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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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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 certain elements of the PROSPER Act’s federal ONE Loan program, as well as the PROSPER Act’s potential impact on private loan borrowing; stay tuned for a deeper dive into its proposed changes to repayment options, as well as additional student debt-related topics.

There is widespread agreement that the current federal student loan program is too complex, resulting in a system that is difficult for students to understand and successfully navigate. The PROSPER Act rightly recognizes the need to simplify federal student loans, but the federal ONE Loan program it creates includes terms that would make federal loans costlier for students while also increasing the already high risks of private loan borrowing.

The PROSPER Act’s elimination of subsidized loans would raise borrowing costs for most borrowers.

Under current law, undergraduates currently receive subsidized loans, unsubsidized loans, or both. Subsidized student loans are allocated on a sliding scale based on financial need and carry valuable benefits: namely, no interest accrual while students are in school, for six months after they leave school, during active-duty military service, and for up to three years of unemployment or other economic hardship.

The PROSPER Act would replace existing loans with a new ONE Loan program that provides only unsubsidized loans.  With three-quarters (67%) of undergraduate Stafford loan borrowers taking out both subsidized loans and unsubsidized loans, it is worth considering whether student loan subsidies could be better designed to have a greater impact on college affordability. However, the PROSPER Act simply eliminates this valuable loan subsidy for undergraduates with financial need without investing the $27 billion dollars saved back into students. This would increase the cost of student loans by thousands of dollars over their lifetimes for many of the six million undergraduates who receive those loans each year. To just disappear this substantial investment in reducing the burden of federal loans is a major blow to student borrowers and college affordability.

TICAS has proposed streamlining the loan program into a new loan – also called a One Loan – that would carry a lower, but nonzero, interest rate for all borrowers on all of their loans while they are enrolled in school. To help students in repayment, our proposal includes interest-free deferments for Pell Grant recipients during periods of unemployment and economic hardship. Borrowers who received Pell Grants, by definition, have significant financial need, and are therefore much less likely to have family members who can support them during periods of unemployment or low earnings. Pell Grant recipients would be eligible for interest-free deferments on all their loans, rather than just their subsidized loans as is this case today, better targeting this benefit to those who need it most, when they need it.

Our proposed One Loan for undergraduates would also have:

  • A fixed interest rate that reflects the government’s cost of borrowing to provide predictability to students and ensure that the rates for new loans are in step with the economy.
  • A lower interest rate (reflecting only the government’s cost of borrowing) while borrowers are in school to increase affordability and encourage students to stay enrolled and complete, knowing that their interest rate will rise (to the government’s cost of borrowing plus a fixed margin) when they leave school.
  • An overall interest rate cap to ensure that interest rates on student loans will never be too high.
  • An interest rate guarantee to assure borrowers that their rate in repayment will never be too much higher than the rate on new student loans.

The table below summarizes selected features of federal (non consolidation) student loans for undergraduates under current law, the PROSPER Act’s ONE Loan proposal, and TICAS’ One Loan proposal.

Current Law
(New loans in 2018-19)

PROSPER Act
ONE Loan

TICAS
One Loan

Number of Loan Types

Two

One

One

Interest Benefits for Low-Income Students

Access to subsidized loans for borrowers with financial need

None

Interest-free deferments for Pell Grant recipients during periods of unemployment and economic hardship

Interest Rate

Fixed rates for new loans are set each year based on the 10-year Treasury note plus a set add-on of 2.05 percentage points, with an overall interest rate cap of 8.25%. Although rates for new loans are set each year, rates are fixed for the life of the loan.

Same as current law

Fixed rates for new loans would be set each year based on a U.S. Government-issued security (e.g., the 10-year Treasury note or 90-day Treasury bill), plus an additional fixed margin to reflect the cost of the student loan program. However, borrowers who are still in-school would have a lower interest rate that only reflects the government's cost of borrowing (i.e., that does not include the add-on).

Loan Limits

For dependent undergraduates:

  • $5,500 in the first year, $6,500 in the second year, and $7,500 in the third year and beyond
  • $31,000 total

For independent undergraduates and dependent students whose parents don't qualify for a parent loan:

  • $9,500 in the first year, $10,500 in the second year, and $12,500 in the third year and beyond
  • $57,500 total

Colleges have ability to deny or reduce loan eligibility on a case-by-case basis for individual students.

For dependent undergraduates:

  • $7,500 in the first year, $8,500 in the second year, and $9,500 in the third year and beyond
  • $39,000 total

For independent undergraduates and dependent students whose parents don't qualify for a parent loan:

  • $11,500 in the first year, $12,500 in the second year, and $14,500 in the third year and beyond
  • $60,250 total

Colleges have ability to deny or reduce loan eligibility for entire groups of students, based on certain characteristics or programs of study. Eligibility increases would be allowed on a case-by-case basis.

Same as current law

The PROSPER Act may lead to riskier private student loan borrowing

Most students borrow their loans directly from the U.S. Department of Education, but private loan volume has been increasing over recent years, to $11.6 billion in 2016-17. Private loans are one of the most dangerous ways to finance a college education. Experts agree that federal student loans should always be the first line of defense for students who need to borrow, because they have fixed interest rates, flexible repayment plans, and other important consumer protections that are not guaranteed by private loans.

The PROSPER Act removes important protections around “preferred lender lists” of private student loan options. Colleges can choose to provide those lists to point students toward private loan options that the college considers to have competitive or favorable terms. In the mid-2000s, Congress added additional protections after some college officials were found accepting lender payments to steer students to less favorable loans.

The PROSPER Act eliminates requirements for colleges to document why specific lenders are included in these lists, disclose to students information about any referral arrangements between schools and lender (arrangements that could include agreements providing material benefits to either or both parties), and to submit annual reports to the Department of Education outlining why these lenders are “beneficial to students.” Such changes would risk the creation of preferred lender agreements that benefit the institutions financially but are not the best terms available to students.

The current statutory requirements for preferred lender lists are critical oversight and consumer protections, and should be maintained. Additionally, Congress should take steps to help students better understand the risks of private loans and encourage students to exhaust their federal loan eligibility before considering private loans.

Ultimately, student-centered simplification of federal student loans demands changes that better support enrollment and completion, rather than simply eliminate or reduce the aid available.

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As Congress works to reauthorize the Higher Education Act, the choices it makes on federal student loans are more important to students and families than ever before. Each year, over seven million undergraduate students take out federal loans. For many, borrowing to go to college may be the best investment of a lifetime. But others struggle to afford monthly payments, and each year more than one million students default on their loans.

In December, the House Committee on Education and the Workforce passed, along party lines, a bill to overhaul the Higher Education Act. The PROSPER Act would make ambitious and far-reaching changes to federal student loans, perhaps more than any other single piece of legislation since federal loans were first created. Despite its recognition of the need to simplify income-driven repayment (IDR) plans and efforts to improve loan counseling, the PROSPER Act would make college debt substantially more expensive and more risky for students.

The PROSPER Act includes a host of problematic provisions that will make it both harder and costlier for students to earn a high-quality certificate or degree. It will increase the cost of borrowing for students by charging interest while students are enrolled and pushing students towards riskier private loans. While it pursues the worthy goal of streamlining income-driven repayment (IDR) plans, its approach will force all borrowers to pay more, and the lowest income borrowers to make payments for a much longer time, potentially for the rest of their lives. At the same time, the bill eliminates student protections against low-quality or even fraudulent colleges - rules designed to protect students and taxpayers from investing time and money into colleges that overcharge and under-deliver - and makes it harder for harmed students to get back on their feet. These changes to accountability only increase the risk that students will default on their loans, and increase the burden taxpayers must shoulder for underperforming schools.

Each day this week, TICAS will publish a new post as part of a series called How the PROSPER Act Stacks Up for Student Debt. Topics will include:

Each post will explore how specific major changes proposed by the PROSPER Act will affect student debt, including how much students have to borrow, how much they have to repay, and how likely it is that they end up in default. The posts will also discuss better ways – many with bipartisan support – to solve some of the problems the bill aims to address, and describe how Congress can make the most of this key opportunity to help students graduate and reach their goals without overly burdensome debt.

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Earlier this week, the Department of Education announced a new process to resolve about 21,000 applications for borrower defense discharges, available to students whose schools have mistreated them in violation of state law. For some of these students, the resolution of their applications will lead to full student loan discharges and allow the students a fresh start. Other students, however, will receive partial discharges, meaning that their loan balances will be reduced but not eliminated. While the resolution of these claims is long overdue, we have both questions and concerns about how the amount of relief provided to each student is being determined.

The announcement explains a new approach for deciding whether students with valid claims will have their loans written off or only reduced. Students’ earnings will be compared against the average earnings of students from comparable programs that passed the gainful employment standard, a rule designed to ensure that career education programs are adequately preparing students for gainful employment in a recognized occupation. In effect, this approach would contrast what harmed students are earning against what they might have been earning had they attended a better program leading to the same credential in the same area, and discharge a proportion of their debt based on how their earnings compare to those of passing programs’ graduates. For example, “students whose current earnings are less than 50 percent of their peers from a passing gainful employment (GE) program will receive full relief.”

Even conceptually, this approach is highly problematic. A student lured into enrolling in and borrowing for a worthless program might see minimal to no relief if they were paying their bills by working in a completely unrelated job, earning minimum wage. This effectively punishes borrowers who manage to stay afloat despite being mistreated by their schools, akin to a “lemon law” that doesn’t require manufacturers to reimburse or replace cars if consumers can afford to buy a replacement car themselves.

Yet practical questions remain about how this process will work, and the answers may raise additional concerns.

First, how will the Department consider the borrower’s earnings, when calculating relief? The wording of the announcement seems to suggest that an individual student’s actual earnings would be used to determine the relief amount, but several news stories have indicated that the Department will instead consider the average earnings of graduates from the program the student had attended. But individual students may have different experiences, and many students will have incomes far lower than the program mean or median. This variation in students’ experiences is likely particularly common within gainful employment programs because the Department’s data sometimes combine multiple campuses.

Including only students who completed their program will likely overstate the earnings for all students who attended that program. Because noncompleters are likely to have lower earnings on average than the completers in the earnings data the Department is reportedly using to calculate relief, using completers’ earnings will drastically minimize the amount of relief being made available. This is an especially concerning issue for borrowers who attended Corinthian Colleges (a chain of for-profit schools known more commonly as Everest, Wyotech, and Heald) because a clear majority of Corinthian borrowers did not complete their programs. For example, College Scorecard data show that 61% of students borrowing federal loans to attend Corinthian schools left their programs without completing. 

 

The Majority of Students who borrowed to attend Corinthian schools never finished their program

 

Moreover, earnings data are not available for all programs. Most of the nearly 100,000 pending borrower defense claims come from former students of Corinthian Colleges, where the Department itself helped to document widespread, substantial misconduct of the sort that makes students eligible for loan discharges. In fact, the misconduct was so pronounced that the Department created an expedited borrower defense application process for students who had borrowed to attend over 700 Corinthian programs.  

The Corinthian Colleges schools that remain open were purchased by a nonprofit, Zenith Education Group, in 2015. This distinction between for-profit and nonprofit status is relevant because the gainful employment rule – data from which borrower defense discharge amounts will reportedly be pegged – applies to virtually all programs at for-profit colleges as well as certificate programs at public and nonprofit colleges. Despite the fact that Zenith agreed that the purchased schools would continue to comply with the gainful employment rule as a condition of the sale, the Department’s gainful employment data exclude virtually all degree programs from former Corinthian schools. As a result, there are no publicly available earnings data from these programs. Hundreds of the programs for which the Department had created an expedited borrower defense process were degree programs, and this week’s announcement is silent on how discharge amounts would be determined in cases where program-level earnings are unavailable.

If the Department’s process is intended to adjudicate borrower defense claims from mistreated students in a way that “makes them whole,” this approach misses the mark. It is also important to remember that even full loan discharges and refunds are still only partial relief for students who, in addition to having borrowed federal loans, may have used up eligibility for time-limited grants, taken out private loans that can’t be discharged, and invested their own time and money into their education. These are resources that students can’t get back. Figuring out ways to pinch pennies out of students’ federal loan discharges is ill-advised, and the Department’s plan for doing so is ill-conceived. 

 

 

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Today, we updated College InSight (www.college-insight.org) – our unique web site for higher education research—with data for academic years 2014-15 and 2015-16, including new data from the Department of Education that were released just last month.

For eight years, College InSight has been an easy-to-use, consumer-friendly resource for anyone interested in analyzing issues related to college affordability, diversity, and student success. Whether you are a prospective student interested in the racial and ethnic diversity of colleges you’re considering, an institutional researcher curious about how your college’s institutional grant aid awarding compares with that of peer institutions, or a policymaker trying to better understand differences in costs and debt across different types of institutions or states, this database is a valuable resource to identify and highlight important trends in higher education.

College InSight includes rich data from over 12,000 U.S. colleges and universities and nearly 200 variables. Unlike other higher education data tools, College InSight features totals and averages for states, sectors, and other groupings of colleges. In addition to data from the Department of Education, this tool includes undergraduate financial aid data from the Common Data Set (CDS), such as financial need, institutional grants, and the cumulative debt of graduates.

So what can you do on College InSight? On the website, you have the option of browsing data in Spotlight, Topics, or Explore All Data.

In Spotlight, you can view a snapshot of selected variables for a selected college, state, or school type, and choose a relevant comparison. For example, the screenshot below shows a comparison between California State University, Sacramento and all public 4-year colleges in California. More variables and charts are available if you scroll down, and you can also change years.

In Topics, you can focus on particular issues in higher education, such as economic diversity, student success, and financial aid.

If you are a more sophisticated data user and want to compare multiple colleges, states, or types of schools, or choose from additional variables or years, you can use Explore All Data to build your own table. For example, this screenshot shows a comparison of various college costs for all public, 4-year colleges in California over time. You can download the data as a spreadsheet or save your results for sharing with others.

If you are a “super user” and wish to access more than 50 variables or data for more than 1,000 colleges, states, or sectors, you can even request the data file from us. It’s available for free, though we always appreciate finding out what folks are doing with it!

If you have any questions about the website or suggestions for improvement, please email us at collegeinsight@ticas.org. We welcome any feedback you may have, as we plan for a larger revamp of the site. 

Technical tip: If you have visited College InSight before, you may need to clear the cached images/files in your browser to make sure our updated site works properly.

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Unlike its House counterpart, the Senate’s 2018 budget resolution expected to pass tonight or tomorrow does not detail cuts to student loans and Pell Grants. However, it proposes overall spending levels that would require similar if not exactly the same cuts to student aid proposed in the House’s budget resolution that passed in early October.  We’ve previously called attention to these proposals, including the elimination of all mandatory funding for Pell Grants. Today we focus on another of these unnecessary and harmful proposals—an arbitrary maximum income cap that would eliminate Pell Grants for students with household incomes above a fixed threshold, regardless of family size or other financial circumstances that affect their ability to pay for college. Attempting to limit Pell Grant eligibility in this way is not new, but the current political climate in which the proposal is being advanced, combined with recent external encouragement, makes resisting such efforts more urgently critical.  

Arguments for a maximum income cap rely on the unsupported assertion that an increasing share of Pell Grants are going to “middle income” students who don’t have nearly as much financial need as the lowest income students. However, data clearly show that the vast majority of all Pell Grant recipients continue to have family incomes of $40,000 or less, and furthermore that the median family income of Pell Grant recipients (in 2011-12, $26,100 for dependents and $12,700 for independents) has been declining over time.

Additionally, the federal aid eligibility formula rightly recognizes that while income is a central component of a family’s ability to contribute toward the cost of college, income alone is an insufficient determinant of financial need. In addition to income information, the federal financial aid formula also takes into account factors including assets, taxes paid, household size, and the number of family members in college at the same time—factors that directly affect a family’s ability to afford college for each student. For example, of the Pell Grant recipients with family incomes above $40,000, more than two-thirds have families of four or larger, and almost two in five have families of five or larger.* Of the just 10% of Pell Grant recipients with family incomes over $50,000, almost four in five (79%) come from families of four or more, and many have more than one family member in college. While an income of $50,000 may be near the median US income, larger families must use that “middle” income to cover basic needs for more family members, and potentially to cover college costs for more than one family member at the same time.

Establishing an arbitrary maximum income cap would undermine college access and completion goals by forcing students with very high financial need to make up for lost grant aid by working longer hours, taking out more loans, or forgoing college altogether. Pell Grant recipients already face disproportionate debt burdens in attending and completing college: Nearly nine in 10 Pell Grant recipients who graduate from four-year colleges have student loans, and their average debt is $4,750 more than students who did not receive a Pell Grant.

Now is the time to protect and strengthen the Pell Grant for all students with significant financial need, not arbitrarily restrict access to those grants.


* See the Department of Education’s Federal Pell Grant Program 2015-16 End of Year Report, Table 71: Distribution of Federal Pell Grant Recipients by Family Income and Family Size, available for download here: https://www2.ed.gov/finaid/prof/resources/data/pell-data.html

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California Governor Jerry Brown signed legislation today (AB 19 from Assemblymember Santiago) that is widely reported to make community college tuition free for Californians. If fully funded by the legislature, the bill would provide dollars sufficient to cover tuition for first-time, full-time students who do not qualify for the California College Promise Grant (known until last month as the Board of Governors Fee Waiver), which has long fully covered community college tuition for students with demonstrated financial need.

But the bill actually provides much broader and more meaningful flexibility to colleges than is widely understood. The bill does not require colleges to eliminate tuition for these additional students, but instead allocates money to colleges to spend in ways that will increase college access and success and decrease inequities in which students get to and through college. Community colleges “may” use funds to cover tuition for those students who don’t already benefit from the fee waiver, but they don’t have to, and that is a good thing.

To qualify for the new funds, colleges must agree to implement certain student-oriented reforms, such as partnering with local school districts to foster college awareness among students before they leave high school, using evidence-based practices to assess students’ academic readiness, creating guided pathways to help students complete programs and degrees without getting lost, and ensuring students’ access to all the need-based financial resources available to them. 

These details are important, because a meaningful promise to increase college access, affordability, and success for California’s students has to address more than just tuition. College enrollment means little if students don’t know which courses to take or can’t get into them, if they’re stuck in unnecessary developmental coursework, or if they can’t afford their textbooks or transportation to campus. These are very real obstacles that hold students back from succeeding in college even when tuition is free. And the structure of AB 19 allows future funding to be used to help students overcome these hurdles. Here are just some of the important ways that colleges could choose to spend funds appropriated for the bill:

  • For low-income students with children, the lack of affordable childcare can be a tremendous obstacle to persisting in college. Money provided under AB 19 could be used to support childcare centers on campuses, or direct aid to low-income parents to help them cover childcare costs.

  • The new funds could be used to provide transportation passes or textbook vouchers for low-income students, better positioning them to get to campus and pass their courses.

  • More than 20 community colleges in California do not offer federal student loans, in part because they don’t feel they have the resources they need to administer the loan program responsibly. Offering federal loans is a requirement for receiving AB 19 funds; these colleges could use these funds to support loan counseling and other efforts that would enable them to reenter the loan program.

With the lowest community college tuition in the country, and an existing financial aid program that covers tuition for low- and middle-income students, challenges outside of tuition are almost certainly bigger determinants of student success at most community colleges in California. Thankfully, the bill Governor Brown signed today allows colleges the choice for how best to support the enrollment and completion of their students.

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The Free Application for Federal Student Aid (FAFSA) for the 2018-19 school year became available on October 1st, and millions of students can once again use the IRS Data Retrieval Tool (DRT) to electronically transfer their tax information directly into the form. (As we wrote about here, the DRT was taken down due to security concerns in March.) Unfortunately, the DRT will remain unavailable for students applying for aid for the 2017-18 school year, which runs through June 2018.

Due to the security enhancements made to the tool, there are a few important changes that students and families should be aware of while they fill out the FAFSA for the 2018-19 school year:

  • To protect personal data from potential identity theft, the information transferred via the DRT will no longer be visible to the applicant on the online FAFSA or the Student Aid Report (SAR). Instead, those fields will display “Transferred from the IRS”. For 2018-19 applicants, the data will come directly from their 2016 tax return.
  • An applicant will not be able to change the IRS data that is transferred via the DRT, but can contact colleges directly if their financial situation has changed or they or their parents file an amended tax return.
  • The applicant may receive a letter in the mail from the IRS each time the DRT is accessed. They should not be alarmed by the official-looking IRS mail — it is an extra layer of protection!

The DRT is a crucial tool for students and families. It makes the FAFSA process much faster and easier, and reduces the burden of “verification” – a process that requires selected students to submit additional documentation before receiving the financial aid they qualify for. For more about the importance of this tool and why any applicant who can use the DRT should do so, see the National College Access Network’s recent blog post: “The IRS is Ready for FAFSA Season – Are You?

We thank the Department of Education and IRS for working together to restore secure access to this critical tool, and for doing so without creating burdensome new authentication requirements that would have made it difficult for low-income students to use it.

For more information about the DRT outage and restoration, see our previous blog posts:

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