Federal and State Policy

Pauline Abernathy, Vice President of The Institute for College Access & Success, testified on June 7, 2011 before the Senate Health, Education, Labor and Pensions (HELP) Committee at the hearing entitled “Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges,” discussing trends and disparities related to student debt, completion and post‐completion success at for‐profit career colleges compared to other types of schools.

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In February 2011, the U.S. Department of Education released “unofficial trial three-year cohort default rates” (CDRs) for colleges around the country based on students who entered repayment on their federal student loans in FY2008. The purpose of these unofficial rates is to help colleges prepare for the release of official three-year CDRs next year, which will be based on students who entered repayment in FY2009. Only if a college’s official rate exceeds certain thresholds is a school subject to sanctions.

This week, the Department informed schools that the unofficial trial FY2008 CDRs released in February reflected defaults in the first 3.3 years of repayment, rather than the first three years of repayment, and the Department issued recalculated rates for just the first three years. Because the recalculated rates cover a shorter period of time, the rates for all schools are slightly lower, but they reveal the same troubling picture as the rates released in February:

  • Nearly half of all defaulters (47%) attended proprietary (for-profit) colleges even though only about 1 in 10 students attends these colleges;
  • The average CDR for proprietary colleges (22.3 percent) is still more than double the rates for public and non-profit colleges (9.7 and 6.8 percent, respectively);
  • Default rates rose more steeply in the third year of repayment at proprietary colleges (93 percent) than at other types of schools (60 and 69 percent at publics and non-profits, respectively);
  • Across all colleges, 176,000 former students defaulted in their third year of repayment, but their former schools are not currently being held accountable for these defaults; and
  • These data underscore the need for a strong gainful employment rule that will go into effect in 2012 to prevent taxpayer dollars from continuing to be wasted on ineffective or exploitative career education programs.

In early 2012, the Department will release draft official three-year FY2009 CDRs to colleges for their review before final official rates are released later in the year. This standard procedure for releasing official CDRs gives colleges time to review the data and appeal any potential sanctions before the official rates are finalized.

See our CDR resource page for quick links to individual colleges’ cohort default rates and federal student loan repayment rates, and other background information.

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The House Budget Committee’s FY2012 federal budget plan would cut Pell Grant funding to “pre-stimulus levels,” eliminating or slashing grants for more than nine million students. Assuming no other changes in the program, this would require a 62 percent cut in the maximum Pell Grant—from $5,550 in school year 2011-12 to $2,090 in 2012-13. [See our statement on the budget plan here.]

To try to justify such a drastic cut, the House Budget Committee references a 2005 study that found “little evidence” that Pell Grants lead to increases in in-state tuition at public colleges, but at private nonprofit four-year colleges, increases in Pell grants appeared to be matched with increases in tuition between 1989 and 1996.1 However, leading higher education economists agree that there is no clear link between Pell Grants and tuition levels. See our summary for more about research on this issue.

Economist Sandy Baum wrote last year, “There is no convincing evidence that increases in Pell Grants feed tuition increases in either public or private not-for-profit institutions.”2 Some studies have found no relationship, while others have found Pell Grants to be related to lower tuition prices. For example, a 2011 analysis found that “past increases in the federal Pell Grant maximum tend to reduce average [published] tuition today” at private nonprofit four-year colleges, by lowering the need for tuition discounting.3

In testimony before Congress, economist Bridget Terry Long noted, “Most studies conclude that colleges are not responding to federal aid, and studies that do provide limited support for the notion are plagued by mixed and sometimes contradictory results. Evidence suggests growth in tuition prices is instead related to a myriad of other internal and external factors.”4 Assessing the 2005 study cited by the House Budget Committee, Long explained, “[B]ecause these [private nonprofit four-year] institutions have few Pell recipients (i.e., they have few students impacted by the change in aid policy), the results seem attributable to factors other than government aid policy. Limitations with the data prevent more conclusive analysis.”5 According to the President’s FY2012 Budget Request, only 12% of Pell Grant recipients attend private nonprofit colleges.

For more information, see our summary of experts’ comments on this issue.

1Singell, Larry D., Jr. and Joe A. Stone. 2005. For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid. http://pages.uoregon.edu/lsingell/Pell_Bennett.pdf. Accessed April 5, 2011.

2Baum, Sandy. 2010. “Losing Ground.” New York Times, February 3. http://roomfordebate.blogs.nytimes.com/2010/02/03/rising-college-costs-a-federal-role/#sandy. Accessed April 6, 2011.

3Archibald, Robert B. and David H. Feldman. 2011. Why Does College Cost So Much? Oxford: Oxford University Press. 205.

4Long, Bridget Terry. 2006. College Tuition Pricing and Federal Financial Aid: Is there a Connection? Testimony before the U.S. Senate Committee on Finance. http://finance.senate.gov/imo/media/doc/120506bltest.pdf. Accessed April 6, 2011.

5Ibid.

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The White House released a Treasury Department report yesterday showing that the American Opportunity Tax Credit (AOTC) helped more than 8 million students and families cover college costs last year, and called on Congress to permanently extend this tax credit, which is currently scheduled to expire at the end of 2010. We agree that the AOTC should be made permanent, but it also needs to be improved. Because of the way the AOTC is currently structured, an estimated one million low- and moderate-income students are not eligible for the AOTC despite having financial need. Most of these students attend community colleges.

Here’s the issue in a nutshell: the AOTC covers up to $2,500 in college tuition, fees, textbooks and supplies, and it is 40% refundable so that students with low incomes can benefit. However, we estimate that one million low- to moderate-income students at low-cost schools are ineligible for the AOTC because their grant aid covers these specific expenses, even though they still have unmet financial need relative to their full cost of college attendance.

By better coordinating the AOTC and Pell Grants, many more students struggling to pay for college would be able to benefit from both the AOTC and Pell. We look forward to working with the Administration and Congress to both extend and integrate the AOTC to help make college more affordable for millions of Americans.

 

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Lauren Asher testified before the U.S. Senate Committee on Health, Education, Labor & Pensions for the hearing on the Federal Investment in For-Profit Education: Are Students Succeeding? Lauren Asher's testimony begins at 62:20.

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Today the Institute for College Access & Success joined with three national student groups (the United States Student Association, U.S. PIRG, and Campus Progress) in submitting public comments to the U.S. Department of Education regarding proposed regulations to define gainful employment. Federal law requires career education programs that receive federal student aid to “prepare students for gainful employment in a recognized occupation.” The proposed rule defines what this means so the law can be enforced, and it is urgently needed to protect students and taxpayers from career education programs that routinely saddle students with debts they cannot repay and degrees they cannot use. These comments express support for the Department’s efforts to define gainful employment and focus on strengthening the draft regulation in areas where the stakes for students and taxpayers are most pronounced. Read the comments

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We recently attended the U.S. Department of Education’s negotiated rulemaking on “program integrity,” which is supposed to put some teeth back into the regulations that determine which colleges can – and can’t -- participate in federal student aid programs. Only students at participating colleges and in eligible programs can get federal grants and loans. Some of these regulations apply mainly to for-profit schools, which have the highest student debt and default levels and get most of their revenue from taxpayer-financed student aid.

Since the last rulemaking session, the topic of ‘gainful employment’ has gotten a lot of attention. Put simply, it’s the idea that college programs designed to prepare students for specific kinds of jobs (e.g., auto mechanics, chefs) actually do, and that the majority of students who attend those programs aren’t left high and dry at the end of the day with only a lot of debt and a worthless credential to show for it.

Some people are calling the Department's proposals a form of “price control”, saying that they would effectively cap the amount students could borrow, which would in turn cap the tuition colleges could charge for these programs. Putting aside the question of the Department’s specific proposal for now, since when did merely questioning the return on investment – both the student’s and taxpayer’s – become an attack on the free market? For more on just why we need better rules in this area, check out this new item from Higher Ed Watch: Students vs. Shareholders at Publicly Traded Career Colleges.

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more about "C-SPAN Video Player", posted with vodpod

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Newly confirmed Secretary of Education Arne Duncan responds to comments and ideas submitted to the Citizen's Briefing Book on Change.gov about the future of higher education under the Obama Administration. He focuses on FAFSA simplification, loan forgiveness and tax credits for public service, and increasing the Pell Grant.

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The Obama transition Web site is sponsoring an online discussion on college costs — noting both the interest of many in the issue and the recent death of Claiborne Pell, who as a Democratic U.S. senator from Rhode Island led the fight to create the grant program named for him. Numerous comments deal both with policy alternatives and the personal situations of individuals trying to pay for college.

[via Inside Higher Ed]

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