More Proposed Financial Aid Reforms

The past few months have been an exciting time for financial aid researchers, as many reports proposing changes in federal financial aid policies and practices have been released as a part of the Bill and Melinda Gates Foundation’s Reimagining Aid Design and Delivery (RADD) project. The most recent proposal comes from the Education Policy Program at the New America Foundation, a left-of-center Washington think tank. Their proposal (summary here, full .pdf here) would dramatically shift federal priorities in student financial aid—by prioritizing the federal Pell Grant over all other types of aid and changing loan repayment options—without creating any additional costs to the government. Below, I detail some of the key proposals and offer my comments.

Pell Grant program

(1)     Shift the program from discretionary spending to an entitlement. I’m torn over this proposal. The goal is to guarantee that funding will be present for students in order to provide more certainty in the college planning process (a goal in my work), but moving more items to the entitlement side of the ledger makes cutting spending in any meaningful way exceedingly difficult. A potential compromise would be to authorize spending several years in advance, but not lock us into a program for generations to come.

(2)    Limit Pell eligibility to 125% of program length (five years for a four-year college and three years for a two-year college). Currently, students are allowed 12 full time equivalent semesters of Pell eligibility, which can be used through the bachelor’s degree. This means that students who only seek to earn an associate’s degree can use the Pell for six years in a two-year program. This can safely be cut back (to three years, perhaps), but I’m not sure if cutting all the way back to 125% of stated program length is ideal. I would be concerned about students who can’t quite make it across the finish line financially.

(3)    Create institutional incentives to enroll Pell recipients and graduate students. New America has several prongs in this policy, including bonuses for colleges which enroll and graduate large numbers of Pell recipients. But the most interesting part is a proposed requirement that colleges which enroll few Pell recipients, have high net prices of attendance for Pell recipients, and have substantial endowments have to provide matching funds in order for students to be Pell-eligible. I think this policy has potential and doesn’t punish colleges for actions they can’t control—compared to other proposals, which have sought to tie Pell funding for public and private colleges to state appropriations.

Student loans

(1)    Switch all students to income-based repayment of loans. This would reduce default rates and simplify financial aid, but has the potential to let students attending expensive colleges off the hook. New America shares my concern on this, but switching to IBR could still have substantial upfront costs (which would later be repaid).

(2)    Set student loan interests based on government borrowing costs plus three percentage points. This proposal should result in a revenue-neutral student loan program (after accounting for defaults) and stop the games of reauthorizing artificially low interest rates for political gain. Loan rates would be fixed for each cohort of students, but vary across each incoming cohort.

(3)    Allow colleges to lower federal loan limits “to discourage excessive borrowing.” I’m concerned about this point of the proposal, at least for undergraduate students. Loan limits are currently fairly modest and students should have the right to borrow a sufficient amount of money needed to attend college, whether the college disagrees with that or not.

Other key points

(1)    Pay for the additional Pell expenditures by cutting education tax credits, savings plans, and student loan interest deductions. This is a common call by financial aid researchers, and not just because academia tilts heavily to the left. Economic theory would suggest that plans to reduce the cost of college through grants should work as well as credits and deductions, but this assumes that students and their families fully account for the tax benefits in their decisionmaking and that the students who take up these programs are on the margin of attending college. Neither appears to be true. An additional tax deduction for being a student would likely be more effective than the current credit system.

(2)    Require better data systems and consumer information. I’m fully on board with getting better data systems so researchers can finally figure out whether financial aid works and student outcomes can be better tracked across colleges. I’m a little more concerned about some of the consumer information measures, as colleges should have the ability to tailor materials somewhat.

(3)    Create publicly available accountability standards. Gainful employment, in which for-profit colleges are examined based on job placement rates, could be a model for extending some sort of accountability to all colleges receiving federal funds. Graduation rates, earnings, and other measures could be used—or at the very least, the information could be made public to students, their families, and policymakers.

I don’t agree with everything that New America suggests in their policy proposals, but many of the suggestions would help improve financial aid delivery and our ability to examine whether programs work for students. To me, that is the mark of a successful proposal that could at least partially be adopted by Congress.

An Incomplete Comparison of College Costs and Expenditures

A recent piece by Derek Thompson of The Atlantic shows a provocative chart that suggests that students from the lowest-income families pay much more out-of-pocket to attend college than that college actually spends on their education:


(From The Atlantic)

This chart comes from data reported in a recent NBER working paper by Caroline Hoxby and Christopher Avery (Table 1). While the premise of the NBER paper is otherwise strong (noting that lower-income, high-achieving students from rural areas are very unlikely to attend highly selective colleges), I do have some concerns about this table and how the broader media are interpreting it. My biggest concern is the following:

The total out-of-pocket cost of attendance is compared to instructional expenses, an incomplete look at how much a college spends on a particular student.

I don’t have a problem with the measure used of the total out-of-pocket cost of attendance—the net price posted for someone at the 20th percentile of family income. But instructional expenses are but a portion of per-student expenditures. The cost of providing room and board to on-campus students is an important part of the expenditure equation, but one can certainly argue that it isn’t directly tied to education. So I will focus on a broader category of educational expenditures, which include expenditures for academic support and student services as well as instruction.

Instructional expenditures (which Hoxby and Avery report and Thompson uses in his chart) include the costs of teaching courses, but do not include the costs of closely related enterprises that enhance the classroom experience and even make it possible. In the 2009-10 academic year, the average four-year university in the Washington Monthly college rankings spent $8,728 per full-time equivalent student.

Academic support expenditures help to keep the university operating and include essential functions such as advising, course development, and libraries, as well as some administrative costs. The average academic support expenditure per student was $6,832 per FTE—nearly as much as direct instructional expenses.

Student service expenditures include financial aid, admissions, and social development in addition to some spending on athletics and transportation. Average expenditures in this category were $2,981 per FTE in 2009-10, although truly necessary expenses may be somewhat lower.

Combining these three categories, the average educational expenditure per full-time equivalent student was $18,542 in 2009-10, more than twice the cost of instructional expenditures and very similar to the out-of-pocket cost for students from lower-income families. In that light (and after accounting for the cost of room and board), these students are receiving at least a modest subsidy.

Hoxby and Avery should add as a caveat that there are other factors that go into educational expenditures besides the cost of teaching classes. This would help the education press not leap to such hasty conclusions that do not pass a smell test.

Another Commission on Improving Graduation Rates

College leaders and policymakers are rightly concerned about the percentage of incoming students who graduate in a reasonable period of time. Although there have been numerous reports and commissions at the university, state, and national level to improve college completion rates, about the same percentage of incoming students graduate college now as a decade ago. This spurred the creation of the National Commission on Higher Education Attainment, a group of college presidents from various types of public and private nonprofit colleges and universities. This group released their report on improving graduation rates today, which offers few new suggestions and repeats many of the same concerns of past commissions.

The report made the following recommendations, with my comments below:

Recommendation 1: Change campus culture to boost student success.

We’ve heard this one before, to say the least. The problem is that few campus-level innovations have been “scalable”—or able to expand to other colleges with the same results. Other programs appear promising, but have never been rigorously evaluated or cost a lot of money. Rigorous evaluation is essential to determine what we can learn from other colleges’ apparent successes.

Recommendation 2: Improve cost-effectiveness and quality.

In theory, this sounds great—and many of the recommendations sound reasonable. But policymakers and college leaders should be concerned about any potential cost savings resulting in a lower-quality education. A slightly less personalized education for a lower price may be a worthwhile tradeoff and pass a cost-effectiveness test, but these concerns should be addressed.

A bigger concern not addressed regarding the cost of education is the actual cost of teaching a given course. First-year students tend to subsidize upper-level undergraduates, and all undergraduates tend to subsidize doctoral students. Much more research needs to be done about the costs of individual courses in order to provide lower-cost offerings to certain groups of students.

Recommendation 3: Make better use of data to boost success.

The commission calls for better use of institutional-level data to identify at-risk students and keep students on track to graduation. They call for more students to be included in the federal IPEDS dataset, which currently only tracks first-time, full-time, traditional-age students at their first institution of attendance. While this would be an improvement, I would like to see a pilot test of a student-level dataset instead of an institutional-level dataset. This would be much better for identifying student success patterns for groups with a lower probability of success.


The report also had a few notable omissions. First of all, the decision to exclude leaders of for-profit colleges is troubling. While many for-profit colleges have low completion rates, their cost structure (in terms of tracking per-student expenditures) is worth examining and they do disproportionately serve at-risk students. There is no reason to leave out an important, if not controversial, sector of higher education. Second, the typical text on declining public support for higher education (on a per-student basis) was present. While it might make college presidents feel good, any requests for additional funding in this political and economic climate need to be more closely tied to improving college completion rates. Finally, little attention was paid to the different sectors of higher education sharing best practices in spite of their often symbiotic relationship.

I don’t expect more than a few months to go by before the next commission issues a very similar report to this one. Stakeholders in the higher education arena need to think of how potential success stories can actually be brought to scale to benefit a meaningful number of students.

Back in the Classroom Again

A lot of things have happened since the spring of 2008—I’ve earned a master’s degree in economics and nearly completed a PhD in education policy, have spent thousands of hours staring at the black and then white backgrounds of Stata, and have been fortunate enough to work with many brilliant scholars and researchers on important policy issues. But I haven’t been in front of a classroom of students since May of 2008, when I completed a year of being a teaching assistant for principles of microeconomics classes. (In the meantime, I have continued to work with undergraduate and graduate students on a one-on-one or small group basis.)

This spring, I have the opportunity to be a teaching assistant for Sara Goldrick-Rab’s class on issues and debates in higher education policy. In this class, I will be giving at least one of the weekly lectures in addition to meeting with individual students while gaining just a small amount of familiarity with the departmental copy machine. This class also gives me the opportunity to think more about possible course preparations for my (hopefully) impending career as a faculty member and how I would advise undergraduate and graduate students with an interest in education.

My teaching philosophy is fairly straightforward, with a goal of helping students get the “so what” of the course material. For the majority of students who will not go on to careers in my fields of interest (higher education policy and challenges in conducting quantitative research in this area), the primary goal of my teaching should be to emphasize why it is important to understand the topics at hand rather than becoming experts in all of the literature and related terminology. Students can become experts in repeating the key points of the day’s readings (I’ve been guilty of that in the past as well), but this doesn’t help them in the long run.

Hopefully, I will be teaching a class or two of my own this fall as I set off on my own academic career. But as I start my twelfth and final semester of graduate school, the opportunity to get back in the teaching mindset among a group of stellar students is quite welcome.

Predicting Student Loan Default Rates

Regular readers of this blog know that there are several concerns to using outcome measures in a higher education accountability system. One of my primary concerns is that outcomes must be adjusted to reflect a college’s inputs—in non-economist language, this means that colleges need to be assessed based on how well they do given their available resources.  I have done quite a bit of work in this area with respect to graduation rates, but this same principle can be applied to many other areas in higher education.

The Education Sector also shares this concern, as evidenced by their recent blog post on the importance of input-adjusted graduation measures. In this post (at the Quick and the Ed), Andrew Gillen examines four-year colleges’ performance in student loan default rates. He adjusts for the percentage of Pell Grant recipients, the percentage of part-time students, and the average student loan size to get a measure of student default rate performance.

I repeat this estimate using the most recent loan default data (through 2009-10) and IPEDS data for the above characteristics for the 2009-10 academic year. This simple model does a fair job predicting loan default rates, with a R-squared value of 0.422. Figure 1 below shows actual vs. predicted loan default rates for 1876 four-year institutions with complete data:


The Education Sector analysis did not break down student default rate performance by important institutional characteristics, such as type of control (public, private not-for-profit, or for-profit) or the cost of attendance. Figures 2 and 3 below the performance between public universities and their private non-profit and for-profit peers:


Note: A positive differential means that default rates are higher than predicted. Negative numbers are good.

The default rate performances of public and private not-for profit colleges do not differ in a meaningful way, but a significant number of for-profit colleges have substantially higher than predicted default rates. This difference is obscured when all colleges’ performances are combined.

Finally, Figure 4 compares default rate performance by the net price of attendance (the sticker cost of attendance less grant aid) and finds no relationship between the net price and loan default rates:


Certainly, more work needs to be done before adopting input-adjusted student loan default rates as an accountability tool. But it does appear that a certain group of colleges tend to have a higher percentage of former students default, which is worth additional investigation.

Is Money from Parents Bad for Students?

Most people would generally consider a student getting money from his or her parents while in college to be a good thing—after all, most traditional-age college students tend to have few resources of their own and additional money from Mom and Dad might help students work fewer hours (generally considered a good thing). But a new paper in the American Sociological Review by Laura Hamilton, an assistant professor of sociology at the University of California-Merced, challenges this assumption. In a paper titled “More Is More or More Is Less? Parental Financial Investments During College” (abstract here), she finds that parental financial assistance increases the likelihood of graduation, but is associated with lower student GPAs.

As a sociologist, Hamilton came to the project with the perspective that more financial resources are a good thing for a student due to the mere availability of resources and social capital. I don’t start from that perspective—and instead look at what students can do with the available funds. But I am also concerned that no-strings-attached gifts from parents might not be a good thing, since they may lack the performance requirements of merit-based financial aid. Additionally, the need for additional funds might reflect the inability of a student from a middle- to upper-income family to secure merit-based aid.

Hamilton uses two old, workhorse datasets in her analysis—the Baccalaureate and Beyond Study (B&B) of students who graduated in 1993 and the Beginning Postsecondary Students Study (BPS) of students who began college in 1990. She uses the B&B to focus on cumulative GPA at graduation as an outcome, which has two main limitations: we don’t know the relationship between parental assistance on dropout or changes in college major which may be associated with GPA. Because of that, she uses the BPS to look at graduation rates. Neither dataset is perfect or free of issues of causality, but it’s not a bad starting point (the datasets have to be appropriate to get into a top-tier journal like ASR).

The positive relationship between parental assistance and graduation rates won’t raise many eyebrows, but her claim that among students who get to graduation, those with higher levels of parental assistance have lower GPAs is more controversial. My biggest concern with the article is that appears that more help from the parents allows some marginal students to stay in school who otherwise would not have appeared in the dataset. If some of the 2.0 GPA students with parental assistance would have dropped out, there may not be differences in the GPAs of students who successfully completed college. Because of this, I have to take the finding on GPAs with a grain of salt.


On another note, this article also can teach scholars quite a bit about how to interact with the media. The mixed conclusion gives the education press and the general public an opportunity to run with a provocative conclusion—parents shouldn’t give their kids money (if they can) because they might just slack off. The headline in today’s Inside Higher Ed piece on the article (“Spoiled Children”) is an example of how research findings can be spun to get more eyeballs. While the media should run more reasonable headlines, it is the responsibility of academics to call out the education press when they play these sorts of games.

Wisconsin Higher Education Policy Issues for 2013

2013 marks a potential benchmark year for state higher education policy debates. More tends to happen in odd-numbered years because politicians are farther away from elections and more willing to make difficult budget decisions—and the influx of federal stimulus dollars is rapidly drying up. In Wisconsin, 2013 is a particularly important year as discussions begin on the state’s biennial budget. The American Association of State Colleges and Universities, an association representing primarily non-flagship public four-year schools, has released its list of the top ten state policy issues for 2013. They are the following:

(1)    Increasing college performance

(2)    Funding for public colleges and universities

(3)    Tuition prices and policy

(4)    State grant aid programs

(5)    Academic preparation for college

(6)    Immigration policy

(7)    Competency-based education

(8)    Concealed carry on campus

(9)    Workforce/economic development

(10) For-profit college regulation

Not all of these issues are a major concern in Wisconsin (such as whether to grant in-state concern to illegal immigrants who graduated from a Wisconsin public high school), are particularly relevant to student success (such as concealed carry regulations), or are likely to change much (tuition policy). My take on the five most important issues facing the Wisconsin Legislature in 2013 are the following:

Priority #1: Workforce and economic development

Although many in the academic community might disagree with how I have these key issues ordered, the Legislature is clearly focused on workforce and economic development. I expect a focus on vocational and technical education in 2013, as outlined in an August 2012 report by Tim Sullivan, special consultant on economic, workforce, and education development. I’ve written about this report in a previous blog post; overall, the key points in the proposal are reasonable, as long as the Legislature doesn’t go off on a tangent regarding immigration policy or setting unreasonable expectations.

Priority #2: Increasing college performance

Legislation was passed in the previous session that required colleges to make certain accountability information public. (I analyzed UW-Madison’s 2012 report in a post last August.) This legislation didn’t really have any teeth in terms of changing a university’s funding level. This looks very likely to change in 2013, as performance-based funding is going to be a key point of discussion. As Gov. Walker outlined in a speech last fall, he is pushing for some of the higher education funding to be based on a college’s performance in key areas, such as graduation rates and possibly enrolling Pell Grant recipients. I’ll have much more to say about performance-based funding in future blog posts, but for now I will emphasize the importance of using some sort of value-added measure as part of the performance score. (I’ve written quite a bit on this in the past, as well.)

Priority #3: Competency-based education

Wisconsin has become a leader in competency-based education in specialized degree programs, allowing students to earn credit for prior knowledge in certain areas. Unlike some states, which are contracting with the not-for-profit Western Governors University, Wisconsin is doing their effort in-house through the University of Wisconsin System. This experiment will be watched closely around the nation to see whether students take up the program in meaningful numbers as well as whether it will be cost-effective.

Priority #4: State grant aid programs

In 2012, the Legislature tasked the Higher Education Aids Board, the state’s agency administering need-based and merit-based grant programs, with exploring ways to consolidate and modernize the state’s financial aid system. The report, released in December, failed to suggest any meaningful changes that would help ensure a more reasonable distribution of financial aid to students. I hope that the Legislature will reconsider ways to reduce the number of separate need-based grants in order to have a more streamlined and student-friendly aid system, but I am not terribly optimistic.

Priority #5: Funding for public colleges and universities

After several rough budget cycles, Wisconsin looks to be in reasonable fiscal health entering the 2013-15 biennium. As such, Wisconsin higher education is requesting a funding increase over the 2011-13 cycle. The University of Wisconsin System is requesting a $224 million increase (1.9%), while the Wisconsin Technical College System is requesting an additional $92 million (a 31.6% increase). Most of the requested increases for the UW System are designated for meeting the accountability goals, while most of WTCS’s requested increases are designated for meeting workforce shortages in high-demand occupations. These requested increases show the importance of the top two priorities on my list to Wisconsin legislators.


I expect 2013 to be a much calmer year in Wisconsin politics than the past several years, but no less important to the higher education community. Hopefully, the state will continue to make progress in meeting key performance goals and fostering student success.

Transparency and Teacher Education Programs

I am a firm believer in the public’s right to know nearly everything about government-funded institutions unless there is a clear and compelling reason for privacy. For that reason, I have been following the University of Wisconsin System’s fight against the National Council on Teacher Quality (NCTQ), a group seeking to make information on the standards of teacher education programs public. In conjunction with U.S. News and World Report, NCTQ is compiling course syllabi, textbooks, student handbooks, and other information to rate education schools based on whether they are adequately preparing future K-12 teachers for their professions.

This review process has been objected to by many public colleges and universities (the full list is here) on the grounds that the proposed methodology is inadequate for rating colleges. (Yet these same colleges boast about their U.S. News rankings in other aspects, although the rankings are just as flawed.)The University of Wisconsin System has long refused to cooperate with NCTQ on this, as evidenced by their March 2011 letter to NCTQ.

Yet the UW System and many other public universities are failing the public trust by refusing to make important information produced by public employees available at a reasonable cost. The Wisconsin Institute for Law and Liberty, a Milwaukee-based public interest law firm, sued the UW System last January on behalf of NCTQ to get the records turned over. WILL’s suit was ultimately successful in obtaining its objective, as the UW System agreed to turn over the relevant materials and pay WILL nearly $10,000 in damages and fees after obtaining additional privacy assurances.

Wisconsin taxpayers and students will foot the bill for the UW System’s initial refusal to make information public under open records laws. This is a big PR mistake for Wisconsin higher education, as it gives the appearance that universities think they are above accountability—this isn’t a good thing in the current political climate, to say the least.

Now on to the meat of the new rankings, which should come out sometime this year. There are 17 standards which will be a part of the rankings, centered on four areas:

(1)    Selectivity of teacher education programs and students’ incoming academic characteristics

(2)    Teacher knowledge of subject matter

(3)    Classroom management and student teaching skills

(4)    Outcomes of graduates’ future classes on state tests

As regular readers of this blog know, I’m not a fan of the selectivity criterion. If a college does a good job of training teachers, who cares about their ACT score? But the other three measures are certainly important; the question is whether the available data will be sufficient to accurately rate programs and provide stakeholders with useful information.

I expect a big fuss when these ratings are released, just like there is a big fuss whenever the U.S. News undergraduate rankings are released every fall. While I’m concerned about the ability to draw conclusions from available data, these ratings will provide information about whether institutions are collecting relevant types of data (such as their graduates’ outcomes) and certainly won’t be any worse than the peer rating part of the undergraduate rankings that has existed for nearly three decades.

Examining Kiplinger’s Best Value Colleges

Not too many articles on higher education feature my alma mater, Truman State University. In spite of a long tradition of internal accountability and doing a good job of graduating students on a shoestring budget, Truman lacks the name recognition of larger universities in most circles. This is why I was surprised to see the article discussing Kiplinger’s Best Values in Public Colleges feature Truman so prominently.

HPIM1595Winter at Truman State University

Kiplinger’s ranks the top 100 public four-year colleges and universities based on a combination of five different measures, with the point values being just as arbitrary as all of the other rankings (including the Washington Monthly rankings that I complied last fall). This is in spite of the claim that “neither our opinion nor anyone else’s affects the calculation.” While this may be true in the strictest sense, someone had to determine the point values!

The methodology is as follows:

(1)    Total cost of attendance and net price (after subtracting grant aid)—35%. This is calculated separately for in-state and out-of-state students.

(2)    Academic competitiveness (ACT/SAT scores, admit rate, and yield)—22.5%.

(3)    Graduation rates (four-year and six-year)—18.75%.

(4)    Academic support (retention rates and students per FTE faculty)—13.75%.

(5)    Student debt at graduation—10%.

As most college rankings are prone to do, the Kiplinger’s best value list still unnecessarily rewards colleges for being highly selective, both in the academic competitiveness and graduation measures. The focus on cost is very useful, although it does to some extent reward colleges in states which provide more public support (this is good for the student, but not necessarily as good for the taxpayer).

I do have one other gripe with the Kiplinger’s rankings—they are done separately for public and private colleges (the private college list came out last month). The editors should combine the two lists so the information can be more useful for students and their families. With that being said, the information in these lists is certainly useful to a segment of the collegegoing population.