schools in the state voluntarily calculated and reported these figures – including all University of California campuses, most California State University campuses, and many nonprofit colleges. But, while for-profit colleges have the highest average borrowing and debt levels, only one in California reported its graduates’ debt. Requiring colleges to disclose their graduates’ loan debt will improve transparency for students and oversight for policymakers.
     
  2. Ensure that institutions do not certify students’ requests for private loans before informing them about untapped federal aid eligibility. Experts agree that federal student loans, which offer key consumer protections including low, fixed interest rates, income-driven repayment plans, and public service loan forgiveness, are by far the safest way to borrow. But almost half (47%) of private loan borrowers nationally borrow less than they could in safer federal student loans.
     
  3. Require institutions that do not participate in the federal loan program to disclose that they do not offer federal loans. At least 22 California community colleges enrolling more than 250,000 students do not offer federal loans, which can lead students to turn to riskier options like private loans, working excessive hours, reducing college credits, or dropping out altogether. At many non-participating colleges, it is not apparent to students that federal loans are unavailable until they need one.

We commend Assemblymember Medina for authoring this important, common-sense legislation in California, where more than one in eight U.S. undergraduates go to college. And we urge other state and federal lawmakers to follow suit.

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We commend the California State Legislature for taking another significant step towards improving college affordability by strengthening financial aid for low-income Californians at all types of colleges. The Conference Committee on the Budget agreed earlier this week to increase the number of annually authorized competitive Cal Grants, the grants available to students who do not enroll in college straight after high school, to 38,750 (up from 22,500). It also agreed to increase the size of the Cal Grant B access award, which helps low-income students pay for non-tuition costs, to $1,804 (up from an expected $1,656 in 2015-16), as well as to extend prior legislation that would provide for more increases in future years. The Committee also approved a plan to use Proposition 98 funds to further strengthen financial aid at California’s community colleges in particular, which serve the vast majority of the state’s low-income, Latino, and African-American students. Together, these actions provide a clear mandate for the most effective financial aid investments the state can make to promote access, affordability, and success for students who need help the most.

California needs 2.3 million college graduates beyond current projections by 2025 to remain competitive, so deepening the financial aid investments that make college possible for so many is critical. Yet on key indicators, the state is falling increasingly behind: with only one grant for every seventeen eligible applicants, a competitive Cal Grant applicant could drive to Las Vegas and be more likely to win money for college by gambling than be offered a grant.

The Legislature has spoken loudly and clearly that strengthening competitive Cal Grants and the Cal Grant B access award are priorities for budget spending. We urge the Governor to do the same by approving these actions in the 2015-16 state budget. 

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From a financial aid perspective, California Governor Brown’s revised budget released earlier today looks a lot like his January proposal. That’s a shame, because it provides no new funding for state financial aid programs beyond an expected increase to the Middle Class Scholarship. While we are disappointed that need-based financial aid wasn’t prioritized, we appreciate that the budget formalizes a much needed albeit modest $1.9 million increase to raise low-income students’ grants for non-tuition costs (from $1,648 to $1,656), driven by legislation championed last year by Senator Kevin de León.

In spite of a growing economy, college affordability remains a substantial challenge for Californians, particularly the state’s lowest-income students. The majority of college students in the state – and the vast majority of those with low incomes – attend community college, where tuition and fees are low but total costs are quite high. Factoring in textbooks, transportation, and living expenses, total costs for community college students can exceed $18,000. But low-income students at community colleges get much less in grant aid than students elsewhere, leaving them with more costs to cover out of pocket.

As we have documented, even amongst students at the same type of college, college costs are most burdensome for the lowest income students. For instance, even after accounting for existing grant aid, college costs eat up far greater shares of family income for low-income students than for higher income students at both the California State University and the University of California.  Is it then a surprise that low-income students are more likely to graduate with debt than their higher income peers?

For students with limited resources, need-based financial aid can mean the difference between a high school diploma and a college credential. While the $1.8 billion Cal Grant program has done much to bring college within reach for many Californians, there’s clearly room for improvement. Because there aren’t nearly enough grants to go around, a growing number of eligible students are being turned away from the program – most of whom are living in poverty. Meanwhile, the grants for the lowest income students in particular hold just a fraction of their original purchasing power.

That’s why our Cal Grant recommendations – along with those of more than a dozen other groups representing students, civil rights, and business – have focused on increasing the number of competitive Cal Grants available, so eligible applicants have a fighting chance of getting a grant; and strengthening the Cal Grant B access award, which helps the lowest income students pay for non-tuition costs.

California cannot get ahead by leaving a growing number of low-income students behind. We look forward to working with the Governor and Legislature to shape a 2015-16 budget that begins to right these inequities.

- Debbie Cochrane and Matthew La Rocque

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Yesterday, Corinthian Colleges abruptly closed its remaining 30 campuses in California, Arizona, Hawaii, New York, and Oregon, where 16,000 students were enrolled. While nothing can give these students back the time they spent at Corinthian, they deserve a fresh start.

The good news is that the Higher Education Act (HEA) provides for the discharge of students’ federal loans if a school closes before students finish their programs. In fact, the HEA says “the Secretary shall discharge” students’ loans, and the Education Department’s regulations specify that the Secretary will mail each borrower a discharge application and an explanation of the qualifications and procedures for obtaining a discharge.

The bad news is that the HEA does nothing similar to restore students’ eligibility for Pell Grants, which needy students can receive for no more than six academic years. Because the law doesn’t reset the clock on a student’s eligibility for Pell Grants when a school shuts down, low-income students may not be eligible for enough aid to complete a program anywhere else.

For example, the students enrolled in the pharmacy technician certificate program at Corinthian’s Everest College in West Los Angeles – which cost more than $11,000, and had a 25% job placement rate and a 35% student loan default rate – will be able to get their federal loans discharged, but they won’t get their Pell Grant eligibility restored to what it was before they enrolled at Everest. As a result, they may not have enough Pell Grant eligibility left to complete the much lower cost pharmacy tech program at the nearby community college. 

For the more than 12,000 Pell Grant recipients estimated to be enrolled at the Corinthian campuses that suddenly closed yesterday, this is an oversight needing swift correction.

How did Pell Grants get left out of the closed-school provisions? Prior to 2008, students could receive Pell Grants for as long as they were making satisfactory academic progress towards a degree or certificate. So if a school closed before a student could finish, the student didn’t need to worry about their Pell Grant eligibility running out. 

However, in 2008 Congress limited future Pell Grant eligibility to nine years.  Then, in 2011 Congress lowered this lifetime limit to six years and applied the new limit immediately and retroactively to all students, including those just a semester away from completing their degrees.

Unfortunately, Congress didn’t amend the HEA to restore students’ eligibility for Pell Grants when a school closes before they can finish. This was likely an oversight, not a conscious policy decision. As a result, the lowest income students at Corinthian campuses may not have enough Pell Grant eligibility left to complete a program at another school. 

It’s time to fix this harmful omission. In the last Congress, Representative Janice Hahn introduced the Protecting Students from Failing Institutions Act (HR 4860) to restore Pell Grant eligibility for students at campuses that close. We recommend going a step further: Pell Grant eligibility should be restored for any student who has their federal student loans discharged, either because their school closed or because of school fraud. Current and former Corinthian students deserve a true fresh start and the chance to get a meaningful degree or certificate at another school.  

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While the President’s proposed budget fully funds the scheduled increases in the maximum Pell Grant and continues to tie it to inflation after 2017, the FY16 House and Senate budget proposals freeze the maximum Pell Grant for 10 years. As recently as the mid 1980s, the maximum Pell Grant covered more than half of the average annual cost of attending a four-year public college. Freezing the maximum grant for the next 10 years would reduce the share of covered costs from an already record low of 29 percent in 2015-16 to just 20 percent by 2025-26, making college even less affordable.

Sources: Calculations by TICAS on data from the College Board, 2014,Trends in College Pricing 2014, Table 2, http://bit.ly/1F9qoJv; and U.S. Department of Education data on the maximum Pell Grant. The maximum Pell Grant for 2015-16 was announced in the Department of Education’s Pell Grant Payment and Disbursement Schedules,http://ifap.ed.gov/dpcletters/GEN1502.html. College costs are defined here as average total in-state tuition, fees, and room and board costs at public four-year colleges. Projected college costs for future years were estimated by using the average annual increase in costs over the most recent five years.

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Last year’s House Budget Resolution proposed charging students with financial need interest on their subsidized loans while they are still in school and using that money to reduce the deficit. In other words, the House Budget proposed increasing student debt to reduce government debt. Unfortunately, many expect that next week’s House and Senate Budget Resolutions will propose this change again, despite growing public concern about rising student debt and broad consensus on the importance of higher education and postsecondary training to the US economy.

Currently, undergraduates with financial need are eligible for subsidized Stafford loans, which do not accrue interest while students are enrolled at least half time or during the first six months after students leave school (the “grace period”). Eliminating this in-school and grace period subsidy (i.e., charging interest during these periods) would increase the cost of college by thousands of dollars for undergraduate students with financial need.

The charts below illustrate how much more a student would have to pay if the in-school and grace period interest subsidy were eliminated, assuming the student starts school in 2015-16, borrows the maximum subsidized student loan amount ($23,000), and graduates in five years.

Using current CBO interest rate projections, eliminating the in-school and grace period interest subsidy on subsidized Stafford loans would cause this student to enter repayment with $3,750 in additional debt due to accrued interest charges. As a result, she would end up repaying $4,900 (16%) more over 10 years and $6,900 (16%) more if she repaid over 25 years.

The added costs to students will be even higher when interest rates in the economy rise from their current levels, which are still historically low. If the undergraduate Stafford loan interest rate hits the statutory cap of 8.25%, eliminating the in-school and grace period interest subsidy on subsidized Stafford loans would cause this student to enter repayment with $5,700 in additional debt due to accrued interest charges. As a result, she would end up repaying $8,350 (25%) more over 10 years and $13,450 (25%) more if she repaid over 25 years.

At a time when higher education has never been more important or more difficult to afford, we should not be trying to balance the budget on the backs of students. We need to be doing more, not less, to keep college within reach for all Americans.

Note: More than four in five (82%) undergraduates with subsidized loans also have unsubsidized loans. If this student borrowed unsubsidized loans in addition to her subsidized loans and entered repayment with more than $30,000 in debt, she would qualify for a 25-year repayment plan

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Earlier today, California Governor Jerry Brown released his proposed budget for the 2015-16 fiscal year, and it includes some much-needed resources for higher education. For the state’s public universities it provides new funding, contingent upon UC and CSU keeping tuition flat, and it supplies community colleges with more funding, including $200 million to invest in student success. Within financial aid programs, the budget plan includes a boost to the Middle Class Scholarship program. Adding the Governor’s proposal to the State Senate Democrats’ and the State Assembly Speaker’s plans, it is certain that 2015 is going to be an important year for higher education. It is now clear that college affordability is a universal priority, and that the Governor, Assembly, and Senate all want to do more to help low-income students pay for college. That is great news. What is also clear is that those parties disagree on the best way to do this. Here is what we at TICAS see as the top two priorities for new financial aid investments:

1. Help more eligible students get Cal Grant awards. Less than one quarter of the lowest income students in California who apply for federal aid receive a Cal Grant. For students who don’t apply within a year of graduating high school, there are only 22,500 grants available, and there are hundreds of thousands of eligible applicants. This means that the odds of an eligible applicant getting a Cal Grant are lower than the odds of getting into an Ivy League school. The students turned away empty handed have an average family income less than $21,000 and a family size of three.

2. Increase the size of the Cal Grant B access award. Total college costs go beyond tuition and fees – textbooks, food, housing, and transportation are all necessary to be a successful student. The Cal Grant B access award provides needy students – many with family incomes several thousand dollars below the poverty level – with resources to pay for these crucial college costs. While important progress was made in 2014, the award still lags far behind where it should be. Adjusted for inflation, the original access award would today have a value of over $6,000, almost four times today’s maximum award of $1,648.

College isn’t easily affordable these days for many families, but for some, costs are an insurmountable barrier to getting to college and graduating. Research shows that college costs comprise the largest share of family income for the lowest income students, and low-income students are much more likely to graduate with debt than their higher income peers. Need-based financial aid – like the Cal Grant program – can help to bring higher education within reach for these families. Yet hundreds of thousands of the students least able to afford college do not receive state grants simply because there are not enough. And the stagnation of Cal Grant B access awards means that on average the lowest income Cal Grant recipients receive smaller grants than higher income recipients. These are critically important points that must remain front and center as the debate around higher education investments evolves. We look forward to working with the Governor and Legislature to shape a 2015-16 budget that strengthens college affordability for the students who need the help most. - Debbie Cochrane and Laura Szabo-Kubitz

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