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By Diane Cheng (TICAS), Rachel Fishman (New America), and Laura Keane (uAspire)

Financial aid award letters are crucial tools for students and families to determine which colleges are within reach, but many letters are difficult to decipher and compare. TICAS’ December 2017 analysis of almost 200 award letters, and New America and uAspire’s June 2018 analysis of over 500 award letters from unique institutions found numerous ways in which those letters are inconsistent, confusing, and in many cases misleading to students – such as omitting costs, grouping grants and loans together, using different terms for the same type of aid, and not calculating a bottom-line net price to show how much the student and family will have to cover.

We’re excited to see growing momentum for improving award letters, and we applaud the National Association of Student Financial Aid Administrators’ (NASFAA) recent support for requirements that would set standard terminology and formatting practices for award letters. Specifically, at their recent national conference, the NASFAA Board decided to:

  • “Support a policy that would require schools to disclose estimated cost, as well as an estimated net price in their award notifications.
  • Support requirements that the federal government, in partnership with financial aid professionals, develop a set of common, consumer-tested terminologies and definitions for student aid programs.
  • Support requirements that grants and loans and other self-help aid not be listed together in award letters, and that loans always be clearly labeled as such.”

Here’s why this matters: (See actual award letter examples of these practices in our reports)

  • Providing the full cost of attendance
    • Financial aid is only part of the equation when determining which colleges are within financial reach – students also have to know how much the colleges will cost. For example, when buying a car, it’s not enough to know that you have a $2,500 rebate – you also have to know whether the car costs $10,000 or $25,000. However, a large share of award letters include no cost information at all, and some of those that do include some cost information include only tuition and fees and other costs paid directly to the college. Yet students’ understanding of total costs is critical to being able to assess their ability to pay for them. Basic living expenses such as housing and food are part of the cost of attending college, and students also need to pay for transportation as well as textbooks and supplies to be able to attend class and study.
       
  • Separating grants from loans and work-study
    • There are important and big distinctions between types of aid - grants and scholarships don’t have to be paid back, loans need to be repaid with interest, and work-study funds need to be earned over time after securing a qualifying job. Unfortunately, both of our analyses found that less than a quarter of award letters separate grants, loans, and work-study. Many award letters presented all the aid types lumped together – leaving students left to sort out what strings are attached to each aid offer. Clearly separating aid by type with simple explanations can improve student decision-making.
       
  • Calculating net price
    • Net price is the difference between the full cost of attendance and grant/scholarship aid. It’s the remaining amount that a student needs to cover through savings, earnings, or loans to attend the school. Comparing net prices is crucial to getting an apples-to-apples comparison of how much money students and their families will have to pay to get to and through college.
    • Our analyses found that many award letters don’t calculate any bottom line cost, and those that did used inconsistent calculations. New America and uAspire research found over 23 different calculations for this bottom-line cost, which makes comparisons among letters almost impossible, and TICAS’ analysis found that only 13% of award letters included the net price.
    • It’s also important for students and families to know what their “estimated bill” is going to be, namely, what they will need to pay directly to the school before they can enroll and start classes. uAspire has seen time and again students choose their school based on their financial aid packages in the Spring, only to receive a bill in the Summer that is much higher than what they anticipated.
       
  • Using standard terms and definitions
    • Award letters are filled with jargon and inconsistent terms for the same type of aid. For example, New America and uAspire found that the 455 colleges that included unsubsidized student loans in their aid packages listed them in 136 unique ways, and 24 of those ways didn’t even include the word “loan.” Student-centered communication of mandated common terms and definitions will significantly increase transparency.
    • It is important to consumer test these terms and definitions with stakeholders, including students (particularly low-income and first-generation students who may be less familiar with the college process), parents, college advisors, consumer advocates, financial aid administrators, and others.

With clearer and more comparable award letters, students and families will be able to make more informed decisions about where to go to college and how to pay for it. NASFAA’s recent Board decision aligns with our belief that poor communication that obscures costs and available financial aid serves neither students nor schools. Unclear costs and uncertainty about how to cover them put students at risk of dropping out if their bill is larger than anticipated— and dropping out is one of the major predictors of federal student loan default. Both students and colleges are better off when more students are able to complete and repay their loans successfully. While, in and of themselves, award letters will not solve the gaps in financial aid that create affordability challenges for students, improvements to those communications will help ensure that students and families clearly and accurately understand the costs they’ll be facing.

We applaud NASFAA, federal and state policymakers, as well as college financial aid administrators who see themselves as part of the solution. uAspire has already heard from colleges that are leading the way to improve their own award letters, including Colorado State University, the University of Missouri, and Dartmouth College. If you are working to improve student-centered communication of financial aid offers, we would love to hear from you.

To learn more about the shortcomings of financial aid award letters and policy solutions to improve transparency of college costs and aid, check out our research:

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Much has already been written about higher education in the California budget agreement for 2018-19, the broad parameters of which have been public for days. Yet there are several important provisions for college affordability and financial aid in the budget trailer bill passed today that have flown under the radar and deserve to be elevated. They include the following:

  • Full-time Cal Grant recipients at community colleges will see an increase to their financial aid awards. In his January budget proposal, the Governor proposed consolidating two community college financial aid programs into one, and to increase funding for the consolidated program. We had some suggestions on how to do it in a way that better addressed both students’ and colleges’ needs. The proposal adopted by the Legislature reflects many of our recommendations, including making the grants easier for students to receive, making the program easier for colleges to administer (and providing some administrative funding as well), and better supporting students in summer terms. Importantly, under the final language, all full-time community college Cal Grant recipients will see an increase to their awards. These changes will enable many community college students to spend more time in class and studying, rather than working to cover total college costs, increasing their odds of graduating and graduating faster.
  • Foster youth will have an easier time getting a Cal Grant, as we have long recommended. Students who transition quickly from high school to college are entitled to receive a Cal Grant, but those who don’t face long odds to get one. For former foster youth, who face particularly challenging hurdles en route to college, insufficient support can lead to delayed enrollment which in turn affects how much financial aid they can receive. The budget agreement extends former foster youths’ entitlement to a Cal Grant by several years (until age 26), and gives those attending community college a longer window of time in which to apply.
  • A modest but important step towards greater institutional accountability for financial aid, by allowing students at nonprofit colleges to retain a larger Cal Grant award if their sector enrolls more students with Associate Degrees for Transfer from community colleges.
  • Through funding for the California College Promise (AB 19/Statutes of 2017), colleges will be able to provide even greater support to students whose financial struggles hold them back from graduating. How colleges use their California College Promise money is up to them, so long as it is used to support student success. After exploring what is holding students back, some colleges are choosing to spend their resources helping students overcome the financial barriers that non-tuition costs of college pose to student success. Whether used to provide childcare resources, transportation vouchers, or textbooks, helping financially needy students cover their non-tuition costs of college is an important way to support student success.

Higher education experts throughout the state agree that greater and more targeted investments in financial aid are needed, and we are grateful for both Governor Jerry Brown’s and the Legislature’s continued leadership and commitment to improving college affordability. The financial aid provisions in this budget agreement mark yet another step in the right direction for our state’s underserved students. Nonetheless, the severity and scale of equity gaps demands that more be done. We look forward to continuing to work with the Legislature and the next Governor to ensure that all needy Californians can afford to get to and through college.  

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About seven million undergraduates each year rely on federal loans to enroll in and complete college. While many students find that student loans are an excellent investment in their future and are able to successfully repay their loans, others struggle to make payments, or make payments that do not keep up with accruing interest. The worst-off borrowers are those who don’t make payments for at least 270 days, end up in default, and are left with much more to repay, wrecked credit, and limited employment and educational opportunities.

Two new TICAS fact sheets released today use different datasets and measures to look at where student loan repayment challenges are particularly severe. One uses a nationally-representative longitudinal survey of students who began college in 2003-04 to find that 17 percent of students defaulted on their loans within 12 years, including nearly half of students who first enrolled in for-profit colleges. Like others who have dug into these data, such as the Department of Education, Ben Miller, and Judith Scott-Clayton, our analysis finds that certain groups of students – including African-American students, Pell Grant recipients, and first-generation students – are far more likely to end up in default than others, even if they completed their programs.

The second fact sheet uses College Scorecard data to explore the colleges where many borrowers are seeing their loan balances grow, rather than shrink, many years after leaving school. Specifically, we focus on the 781 colleges where most undergraduate students borrow federal loans, and where fewer than half of those borrowers were paying down their debt seven years into repayment. At half of all for-profit colleges, most students borrow and few repay. Additionally, African-American students, Pell Grant recipients, and first-generation students all disproportionately enroll at colleges where most students borrow and few repay.

While these fact sheets take different approaches to looking at student loan repayment struggles, they underscore similar trends. First, while student loans are an excellent investment for many students, we need to pay more attention to the students who struggle to repay their loans. Second, they show that enrolling in and borrowing for college pose particular risks for underrepresented students, groups which may need additional support before, during, and after college. Finally, there are wide variations in repayment outcomes at different colleges, and for-profit colleges are especially likely to have poor repayment outcomes - underscoring the need for stronger accountability and oversight by states and the federal government of colleges that leave students with debts they cannot afford. 

Read our new fact sheets here:

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As Americans across the country scramble to finish their taxes this month, some federal student loan borrowers are facing a new obstacle for the first time – a larger tax bill due to student debt that was forgiven through income-driven repayment (IDR). Long recognized as a policy design flaw and looming threat for borrowers in IDR, this unfair tax penalty will become a growing problem for struggling borrowers in the years ahead and policymakers need to act quickly to address it because borrowers should not be hit with a potentially unaffordable tax bill after making responsible loan payments for 20 or 25 years.

Why shouldn’t the forgiven debt be taxed? Simply put, forgiven student debt is not a windfall of income. A borrower with a $20,000 remaining loan balance doesn’t suddenly have $20,000 more in spending money when that balance is forgiven.

The benefit of loan forgiveness for borrowers is severely undermined if forgiven loan balances are treated as taxable income, immediately replacing one unaffordable debt with another. It is contrary to the policy goals of forgiveness for the government-as-lender to forgive debt so that a borrower may move on only to have the government-as-tax-collector immediately demand further payment.

Additionally, it’s unfair that forgiven federal student debt is taxable in some cases but not in others. Debt forgiven due to school closures, a borrower’s total and permanent disability, and a borrower’s 10 years of qualifying public service work is not treated as taxable income, while there’s a tax penalty on debt forgiven under IDR and debt discharged when students are mistreated by their colleges. Regardless of the reason, discharged or forgiven student loan debt should never be treated as taxable income.

Who is affected by this tax penalty for IDR? Borrowers in IDR plans who still have balances remaining after making payments on their federal student loans for 20 or 25 years (depending on the plan). While many borrowers will repay their full debt plus all accumulated interest before their repayment period is up, borrowers with low incomes relative to their debt over a long period of time may receive forgiveness.

At the most recent Federal Student Aid conference in November 2017, the Department of Education confirmed that four borrowers had received forgiveness under IDR.

In order to receive forgiveness last year, these borrowers must have started making payments on Direct Loans under the Income-Contingent Repayment plan in the mid-1990s, switched to the REPAYE plan after it became available in 2015, only borrowed for undergraduate education, and made 20 years of qualifying payments. While small in number, these borrowers are the proverbial canary in the coal mine as many more borrowers will become eligible for forgiveness under other IDR plans in the coming years.

How much is the tax penalty? It depends on the borrower’s individual situation, but we ran the numbers for a few hypothetical borrowers. For a small business owner with $50,000 debt who is married with two children, for example, the tax penalty could double the amount of taxes the family owes – adding $13,050 to their federal income tax bill for that year.

For more details and borrower examples, see “Tax Consequences of Loan Discharges for Borrowers in Income-Driven Repayment Plans.”

How can this tax penalty be fixed? The U.S. Congress can remove this tax penalty by changing the law. Recent bipartisan tax reform legislation included the elimination of this tax penalty for borrowers who received student loan discharges due to total and permanent disability, and Congress needs to do the same for struggling borrowers in IDR. Bipartisan legislation to eliminate the taxation of debt forgiven under IDR has been introduced in the past and supported by a broad constituency of colleges, student loan lenders, financial aid officers, and student advocates.

In the meantime, states can pass legislation to at least make sure that federal student loans forgiven under IDR are not treated as income for state tax purposes. For example, California passed legislation last year to address this tax penalty at the state level. 

What can borrowers do if they received IDR forgiveness and face an unaffordable tax penalty? Seek out tax advice and/or reach out to the IRS. You may be able to pay the tax in installments or qualify to exclude some or all of it from your income based on the insolvency exception under IRS rules. If you later receive a notice from the IRS and need to correct your filing, have a dispute with the IRS, or get audited, you may qualify for the IRS’ Low Income Taxpayer Clinic program.

Also, please reach out to us if you or someone you know is being taxed after receiving student loan forgiveness. Your stories can help make this issue real for policymakers and support necessary policy change!

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California Governor Jerry Brown’s budget proposal for 2018-19, the first step in crafting the state’s budget, was packed with higher education proposals addressing a wide range of issues affecting both colleges and students. In particular, his proposals to create a new, fully online community college and to change the way community colleges are funded have captured national attention. But his proposal to reform community college student financial aid has gotten less attention despite its potential to better support students in their efforts to get to and through college.

Specifically, Governor Brown proposed streamlining two community college financial aid programs (the Full-Time Student Success Grant (FTSSG) and the Community College Completion Grant (CCCG)) and increasing their combined funding by $33 million. With both designed to increase the amount of financial aid available to full-time students who receive state Cal Grants, the Governor’s proposal rightly notes that these programs “target the same socioeconomic student cohort and encourage the timely completion of a degree or certificate,” yet have different requirements which add complexity for both students and schools. We commend the Governor for recommending consolidating these programs into a single grant that “encourages students to take a full course load while recognizing that is not feasible for all students.” However, we believe this goal would be better achieved through an alternate consolidation approach, outlined here, that would result in a simpler and more equitable financial aid program that better recognizes student realities.

Notably, these aren’t the only funds which hold promise for supporting community college affordability. The Governor’s budget also includes funding for AB 19 (chaptered in 2017), a bill that provided colleges that embrace student-focused reforms with additional resources to help students succeed and close equity gaps. Exactly how the funds are used is at colleges’ discretion: for example, the President and CEO of Mt. San Antonio College, Dr. William T. Scroggins, explored the needs of his students and plans to use his colleges’ allocation to help cover students’ unmet financial need, and provide emergency grants and loans to help students pay for food, housing, child care, and transportation.

Finally, while not referenced in the Governor’s budget proposal, it’s important to note that last year’s budget directed the California Student Aid Commission (CSAC) to explore ways to “consolidate existing programs that serve similar student populations in order to lower students’ total cost of college attendance,” and that this work has been expected to inform budget conversations for the 2018-19 year. CSAC contracted with The Century Foundation (TCF) to consider options, which were presented to and considered by CSAC earlier this week. The full report -- which recommends the state provide increased support for students’ non-tuition costs of college, and community college students in particular -- underscores many of the same concerns we heard earlier this year from a diverse slate of higher education experts, and proposes a thoughtful path forward. While many of the details of TCF’s proposal require further discussion, CSAC will be asking that the Legislature use the 2018-19 budget process to build off of the TCF proposal by taking some immediate steps forward, including funding an increase to the Cal Grant B access award. This award, which helps low-income Californians pay for non-tuition costs of college, currently holds less than a quarter of its original purchasing power, and TICAS is joined by more than 20 organizations in supporting this recommendation.

The state has taken substantial steps to improve college affordability in recent budget years, speaking to the extent to which both the Legislature and Governor recognize the importance of this issue to Californians. We look forward to working together to ensure the 2018-19 budget moves us even closer to a California where the promise of an affordable college education is better, and more equitably, realized.

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Congress is preparing to rewrite the Higher Education Act (HEA) for the first time since 2008. While a college degree is more valuable than ever, many students struggle to cover the cost of college, and the lowest income students continue to bear a disproportionate student debt burden. Reauthorization of the HEA presents a unique opportunity to solve widely-agreed upon problems, including a confusing array of student loan repayment options, the need for quality assurance to protect students from low-quality programs and colleges, and college affordability barriers that leave too many students with burdensome debt.

Our recent blog series, How the PROSPER Act Stacks Up for Student Debt, took a deep dive into the HEA reauthorization legislation recently passed by the House of Representative’s Committee on Education and the Workforce. Across five detailed posts, we explored how some of the bill’s major changes would impact student debt.

On whole, the PROSPER Act would do significantly more harm than good, saddling students with more debt and loosening standards in a way that would open higher education and taxpayer dollars up to an unacceptable level of risk. These changes massively overshadow the bill’s attempt to simplify programs, and improve loan counseling and data transparency.

We found that:

  • The ONE loan proposal would increase cost of Federal loans for most borrowers and increase risks of private loan borrowing. More here.
  • Changes to loan repayment would simplify the system, but at the cost of raising monthly payments for all, and increasing the risk of default and weakening a crucial safety net for the lowest income borrowers. More here.
  • Loan counseling and consumer information enhancements are steps in the right direction, but more complete data are needed, and consumer testing will be critical to helping students and families make the most of it. More here.
  • Discarding reasonable accountability standards will lead to a rise in unmanageable debt and more waste, fraud, and abuse in higher education. More here.
  • Narrowing of borrower defense eligibility, limiting of closed school discharge, and preemption of state consumer protections would harm student borrowers attending low-quality or even fraudulent for-profit colleges. More here.

Each of our posts last week focused on provisions in the PROSPER Act that would impact student debt and repayment, highlighting our recommended alternatives along the way (many of which already have bipartisan support). But it is also important to highlight that meaningful investments in the Pell Grant are also urgently needed to lower the burden of student debt, and such investments are noticeably absent from the PROSPER Act. Allowing the grant’s annual inflation adjustment to expire after this year, and freezing the guaranteed maximum award amount (as the PROSPER Act does) will mean that the grant’s already historically low purchasing power will continue to decline, and the already disproportionate burden of debt carried by Pell Grant recipients will continue to grow.

As the process to reauthorize the Higher Education Act moves forward and the Senate continues to shape its own proposal for how it should be improved, we hope Congress will ultimately work together to craft student-centered solutions to today’s problems of college affordability, access, and student success.

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This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to protections for students who have been mistreated by their schools or attended schools that closed.

In recent years, a surge in documented cases of deceitful and predatory practices at colleges has harmed tens of thousands of borrowers. Many are now seeking protection from the compounding damage caused by outstanding student loan debts. Rather than strengthening protections that would prevent and address this damage, however, the PROSPER Act makes it more difficult for students to be made whole after they took out student loans under deceptive or other unfair circumstances. Specifically, it narrows the borrower defense rule, makes closed-school loan discharges more difficult to obtain, and preempts states’ rights to legislate student loan protections, each of which leaves student loan borrowers more vulnerable to abuse.

Narrowing borrowers’ eligibility for relief sets unrealistic and harmful standards for mistreated students.

The borrower defense rule authorizes the Department of Education to discharge and refund student loans used to attend colleges that broke their contractual promises or engaged in predatory practices. Under the rules finalized by the Education Department in 2016, borrowers can assert one of three categories of claims: those based on certain types of judgments against their college, a broken contract, or a “substantial misrepresentation” made by the college. The 2016 rule also protects students from predatory behavior, while deterring unscrupulous conduct by giving the Department the explicit ability to hold colleges accountable for the cost of loan relief rather than the taxpayer.

The public overwhelmingly supports providing relief to mistreated students: 78% of Americans say they support loan relief for borrowers whose schools provided deceptive information about their programs or outcomes, including 87% of Democrats and 71% of Republicans. While the PROSPER Act maintains the three categories of claims, it makes it far more difficult for wronged students to get debt relief in several ways.

First, the PROSPER Act requires borrowers to apply within three years of the time an institution engages in misconduct. But this period is unrealistically short. Many students may not even be aware of the school’s misconduct within three years, and applications supported by successful court judgements are especially unlikely to be completed within three years.

Imagine a student who finished a bachelor’s degree in four years, only to realize that the school lied to them during their recruitment, when they were unable to find a decent job in their field of study. They would have already lost the opportunity to apply for borrower defense with a three year statute of limitations. When the Education Department investigated Corinthian Colleges’ misrepresentations, it uncovered serious, widespread abuse stretching back over five years.

In 2016, based upon a survey of similar state laws, the Department of Education concluded that no statute of limitations was appropriate for cases based on certain judgments or broken contracts. Claims based upon substantial misrepresentations could be brought within six years of the date the borrower reasonably could have discovered the misrepresentation.

Second, the House proposal adds language that stipulates students must submit individual applications for borrower defense. This means that even in instances where the Department has evidence that an institution engaged in widespread misconduct that negatively affected entire cohorts of borrowers, the Department would be precluded from granting them relief as a group – needlessly adding burden and expense to this process. For example, given the overwhelming evidence of widespread malfeasance, the Department granted former students of American Career Institute in Massachusetts automatic loan discharges, without placing the burden on each borrower to apply and justify their application. Because the most socioeconomically distressed borrowers are least likely to be aware of the availability of relief and the least comfortable with navigating individual applications, it is those borrowers who stand to be most harmed by eliminating the Department’s authority to provide group discharges.

Finally, as a condition of applying for relief, the PROSPER Act requires borrowers to convert their existing student loans to the new ONE loan it creates. This requirement would force borrowers to forfeit benefits like interest-free deferment during periods of unemployment and lower monthly payments in order to pursue a borrower defense discharge.

Any steps forward in the bill regarding borrower defense are overshadowed by large, new obstacles to providing full and immediate relief where the Department has evidence to act, and creating a process that is least burdensome for mistreated borrowers, and offering a pathway for group relief.

Codifying new limits on closed school discharges will make it harder for students to get a fresh start when their schools close.

Currently, students who are enrolled in a school within 120 days of its closure may either transfer their credits to a comparable program or seek a discharge of their student loans.  There are several reasons why students might prefer a discharge rather than transferring their credits. A student may have gotten halfway through their program but realized the school was providing a low-quality education by the time the school closed, and prefer to start over. Available comparable programs that will accept all of the students’ credits may have poor student outcomes, and more reputable options may only accept a small fraction of the students’ credits.  

The PROSPER Act would curb the ability of students in these situations to receive discharges, by requiring students to show that they attempted, but were unable, to complete the program elsewhere – even if they had not gained necessary relevant knowledge from the time they spent in a substandard program. When Corinthian closed, many schools did in fact refuse to take students’ transfer credits because of concerns about the quality of that education.

Students who are unfortunate enough to have their schools close deserve a fresh start. Congress should retain the provision in the borrower defense rule finalized in 2016, which would provide automatic closed school discharge to students do not enroll again within three years, with no requirement to attempt to transfer credits.

Preempting states from creating improved protections against misconduct in student loan servicing and debt collection will leave borrowers vulnerable.

The Consumer Financial Protection Bureau (CFPB) has received over 60,000 complaints from borrowers about student loan servicers. These complaints describe loan servicers providing wrong and inconsistent information, losing documents, and charging borrowers random or unexpected fees. The CFPB has even found that through their own misconduct, servicers drive borrowers into default. Unfortunately, the Department of Education recently withdrew its existing policy memoranda to improve student loan servicing, adding even more confusion to loan servicer oversight while the Department undergoes an overhaul of servicing and other student aid systems in its NextGen financial services environment.

In light of lax federal standards currently in place, some states have felt compelled to put in place minimum standards for servicers, and as a result state standards can be more robust than federal protections. For example, several states, including California, Connecticut, and the District of Columbia have given their local agencies authority to assess whether student loan servicers are complying with federal laws.

Yet the PROSPER Act would gut states’ ability to protect student loan borrowers from servicer misconduct. This provision would allow the federal government to preempt state laws governing student loan servicing and debt collection and would also bar states’ ability to govern licensing of these companies. Without the ability of states to create important state-based protections, and with an unclear picture of the future of federal policy on loan servicing, this would create additional opportunities for misconduct on the part of loan servicing companies. States must be allowed to continue to protect borrowers from poor servicing and debt collection practices.

The reauthorization of the Higher Education Act could mean the difference between relief for mistreated borrowers and students attending closed schools, or an increase in the number of borrowers struggling to repay student debt. Instead of making it harder for students to get a fresh start at a high quality, affordable education, Congress should provide meaningful, student-centric pathways for debt relief.

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This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to accountability requirements for federal student aid.

The reauthorization of the Higher Education Act provides a pivotal opportunity to reaffirm and strengthen the federal government’s commitment to ensuring that students receive a quality, affordable education, and that federal dollars are wisely spent. Instead, the PROSPER Act would eliminate numerous safeguards that protect students and taxpayers from low-quality and even deceptive educational programs that waste taxpayer dollars and leave students with federal loans they cannot afford to repay.

Eliminating the gainful employment rule will reopen the door to waste, fraud, and abuse in career education programs.

The gainful employment rule is designed to ensure that career education programs in all sectors of higher education aren’t leaving students with unaffordable debts relative to their post-college earnings. In addition to protecting students from burdensome debts, the Congressional Budget Office estimates that the gainful employment rule saves $1.3 billion over 10 years because taxpayers’ resources aren’t being spent on poorly performing programs.

The PROSPER Act both eliminates the gainful employment rule and prohibits the Department of Education from writing or enforcing any future regulation with respect to the definition or application of the term “gainful employment” for any purpose under the Higher Education Act. According to 20 state attorneys general, rolling back the gainful employment rule “would open students and taxpayers up to the worst excesses of the for-profit higher education sector.” A group of Brookings Institution economists concluded that the rules “are necessary to help reduce the costs of student loans to taxpayers and to protect students from economic harm.” Eliminating the rule removes incentives for colleges to offer quality programs at reasonable costs, leaving students more likely to leave college with debts they can’t repay.

Loosening standards for program-level federal grant and loan eligibility without sufficient quality guardrails will waste resources on ineffective programs.

Currently, undergraduate programs providing a minimum of 15 weeks of instruction at Title IV eligible institutions are eligible for both federal student loans and Pell Grants. Programs providing at least 300 but less than 600 clock hours of instruction over the course of at least 10 weeks are eligible for federal loans, but not Pell Grants, so long as they have verified graduation and job placement rates of 70% and meet some additional requirements. The Reagan and Bush administrations tightened the current course length minimums after high-profile cases of fraud and abuse of federal aid funds, and years of high student loan default rates.

The PROSPER Act cuts the minimum length of all eligible non-competency-based education programs in half from 600 hours to 300 hours, and opens up all federal student aid funds to these programs. It furthermore removes the graduation and job placement rate requirements currently in place for programs between 300 and 600 clock hours. Some short-term programs that are closely aligned with local employment needs can offer real value to students, but eliminating existing, commonsense standards for graduation and job placement outcomes for such programs is a clear cause for concern for both students and taxpayers. Going even further by shortening existing program length requirements for federal aid eligibility without developing sufficient quality controls risks a new surge of abuse of federal aid funds. We have identified number of critical questions that must be addressed before expanding current program-level federal aid eligibility.

The PROSPER Act also expands federal grant and loan eligibility to programs primarily delivered by unproven higher education providers. These programs are not currently eligible for student aid because federal, state, and accrediting agencies have no proven mechanisms to rely on for assuring quality. Currently, schools have a 50% limit on how much they can “outsource” the provision of academic programming in a given course or program. This cap exists as an essential guardrail against the potential overuse of unproven providers of higher education that have not passed basic evaluations of academic quality.

In 2016, the Department of Education launched EQUIP, an initiative to explore any potential benefits of waiving this 50% limit and facilitating greater partnerships between colleges and non-college education providers. Recognizing the potential for associated risk to students and taxpayers, the eight pilot sites included in the initiative will be required to include new quality assurance processes. However, there are not yet any publicly available data on this initiative, including the types of programs and providers who applied or were approved for the project, let alone any identification of potential costs or benefits for students and taxpayers that may result from such partnerships.

Without even initial pilot program evidence or experience to guide policymakers, the PROSPER Act eliminates the 50% requirement for all colleges while at the same time failing to ensure any adequate oversight or accountability to ensure effectiveness. As a result, the bill would open the spigot of federal financial aid to new education companies, putting students and taxpayers at risk of wasted money and unaffordable loans.

Replacing institutional cohort default rates (CDRs) with program-level repayment rates will make it easier for low-quality schools to evade accountability and continue wasting federal funds.

The Department of Education currently holds schools accountable for default using the cohort default rate (CDR). The CDR measures the percentage of a college’s students entering repayment who default within three years. If a school has a CDR at or above 30% for three years, it is no longer eligible to receive Title IV funds from the government. If its CDR exceeds 40% for a single year, a school is no longer eligible for federal student loans.

The PROSPER Act replaces the CDR with a new program level repayment rate, to be calculated as the share of borrowers who took loans for each respective program and are either fully repaid, not 90 days delinquent, or in deferment after two fiscal years (the amount that a student in repayment has paid doesn’t matter). If a program’s repayment rate is less than 45% for three consecutive years, it would lose eligibility for three years. This specific calculation of the proposed repayment rate is new, which means there is no way to know how programs may fare under this standard.  

Swapping out the CDR for a brand new accountability metric is not a solution to shortcomings of the CDR, which we agree can and should be addressed, and could in fact invite unintended negative consequences for students. While repayment rates hold promise for measuring a broad range of borrower outcomes, eliminating the CDR entirely moves colleges’ attention away from focusing on the most devastating borrower outcome: default. Additionally, while school-level CDRs are not immune to gaming by unscrupulous schools, program-level accountability measures are particularly ripe for manipulation because of how simple it is for schools to make slight modifications to their program offerings in order to make failing programs look like new, untested programs. For instance, the gainful employment rule (also program-based) prohibits colleges from shortening a failing Associate of Arts program to a certificate program to get continued federal aid eligibility. The PROSPER Act does not propose any such protections or prohibitions with regards to how repayment rate accountability would be implemented, opening the door to more gaming of accountability rather than less.

Eliminating distinctions between for-profit and public/nonprofit colleges could have wide-reaching effects.

With some small exceptions, the bill eliminates the distinction between for-profit and other colleges as defined by the Higher Education Act, a longstanding policy priority of the for-profit college industry. All types of colleges should be subject to appropriate oversight and accountability, but the reality is that public and nonprofit colleges are already subject to significant oversight by states, while for-profit colleges – which are almost entirely federally funded – are not. This change would make for-profit colleges eligible for a range of programs across the federal government. According to a 2007 report from the Government Accountability Office, the current definition of “Institution of higher education” – which currently excludes for-profit colleges – was cited more than 350 times across the U.S. Code at the time of the report’s publication. While the full ramifications of this change are unclear, for-profit college advocates believe that the single definition could lead to, among other things, expanded eligibility for state financial aid, and more favorable treatment of their colleges’ credits in transfer policies. According to the GAO, the change could also lead to increased political influence of for-profit colleges within states. Moreover, allowing for-profit colleges to have an even greater share of limited federal dollars would be unwise given ample research about poor outcomes at many of these schools.

Taken together, the accountability-related provisions in the PROSPER Act signal more an assault on reasonable quality assurances in higher education than an attempt to improve and strengthen existing federal efforts to hold colleges accountable. Without the protections singled out for elimination in this bill, we know that students will face higher debt loads to attend programs that are less likely to pay off. Congress must use the opportunity HEA reauthorization presents to strengthen protections for students and taxpayers, not gut them.

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This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to federal student loan counseling and consumer information.

With many students needing to borrow loans to access and complete college, it is more important than ever to provide students with relevant, clear, timely information to help them decide where to go to college and how to pay for it. The PROSPER Act advances these bipartisan priorities by taking steps to improve loan counseling, and creating a College Dashboard that provides enhanced information to better support a student’s ability to identify colleges and programs that provide the best value and fit for their education and career goals. Despite these important steps, however, the PROSPER Act fails to include other widely supported reforms that would give students the full range of information they need to understand their options for pursuing and financing a postsecondary education.

Improvements to loan counseling are meaningful, but omit critical elements.

Drawing from the bipartisan, bicameral Empowering Students Through Enhanced Financial Counseling Act, the PROSPER Act would increase the frequency of the counseling required when a student takes out a federal loan from one time only to annually, as well as ensure that the counseling is completed by the borrower before signing the loan paperwork. The annual counseling would also provide new disclosures, including individualized estimated monthly payments upon graduation. These changes hold promise for helping students understand their loan options, their estimated debt upon graduation, and how to successfully navigate repayment.

However, the PROSPER Act omits two critical elements that were included in the original bipartisan bill: a provision to explicitly recommend that borrowers exhaust their federal student loan eligibility prior to taking out private loans; and an explanation that federal student loans typically offer better terms and conditions than private loans. Chairwoman Foxx and Ed Feulner recently argued that the federal government should encourage private student loans in order to hold down college costs. However, experts in higher education finance and public policy have found no convincing, causal relationship between federal aid and college prices at public and nonprofit colleges. Meanwhile, private loans are one of the costliest and riskiest ways to pay for college, and data show that over 40 percent of private loan borrowers have federal loan eligibility left (of which they may not even be aware).

The PROSPER Act also leaves out the bipartisan bill’s requirement that loan counseling disclose the school’s cohort default rate (CDR) and instead provides prospective borrowers with a new calculation of program level repayment rate. While program repayment rates can be a helpful metric indicating a broad range of student loan outcomes, students also deserve information about the very worst borrowing outcome, default.  

Consumer information enhancements are steps in the right direction, but ignore a more comprehensive solution with broad, bipartisan support.

By incorporating the bipartisan Strengthening Transparency in Higher Education Act, the PROSPER Act makes several positive steps to improve data transparency that would increase access to critical information about college costs, and student outcomes. The bill establishes a new consumer facing tool, the College Dashboard (a web-based tool similar to the current College Navigator or the College Scorecard), that will make more data available to help students decide where to attend school and how to pay for it. The new data would include the welcome addition of information on program level borrowing and earnings outcomes.

Unfortunately, the PROSPER Act ignores the need to more comprehensively address the gaps in our existing postsecondary data system. TICAS joined 21 other organizations in calling on the Education and Workforce Committee to advance the bipartisan, bicameral College Transparency Act (CTA). The CTA creates a secure, privacy-protected federal student-level data network (SLDN) that would allow all postsecondary students to be included in comprehensive enrollment and outcome measures, disaggregated by key characteristics like race/ethnicity and income. As with any data network implicating individual-level data, both security and privacy are paramount priorities that must be explicitly addressed. The CTA would secure student data through adherence to industry best practices and federal laws, and privacy would be protected by ensuring, for example, that only relevant data are collected, and that they cannot be sold or used for law enforcement purposes. The CTA has the support of over 130 organizations, demonstrating broad support among higher education advocates, educators, and employers for creating a postsecondary data system capable of fully illuminating— and empowering policymakers, schools, and states to address— current inequities in enrollment, completion, and post-graduation outcomes.

Consumer testing requirements will help make the most of new information.

In order for information to effectively influence choices, students need to understand that information, and know how to act on that information. Otherwise, we risk exacerbating existing challenges of information overload and disengagement.

Comprehensive consumer testing of information tools, including online loan counseling, is therefore critical for ensuring that the information presented successfully helps students digest and make use of information about the cost and value of a particular program and school, inclusive of personal, social and economic benefits. The PROSPER Act includes a requirement that its proposed changes to federal student loan counseling and its proposed College Dashboard be consumer tested. To ensure these tools can achieve their purpose, it is critical that this consumer testing be robust and focus specifically on how vulnerable groups of students receive and respond to the information.

The PROSPER Act makes meaningful, focused changes to provide students with timely, easy-to-understand information to help them navigate big questions about where to apply, where to enroll, what to study, and how to pay for it. The proposed improvements to consumer information unfortunately stop short of the holistic solution we need to address gaps in the existing postsecondary data system. While students today don’t make decisions in a vacuum, work remains to ensure students have access to all the information they need.

Providing students with key, clear information when they need it is a necessary component of any effort to reduce the burden of student debt, but improving consumer information alone is not sufficient. Greater investments in Pell grants and affordable student loans are also necessary to reduce financial barriers to enrollment and completion. Without a firm commitment to reducing these barriers, students with financial need may find themselves in the uncomfortable position of having gained only an increased awareness of the same limited options of where they can afford to attend and complete a program.

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This blog post is one in a series that explores how the House proposal to overhaul the Higher Education Act would impact student debt. This bill, the PROSPER Act, was passed out of the Committee on Education and the Workforce in December 2017. Here we focus on the PROSPER Act’s changes to income-driven repayment plans for federal student loans. See our previous post for a discussion of the proposed ONE Loan program.

Income-driven repayment (IDR) plans – which allow students to repay their loans as a share of income - currently help millions of borrowers stay on top of their loans and avoid default. Reflecting broad, bipartisan agreement on the need to simplify IDR, the PROSPER Act streamlines the five existing IDR plans into one new plan. Unfortunately, the design of the new IDR plan would severely undermine the program’s critical role in helping borrowers manage their debt and in reducing default. In addition to increasing the size of monthly payments required of borrowers enrolled in IDR and eliminating Public Service Loan Forgiveness (PSLF), the PROSPER Act includes two less-visible provisions that will increase the risk of default for low-income borrowers, and force some of them to make payments for the rest of their lives.

The PROSPER Act increases monthly payments for all borrowers in IDR and eliminates the Public Service Loan Forgiveness Program.

The required monthly payment in the PROSPER Act’s IDR plan would be calculated as 15% of “discretionary income,” a 50% increase from the 10% payment required under existing IDR plans. For example, a borrower earning $30,000 could see her payments rise by about $600 a year.

Additionally, the PROSPER Act would prevent the Department of Education from improving or creating repayment options that would be better for borrowers. The Department has used this authority to reduce student loan payments while also better targeting benefits to the borrowers who need them the most.

The PROSPER ACT would also eliminate PSLF for new borrowers, without reinvesting any of the savings into students. PSLF works in tandem with IDR but is a forgiveness (not repayment) program and has a different policy goal - to encourage students to enter public service professions, particularly those that offer lower earnings potential and require extensive education and training. Borrowers who would have utilized this program may still enroll in IDR, but will go from anticipating loan forgiveness after 10 years of payments to facing an unknowable and potentially indefinite number of years of repayment. 

The PROSPER Act eliminates loan forgiveness so the lowest income borrowers would be required to make payments indefinitely.

Unlike existing IDR plans, the new single IDR plan proposed in the PROSPER Act does not guarantee that borrowers will be able to retire any remaining federal student debt after 20 or 25 years of payments. Instead, the plan would provide a cap on interest payments so that borrowers would be required to repay the equivalent of the principal and interest amount they would have paid under a standard 10-year plan (in addition to interest accrued during any deferments), no matter how long it takes them to do so.

By removing the 20- or 25-year fixed forgiveness point, the lowest income borrowers would no longer see a clear light at the end of the tunnel, and may be stuck repaying their student loans for the rest of their lives. For example, under this plan, it could take a low-income borrower with just $20,000 in student loan debt up to 92 years to repay their student loans.*

Requiring payments for longer than 20 or 25 years would have significant harmful consequences for borrowers. Research has shown that carrying outstanding student debt may affect borrowers’ ability and willingness to make other financial commitments, such as buying a home or a car, opening a small business, saving for their children’s education, or saving for their own retirement. Student debt can also negatively impact borrowers’ access to other credit. Recent reports from the Government Accountability Office and the Consumer Financial Protection Bureau both found that the number of older Americans with student debt has increased sharply, and that their loans are more likely to be in default; removing the existing cap on the number of years a borrower is in repayment would make these problems even worse.

Increasing the minimum monthly payment in IDR from zero to $25 would increase risk of default for the lowest income borrowers.

Under existing IDR plans, monthly payments for the lowest income borrowers can be as low as $0. This is a critical component of IDR that acknowledges the reality that, after paying for their basic needs, some borrowers have no remaining income to cover student loan payments. Under the PROSPER Act’s proposed IDR plan, however, borrowers would be required to make minimum payments of $25. For borrowers with tight budgets, the minimum $25 payment may force them to choose between making a student loan payment and paying for rent or food - and increase the risk that choosing to feed or house a family would result in defaulting on a student loan.

Additionally, raising the minimum IDR payment to $25 would be out of step with the definition of affordable payments established for loan rehabilitation, a process through which student loan borrowers make monthly payments to bring federal loans out of default and back into good standing. For the lowest income borrowers, the “reasonable and affordable” monthly payment for rehabilitation can be as little as $5, which can still prove difficult for them to pay. These borrowers would be at greater risk of defaulting on their loans a second time if once out of default they see their monthly payment increase from $5 in rehabilitation to a potentially unaffordable $25 in IDR.  

The PROSPER Act allows for very limited circumstances under which monthly payments could be reduced to $5, but such allowances would be limited to up to three years and would require burdensome documentation. For example, borrowers who are unemployed could reduce their monthly payments to $5 for a limited time by regularly providing evidence of their eligibility for unemployment benefits, as well as a written certification that they have registered with a public or private employment agency within a 50-mile radius of their home address and that they have made at least six “diligent attempts” during the preceding six-month period to find full-time employment.

 

The multiple existing IDR plans should be streamlined into one plan, but the PROSPER Act’s proposal is not the way to do it. It is critical that any single IDR plan provide loan forgiveness so that borrowers will not bear the burden of federal loan debt until the end of their lives, and include $0 monthly payments for the lowest income borrowers who are living below 150% of the federal poverty level and in no position to afford federal student loan payments. Our detailed proposal for streamlining existing IDR plans includes these and other features to make IDR work better for both students and taxpayers. These features include capping monthly payments at 10% of income, exempting forgiven loan amounts from taxation, and better targeting benefits to borrowers who need help the most.

 

* Calculations assume that the borrower is making the minimum $25 monthly payment during the entirety of her time in IDR, and continues making payments until she has paid the equivalent of the principal and interest she would have repaid under the 10-year standard plan with a 6.8% average interest rate. 

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