Blog

It’s clear we need more student aid in California, and $1.5 billion could go a long way to reduce our state’s gaping inequities in college affordability and completion if spent right. However, the California Assembly’s $1.5 billion “Degrees Not Debt Scholarship” proposal unveiled today is unlikely to achieve those goals. While we applaud the desire to dedicate substantial new resources towards financial aid, and the proposal’s recognition that the cost of college extends well beyond the cost of tuition, the Assembly plan would provide generous awards to students with little or no need, and far less help to those with the biggest affordability barriers and most burdensome debt.

Here are our top questions and concerns:

  • How will the scholarships reduce debt burdens, as the program name suggests? We estimate that a low-income UC student would receive about $2,000 more in aid than they currently do, while a student with a six-figure income could get more than $15,000 more per year.  Yet half of all UC graduates who leave school with debt have family incomes under $52,000. Further, UC students who graduate with loans have average debt around $21,000. From the perspective of debt reduction, giving higher income students $15,000 per year is excessive, especially when most don’t borrow, and giving lower income students an additional $2,000 per year is not nearly enough.
     
  • What will the impact be on students of color? Cal Grant recipients at public colleges are more likely to be Latino, Black, Native American, or Pacific Islander, and more than half of UC and CSU students in these groups have family incomes of $50,000 or less.[1] Yet while low-income students’ disproportionate debt burden shows that their Cal Grants are not sufficient to address their needs, Cal Grant recipients would get smaller “Degrees Not Debt” scholarships than those with six-figure incomes. Many of the higher income students, who are disproportionately white, don’t even need the aid as defined under federal and state law.
     
  • Why does the plan leave out students at the schools where affordability challenges are often most severe? In many regions across the state, low-income community college students face higher college costs than UC or CSU students, yet community college students aren’t eligible for the scholarships. The Assembly’s separate proposal to increase Cal Grants for full-time community college students will help the small proportion of students who get a Cal Grant. But hundreds of thousands of students at the community colleges – as well as other colleges – can’t get Cal Grants because the program isn’t sufficiently funded, and half of them are living in poverty. Those students would get no additional support under the Assembly plan. Why should UC students with six-figure incomes get scholarships of $15,000 when high-achieving community college students living in poverty can’t get a Cal Grant worth a small fraction of that? For perspective, for a billion dollars, the state could give every eligible Cal Grant applicant an award.
     
  • Why does the Assembly plan diverge so sharply from the plan developed by the LAO, at the Assembly’s request? Last year, the Legislature, championed by the Assembly, tasked the Legislative Analyst’s Office with developing a proposal to create debt-free college options for California. Fully two-thirds of the LAO’s $3.3 billion proposal was slated to support community college students, so that students at all public colleges had a viable, full-time, debt-free path to graduation. The high share of estimated LAO program costs needed to help community college students underscores how important community college students are to the state, and how far the state is from supporting them sufficiently. Yet the Assembly “Degrees Not Debt Scholarship” proposal leaves them out. Why don’t students at community colleges, where most of the state’s low-income students and students of color enroll, deserve the option to enroll full time, too, when full-time enrollment greatly increases students’ odds of completion? Wouldn’t giving community college students a true full-time option help more of them transfer to UC and CSU?

California has major problems with college affordability and completion, but neither will be solved by the “Degrees Not Debt Scholarship” proposal. We hope that legislators will commit to retooling the proposal so that it addresses the realities facing California’s low- and truly middle-income college students.


[1] Author’s analysis of  the National Postsecondary Student Aid Study, 2007-08, the most recent publicly available data on California segments’ enrollment by race/ethnicity and income.

Posted in

| Tagged

Yesterday, the U.S. Department of Education announced it was giving schools about three additional months to comply with two requirements under the gainful employment regulation finalized in 2014. This delay is troubling given the urgent need to protect students and taxpayers from career education programs that consistently leave students with debts they cannot repay.  

In January, the Department released the first set of official career education program rates under the gainful employment rule. Fully three-quarters of the rated programs passed the modest standards outlined in the rule, which measure graduates’ debt compared to their incomes to ensure that federally-funded career education programs at public, non-profit, and for-profit colleges are complying with the statutory requirement that they “prepare students for gainful employment in a recognized occupation.” In fact, nine out of 10 colleges with rated career education programs had no failing programs, including the for-profit college chains American Public University, Capella University, Concorde Career College, ECPI University, Empire Beauty School, Grand Canyon University, and Strayer University.

But 803 programs (9%) failed the test because they consistently leave students with more debt than they can repay. Some of these programs were at schools that have since closed, including ITT Tech and Westwood College. But many other failing programs are still enrolling students and receiving hundreds of millions of taxpayer dollars. What do these programs look like? Here are some examples.

  • Florida Technical College in Orlando charges $31,555 for its associate’s degree in medical assisting, and its graduates typically earn only $14,500 a year – less than the federal minimum wage working full-time – and owe over $17,000 in federal student loan debt.
  • McCann School of Business and Technology in Hazelton, PA charges $30,860 for its associate’s degree in medical assisting, and it has only a 7% on-time completion rate and a 46% job placement rate. Its graduates typically earn only $20,300 – less than the average earnings of high school graduates – but graduates of this program at all McCann School locations in 2014-15 had over $26,000 in student loan debt.
  • Art Institute of Pittsburgh charges $44,804 for its associate’s degree in graphic design, yet only 12% of completers finish on-time, and those who graduate typically earn less  than $22,000 per year and have over $40,000 in federal student loan debt. 

These and other failing programs are leaving students worse off than before they enrolled, and taxpayer dollars should not be subsidizing them.

The good news is programs like these are now required to warn current and prospective students that they failed and will lose eligibility for federal grants and loans next year if they do not improve. This warning requirement was not affected by the Department’s announcement yesterday. And other failing programs have stopped enrolling new students, including all of the failing programs at the University of Phoenix, and Harvard University’s graduate certificate program in theater arts, where students typically graduated with $78,000 in debt but earned only $36,000.

Even better news? There are thousands of career education programs offered at locations across the country and online that are not leaving graduates with huge debts they cannot repay, including programs at for-profit, public, and non-profit colleges whose graduates earn over $60,000 a year. Many programs where graduates have manageable or no debt are offered near programs that are failing or in the zone requiring improvement. For instance, two for-profit colleges in Harrisburg, Pennsylvania, offer medical/clinical assisting certificate programs, but the graduates of Keystone Technical Institute typically earn $10,000 more and have significantly less debt than graduates of the Brightwood Career Institute. In Miami, Florida, graduates of the public Miami Dade College’s medical/clinical assisting certificate program typically have no debt and earn twice as much as the graduates of the same program at the nearby for-profit Florida Education Institute, where graduates also have thousands of dollars of debt.

Thanks to the gainful employment rule, career education programs are required to disclose key information like their cost, typical graduate earnings and debt levels, and job placement rates so students can make more informed decisions about where to enroll. Programs that fail the rule’s minimum standards also have to warn current and prospective students. And to protect taxpayers from subsidizing programs that consistently underperform and leave students worse off, failing and zone programs have to improve in order to continue to receive federal funding.

In anticipation of the rule, many schools have already improved their programs, ended failing programs, lowered their prices, and/or started providing more career placement assistance. These are positive reforms, but the hundreds of failing and zone programs demonstrate that far more improvement is needed to ensure that the more than $24 billion in federal grants and loans spent each year on career education programs are improving, not ruining, people’s lives. 

Posted in

| Tagged

Debbie Cochrane, TICAS vice president, provided expert testimony on college affordability before a joint hearing of the California Assembly’s Higher Education Committee and Budget Subcommittee on Education Finance on Monday, February 27. Her testimony described which students face the greatest affordability barriers, and included new TICAS research showing the severity of the affordability problem for California’s low-income students, and why free tuition is not the solution. (Debbie Cochrane's testimony starts at the 20:35 mark.)

Posted in

| Tagged

A new report released last month provides some staggering figures on an incredibly important topic – state disinvestment from higher education in California – and rightly makes the case that shortchanging public colleges shortchanges our future. Unfortunately, the report makes the erroneous claim that eliminating tuition at public colleges will eliminate student debt for the students who attend them. This is simply not the case. In California, state and institutional financial aid programs are among the most generous in the nation in helping students pay for tuition charges at all three public systems. In fact, most Californians who leave public colleges with debt already attended college tuition-free. The real affordability challenges for California’s public college students are paying for non-tuition college costs including room and board, books and supplies, and transportation.

Consider the University of California (UC), where tuition charges are highest among the state’s public institutions: UC’s Blue and Gold plan promises that no student with family income under $80,000 will need to pay tuition, and in fact UC also gives aid to many students above that threshold to at least partially cover tuition. If tuition charges equated to student debt, then only students with family incomes above $80,000 would leave school with debt. Yet data from UC show that is not the case: we estimate that half of the UC graduates who leave school with debt have family incomes under $54,000 – students whose tuition UC guarantees it will cover.[1]  Graduates’ likelihood of leaving school with debt decreases with income – students from the lowest income bracket are three times as likely as students from the highest income bracket to graduate with debt – because higher income students are more likely to be able to afford what they are asked to pay. Available data on debt loads by income for other public college graduates, in both California and across the nation, show this same trend. 

In fact, the majority of students’ costs for attending public colleges and universities are not tuition charges, but rather the living expenses students incur to buy their books, get to campus, and stay housed and fed. Yet, while tuition-focused aid programs in California have kept up with increases in tuition, the same cannot be said about the primary state grant that helps students with non-tuition college costs. If it had kept pace with costs, the Cal Grant B access award, $900 in 1969-70, would be more than $6,300 today. Instead, it is just $1,670.

State disinvestment from public higher education is a significant problem, and one that demands both federal and state policymakers’ attention. But eliminating students’ need to borrow requires more than just free tuition, because most Californians who leave school with debt already had free tuition. Policymakers interested in improving college affordability and reducing student debt should start by looking at who has debt and why, and increase grant aid for students struggling to pay for non-tuition college costs.


[1] Includes dependent students only as UC does not release information on independent student debt loads. Ninety-three percent of UC undergraduates are dependent.

Posted in

| Tagged

Borrowers are now one step closer to having a more streamlined process to keep their federal student loan payments affordable. Currently, borrowers struggling with payments can enter repayment plans that base monthly payments on their income, but they are required to update their income information every year. More than half of borrowers miss the annual deadline and the consequences can be severe – unaffordable spikes in monthly payment amounts that increase their risk of delinquency and default, as well as interest capitalization that can add substantial costs.

For example, a single borrower with $25,000 in debt (6.8% interest rate) and $25,000 in adjusted gross income (AGI) would owe $60 a month under the Pay As You Earn (PAYE) plan, but would owe $288 a month – over four times more -- if he or she missed the income recertification deadline.

TICAS, along with bipartisan groups of lawmakers in both the House and the Senate, other advocates for students and consumers, higher education leaders, financial aid administrators, and loan servicers have all advocated to reduce the likelihood that borrowers end up in delinquency or default by automating the annual recertification process (what is commonly known as “multi-year consent”). In response, the U.S. Departments of Treasury and Education recently announced an agreement to allow borrowers to provide permission for their annual income to be updated automatically using their existing tax data. Borrowers will be able to revoke that permission at any time. The move received bipartisan praise.

Automating the annual recertification process is a common-sense improvement that will help borrowers stay on top of their student loan payments. This change will also reduce the paperwork burden on student loan servicers. Now, it is incumbent on the agencies to work together to promptly implement the agreement to make multiyear consent a reality for borrowers and servicers, and for Congress to ensure that they have sufficient funding to do so.

Soon to be reintroduced in the new Congress by Representatives Bonamici (D-OR) and Costello (R-PA), the bipartisan SIMPLE Act also takes aim at the cumbersome annual recertification process for borrowers enrolled in income-driven repayment plans. In addition to requiring that borrowers can have their income automatically updated each year, the bill would dramatically reduce defaults by automatically enrolling severely delinquent borrowers who have not made a payment in four months into an income-driven plan. With a record eight million federal student loan borrowers in default, and one in four borrowers either delinquent or in default, these common-sense measures are urgently needed.

Posted in

| Tagged

California Governor Jerry Brown last week released his proposed 2017-18 California state budget, which includes a proposal to phase out the Middle Class Scholarship (MCS) program. The MCS program, created in 2013, was designed to serve California students from families with incomes above typical Cal Grant income thresholds (above about $80,000 at the time) and up to $150,000 who don’t receive much other grant aid. For reference, median household income in California is just under $62,000 in 2015 dollars.

Since the program was created, we have raised questions about whether the money would be better spent on the lower income students who face the highest financial hurdles getting to and through college. We still believe this to be the right question. However, data from the California Student Aid Commission (CSAC) show that some lower income students do receive MCS awards. During the 2015-16 academic year, about 6,300 students (13% of all MCS recipients) had incomes within the Cal Grant B income range (up to about $50,000 for a family of four), and an additional 12,700 students (26% of all MCS recipients) had incomes within the higher Cal Grant A range (up to about $90,000 for a family of four). We estimate that these 19,000 students – who represent 39% of all MCS recipients in 2015-16 – received up to 51% of MCS grant dollars.

Why is a program designed to help upper-middle-income students also helping lower income students? Because there are substantial gaps in the state Cal Grant program, which is designed to help lower income students pay for college. Most critically, there are not enough Cal Grants available for all students who apply and meet the financial and academic requirements. Whereas recent high school graduates are entitled to a Cal Grant, all other eligible Cal Grant applicants must compete for a very limited number (25,750) of awards. In 2015-16, there were 14 eligible applicants competing for every grant, with over 300,000 turned away. The CSAC data suggest that some of these students who qualify for but don’t get a Cal Grant end up getting an MCS grant instead.

The huge gap between the number of applicants eligible for competitive Cal Grants and the number of awards available contributes to the substantial affordability challenges facing low-income students. While not by design, the MCS program has helped to fill a narrow slice of that gap, and it is important that the Legislature protect this progress if the MCS does get phased out. Redirecting the $117 million annual MCS allocation to the better targeted Cal Grant program would result in over 18,000 more competitive awards per year, increasing qualified applicants’ chances of receiving a competitive grant from one in 14 to about one in eight. And redirecting $60 million – the 51% of annual MCS spending that we estimate goes to students with family incomes within Cal Grant thresholds – is the least that should be done, particularly if the goal of phasing out the MCS program is to protect financial aid for lower income students.

Posted in

| Tagged

Earlier this year we published a map of California that showed the differences in net price – the full cost of attendance minus grants and scholarships – for low-income students at public colleges in nine regions across the state.  Counterintuitively, our analysis showed that low-tuition institutions may not have low net prices.  In many cases a California community college (CCC) – by far the lowest tuition school – had a much higher net price than the nearby University of California (UC) or California State University (CSU) campus.  Since publishing our map we have gotten many questions about why this is, given how different tuition levels are across the colleges.    

One important factor is that the total costs of college are not nearly as different for students across the segments as their tuition charges might suggest.  Total costs include tuition and fees, books and supplies, housing and food, transportation, and other college-related expenses.

Certainly, higher tuition colleges cost more overall than lower tuition institutions before financial aid is taken into account.  But they do not cost exponentially more.  Total college costs go far beyond tuition and fees for students at all types of colleges: the California Student Aid Commission estimates that in 2015-16, students at any college living off campus without parents – the way that most students at all three public segments live – incurred about $18,000 in non-tuition costs.  While there are sizeable differences in tuition and fees alone, compared to the total cost of attending a CCC, the total cost of college was only 23 percent more at CSU and 59 percent more at UC.

Another factor that drives net prices is the amount of grant aid available to students at each college.  Grant aid – money that does not need to be repaid – reduces the amount that students need to pay out of pocket for college.  It comes primarily from the federal government, the state, and the colleges themselves.  In 2015-16, the average amount of grant aid available per low-income student (i.e., Pell Grant recipient) was approximately $5,400 at CCCs, $10,300 at CSU, and $25,200 at UC.  The differences in state and institutional aid per low-income student were particularly large, as shown in the table below. 

Importantly, not all aid goes to low-income students. Cal Grants reach middle-income students as well, and some programs, including the Middle Class Scholarship and institutional grants at UC, reach students with six-figure family incomes.  Still, sharp differences in aid availability persist when we calculate average aid across all students.  Per full-time equivalent (FTE) student, the average amount of grant aid was approximately $2,300 at CCCs, $6,400 at CSU, and $10,200 at UC.

These wide disparities in grant aid, combined with the proportionally narrower disparities in total college costs, explain why the lowest tuition colleges in California are often the most expensive.  UC students’ total costs are 59 percent more than CCC students’ total costs, but UC students get 300+ percent more grant aid. The additional grant aid more than covers the cost difference between the colleges, leaving UC students better positioned to attend college full time without excessive work or debt.  

Posted in

| Tagged

Last week the Government Accountability Office (GAO) released a report highlighting weaknesses in the Department of Education’s budget estimates for income-driven repayment (IDR) plans for federal student loans. The Department agrees with and is already working to implement many of the GAO’s recommended changes to its methodology, some of which will increase estimated costs, while others will decrease them.

Meanwhile, most of the media coverage of the report has focused on GAO’s projection that $108 billion of loan principal will end up being forgiven under IDR and Public Service Loan Forgiveness (PSLF) for loans taken out between 1995 and 2017. However, this does not mean those loans will cost taxpayers $108 billion. The amount of debt forgiven is only one part of the equation to determine the net cost of IDR plans to the federal government. A borrower can receive forgiveness in an IDR plan and still pay more in total than she would have under a different repayment plan.

Consider a borrower with $40,000 in federal loans and $40,000 in adjusted gross income (AGI) in her first year out of school. She would pay almost $8,000 more in total in the Pay As You Earn (PAYE) plan than in a 10-year fixed repayment plan ($57,000 versus $49,000), even though she would receive nearly $8,000 in forgiveness under PAYE.* The GAO recognizes this fact in their report, agreeing that “it is possible for the government still to generate income on loans with principal forgiven, particularly if borrower interest payments exceed forgiveness amounts.” (p. 50).

Ultimately, the cost of the federal student loan program is determined by comparing how much the government lends with the amount that borrowers pay back and the cost of administering the program. Doing this, analysis of CBO data reveals the government is actually making money from the federal student loan programs. In fact, CBO estimates savings of $81 billion from federal student loans over the next 10 years alone, even after accounting for increased enrollment in IDR plans.   

Access to affordable, income-driven payments and a light at the end of the tunnel are essential for borrowers in an era of rising college costs and student debt. The GAO reported last year that 83% of borrowers in PAYE earned $20,000 or less in annual income, and recommended that the Department increase outreach to help more struggling borrowers learn about and enroll in IDR plans. IDR provides real relief for borrowers and helps them stay on top of their payments. Data show that borrowers in IDR are less likely to default or become delinquent than borrowers in standard plans.

Nonetheless, while IDR helps ensure that federal student loan payments are affordable and helps prevent default, it neither reduces college costs nor ensures that students and taxpayers are getting value for their investment in college. More needs to be done to strengthen college accountability and reduce student debt. For example, students need better information on program costs and outcomes, and the gainful employment rule needs to be enforced to ensure taxpayers are not subsidizing career education programs that consistently leave students with debts they are unable to repay. You can read more about our national policy agenda to reduce the burden of student debt here

* Note: these calculations assume that the borrower is single, her AGI increases 4% a year, and the average interest rate on her loans is 6.8%. Total amounts paid and forgiven are adjusted for inflation.

Posted in

| Tagged

Headlines have raised concerns about the costs of providing borrowers with affordable monthly payments tied to their income, and more recently, concerns about the cost of providing relief to students defrauded by Corinthian and other predatory colleges. However, analysis of Congressional Budget Office estimates released last month reveal that CBO is projecting that the federal government will make $81 billion in profit over the next 10 years from student loans even after accounting for the costs associated with income-driven repayment programs.[1] That’s, on average, nearly $8 billion per year.

With the federal student loan program projected to generate billions in profits, the government should swiftly discharge the debts of defrauded students, many of whom are currently struggling to repay loans from schools that left them worse off than before they enrolled. Both the borrowers and taxpayers will be better off when these borrowers are able to move on to quality educational programs and productive work.

Going forward, our proposal for  one simple, affordable undergraduate loan includes an interest rate calculation that better reflects the government’s cost of borrowing and administering the loan program than the current formula (in place since 2013), which should reduce the likelihood that student loans generate consistently large profits for the government. We also propose streamlining the multiple income-driven repayment plans into one improved plan to keep payments affordable by capping payments at 10% of discretionary income and forgiving any remaining debt after 20 years, as proposed in the AFFORD Act introduced by Senator Jeff Merkley. However, when student loans do generate exceptionally large profits for the government, as is true today, we urge Congress and the Administration to use those funds to lower the cost of college for low-income students, rather than allow them to disappear into the federal budget.

 

[1] Calculations by TICAS and CBPP using data from the Congressional Budget Office (CBO), August 2016 baseline. Figures represent projected budget authority (BA) between 2017-2026, including $1 billion in lower expected costs due to sequestration. Figures for the total student loan program include the Direct Loan program, FFEL program, and administrative costs.

Posted in

| Tagged

This post was updated on 3/20/17 to reflect repayment rates revised in January, 2017

In an effort to hold colleges accountable, the U.S. Department of Education measures how many borrowers from a college default on their loans – a “cohort default rate” which measures just the tip of the borrower-distress iceberg. In conjunction with its College Scorecard, the U.S. Department of Education has also begun releasing college repayment rates, which measure the share of borrowers paying down the principal balance on their federal loan debt.  

As the Department states in its College Scorecard documentation, default rates “can be manipulated through the use of allowable nonrepayment options like deferments and forbearances” which serve to temporarily keep default rates down and colleges in compliance with federal limits on defaults. Indeed, some for-profit colleges have admitted to doing just that.

While available default and repayment rates have some differences (most notably, default rates include graduate students and the repayment rates do not), they are comparable enough to identify trends and outliers. Comparing default rates and repayment rates tells you about how many students have avoided default but still aren’t paying down their loans: perhaps they’re delinquent, in forbearance or deferment, or in a repayment plan where their balance is growing rather than shrinking. And in schools where default rate manipulation is occurring, this group of borrowers – the missing middle group of those neither in default nor paying down their loans – will be atypically large. 

Across all schools, this missing middle group makes up about 44 percent of borrowers three years into repayment on average. But at 456 schools, 60 percent or more of borrowers are neither in default nor paying down principal. The vast majority of these schools (78%) is for-profit colleges, including Kaplan University which previously hired private investigators to track down former students to put them in forbearance. It includes CollegeAmerica, sued by the U.S. Department of Justice for violating rules on incentive compensation and by the Colorado Attorney General for fraud. It includes National College, which last August was ordered to pay $157,000 to the state of Kentucky for its years-long refusal to comply with a subpoena related to potential job placement rate falsification. It includes now-shuttered Westwood College, which had faced charges of deceptive marketing and recruiting for years and been sued by the Colorado and Illinois Attorneys General. Computer Systems Institute and Marinello Schools of Beauty, both of which were cut off of federal aid after this year having been found in violation of several federal rules, also made the list. This group of schools also includes some Everest College campuses that remain open for business. While Everest schools have new corporate management, the former CEO had this to say about managing cohort default rates during a 2011 investor call: “Forbearance, as you well know, is a pretty easy, just a question you have to agree to it and you’re on your way.”

​Forbearance abuse for the purpose of evading accountability is well documented in the for-profit college sector, but has not been documented at other types of institutions. The pie chart below shows the distribution of schools where 60 percent or more of borrowers are neither in default nor paying down their loans three years into repayment, and the list of schools is available here

Posted in

| Tagged

Pages

Subscribe to Blog