All Quiet on the Blogging Front

This blog has been fairly quiet through the month of April, a notable difference from my goal of writing about two posts per week. While I greatly enjoy being able to write my thoughts on timely issues in the higher education world, there are times when my day job doesn’t readily allow for time necessary to think through and write a post—let alone keep up with the news. But I do want to take a few minutes to share the reasons why I’ve been so busy, as well as why May will likely be a fairly slow month on this blog.

First of all, I’m preparing to defend my dissertation (three essays on higher education policy) toward the end of next week. The last few weeks have been fairly frantic as I’ve made substantial changes to two chapters before I sent them to my committee last week. Although there will certainly be a lot of changes required after my defense, it feels great to be ready to defend. I will be happy to share the dissertation chapters with anyone who is interested after final revisions have been made.

At the end of this week, I am flying to California to give a presentation at the annual Education Writers’ Association seminar at Stanford University. I was asked to give a talk on my research in the area of input-adjusted metrics in measuring institutional effectiveness, and particularly how adjusting for cost changes the ordering of institutions. This talk will be in front of a large group of journalists who cover education on a regular basis, which is a neat opportunity.

Finally, on the teaching front, I am giving my final lecture of the semester tomorrow on accountability and performance measures to a mixed undergraduate/grad student class on debates in higher education policy. I’ve really enjoyed giving several previous lectures, and this one has particular meaning to me as it is something that is both very policy-relevant and fun to teach.

I hope to get a post or two up sometime in the next two weeks, so please send along any ideas that you would like for me to explore in future posts. Until then, it’s back to the fun world of cleaning and coding administrative datasets!

Why Expanding Student Loan Interest Deductions is Unwise

The United States Congress has rarely met a change to the tax code that it doesn’t like. Since 2011, Congress has made nearly 5,000 changes to the tax code, making the tax code even more Byzantine and causing many Americans headaches each spring. While the exact levels and types of taxes preferred by the public tend to differ by political and economic ideologies, a general consensus exists among economists that a stable, predictable, relatively simple tax code achieves revenue goals at a reasonable cost.

Yet Congress is constantly faced with pressure to change the tax code to allow more credits and deductions to incentivize certain activities. We have certainly seen incentives in the tax code to increase educational attainment through the use of credits and deductions. These incentives have a difficult time being effective in inducing students to obtain more education because students and their families do not receive a financial benefit until well after the enrollment decision has been made, and awareness of these programs is uneven at best.

The deduction for student loan interest payments is designed to help student be able to repay their educational debt; currently, students can receive a $2,500 deduction on their taxes (if they itemize) in a given year and their income is less than $75,000 per year if single or $150,000 per year if married filing jointly. It is hard to imagine that such a program, which does not provide a financial benefit to students until after they have left college, will help increase educational attainment.

Yet Congressman Charles Rangel (D-NY), who is well-known for his 2012 censure over failing to pay taxes, has introduced the Student Loan Interest Deduction Act, which would double the tax deduction for student loan interest and get rid of the income cap for receiving the deduction. This bill has picked up the support of many higher education associations, including the American Council on Education and the National Association of Student Financial Aid Administrators, but it is an example of inefficient and misguided public policy.

Here are a few reasons why the proposed bill is poor public policy:

(1)    Students get the tax deduction years after beginning college. Yes, students with perfect information about the deduction (and who believe the policy will remain in place) will adjust their total cost of college down. But that requires a large amount of information and a low discount rate, neither of which can be assumed.

(2)    Increasing the deduction cap allows students to benefit more if they took out more debt. This can provide an additional incentive for colleges to raise their price and capture additional revenue if they think students will pay.

(3)    Getting rid of the income cap shifts the benefits more toward higher-income families, who are more likely to itemize deductions and be able to use the deduction. Advocates on the left should be particularly steamed by this point.

(4)    This acts as an additional tax on saving for college relative to borrowing, and can place families who chose not to borrow at a disadvantage.

I would prefer to see all interest deductions removed from the tax code and replaced with more efficient upfront payments. Instead of forgoing billions of dollars in revenue through tax credits and deductions, I would rather see the money used in grant programs, lowering the interest rates for federal loans, or used toward other educational improvements. Rangel’s bill just complicates the status quo and does little to actually help students afford college.

Something Old, Something New: The FY 2014 Obama Budget

Even though I know that it has no chance of being passed in anything resembling its current form, I am excited to get my hands on President Obama’s long-delayed budget for Fiscal Year 2014 (short version, long version, six-page summary of the education portion). The funding request for the Department of Education is for $71.2 billion in discretionary spending, 4.6% higher than this year’s (pre-sequester) budget; ED is unlikely to see an increase of greater than inflation this year given the current political climate.

I tweeted my way (follow me!) through some of the key points relating to higher education yesterday, and am now back with a more detailed summary of the budget. (I also recommend Libby Nelson’s excellent summary in today’s Inside Higher Ed.)This year’s theme is “something old, something new,” as many of the proposals are recycled from last year—but with one key difference that will affect millions of students.

First of all, not much changes with respect to the Pell Grant. The President proposes a $140 increase in the maximum Pell Grant to $5,785, while the program is on more solid financial footing for the next few years. He is again trying to get a higher education version of Race to the Top passed this year, which will look similar to the plan from last year. Again, there is a strong focus in the STEM fields and for program evaluation (the latter of which is welcome from my perspective). The biggest program boost I could find was to FIPSE (the Fund for the Improvement of Postsecondary Education), going from under $2.4 million to $260 million. Although it is unlikely to be adopted, it does show a commitment to demonstration projects in K-12 and higher education.

The most controversial part of the President’s budget is the proposed shift to market-based interest rates. A day after Republican Senators Coburn, Burr, and Alexander introduced a bill to tie all interest rates to the ten-year Treasury rate (currently 1.8%) plus three percentage points, the President’s budget also proposed tying interest rates to the same measure. His plan is more nuanced, with different loans having different premiums over the Treasury rate (see p. 344-350):

Subsidized Stafford: Treasury plus 0.93% (about 2.75% currently)

Unsubsidized Stafford and Perkins: Treasury plus 2.93% (about 4.75%)

PLUS: Treasury plus 3.93% (about 5.75%)

GOP plan: All loans are Treasury plus 3% (about 4.8%)

These rates are far lower than the current rates (3.4% for subsidized Stafford, 6.8% for unsubsidized Stafford, and over 8% for graduate unsubsidized loans), but do shift risk onto students as the rate for new loans would change each year. There would also be no interest rate cap, which is lamented by many advocates. (Income-based repayment provides another alternative, however.)

If either of these plans is adopted, the interest rate cliff would be eliminated as students would no longer have to wait on Congress to know their rates. However, students are likely to see rates rise as Treasury yields return toward their historical norm. The Congressional Budget Office predicts that 10-year Treasury notes will yield 5.2% by 2018, which would put unsubsidized loans just over 8%. (This is still lower than the recent rate for unsubsidized graduate loans, with which I am quite familiar.) If rates go higher than that, I expect Congress to enact an interest rate cap in several years.

The federal budget process does not move quickly, especially with a divided Congress. While I do not expect large increases in the Department of Education’s budget, I am optimistic that a market-based solution to interest rates will be adopted in order to provide more certainty in the short run and to bring graduate loan rates closer to what the private market would otherwise offer.

Should Students Take a Common Summer MOOC?

For many years, a substantial number of colleges have asked their incoming students to all read the same book as a part of student orientation. For example, the University of Wisconsin-Madison’s Go Big Read program asked students last year to read “Radioactive: A Tale of Love and Fallout” by Lauren Redniss. And when I was a freshman in college at Truman State University, my common read was “The Souls of Black Folk” by W.E.B. Du Bois.

While I enjoyed my common reading experience, I have to wonder if alternative methods could be used to heighten student engagement. The great amount of recent discussion about MOOCs (massively open online courses) leads me to think that a small number of innovative colleges should assign their students a common MOOC instead of a common book. While a MOOC may be more work than reading a book, it has the potential to better prepare students for their future college experiences.

A common MOOC should have the same properties of a successful common read. It must be accessible to the typical student, yet be challenging enough to stimulate discussion and get students acclimated to college-level coursework. It should also reach students across a large number of majors and interests. While colleges may want to develop their own MOOC for this purpose, here are a few courses which could stimulate interesting discussion:

Generating the Wealth of Nations

Maps and the Geospatial Revolution

TechniCity” (how cities are changing)

While I hold no great hopes that MOOCs will completely transform higher education, I think the technology can help at least some students. And a common summer MOOC may be one way to do so, assuming issues of Internet accessibility can be addressed.

Recent Trends in Student Net Price

In the midst of the current economic climate and the rising sticker price of attending college, more people are paying attention to the net price of attendance. The federal government collects a measure of the net price of attendance in its IPEDS database, which is calculated as the total cost of attendance (tuition, fees, room and board, and other expenses) less any grant aid received. Since the 2008-2009 academic year, they have collected the average net price by family income among students who receive federal financial aid. In this post, I examine the trends in net price data by type of institution (public, private nonprofit, and for-profit) among four-year colleges and universities (n=1753).

The first figure shows the average net price that families faced in the 2010-11 academic year (the most recent year available) by family income bracket. This nicely shows the prevalence of tuition discounting models, in which institutions charge a fairly high sticker price and then discount that price with grant aid. (Part of the discount in the lowest two brackets is also state and federal need-based grant aid.)

figure1_netprice

The next figure shows the net price trends over the period from 2008-09 through 2010-11 for the lowest (less than $30,000 per year) family income bracket.

figure2_netprice

It is worth noting that the public and for-profit sectors largely held the net price for students from the lowest-income families constant over the three-year period (0.6% and -3.2%, respectively), while nonprofit colleges increased the net price by 5.6% during this time. This might show an institutional commitment to keeping the net price relatively low for the neediest students, but also keep in mind that the maximum Pell Grant increased from $4,041 to $5,273 during this period. Colleges may not have changed their effort, but instead relied on additional federal student aid. The uptick in the net price at private nonprofit universities may have been a function of pressures on endowments that restricted institutional financial aid budgets.

The final figure shows the net price trends for the highest family income bracket (more than $110,000 per year)—among students who received federal financial aid.

figure3_netprice

Three observations jump out here. First of all, the net prices for nonprofit and for-profit universities are nearly identical for the highest-income students. This shows the financial model for nonprofit education, in which “full-pay” students are heavily recruited in order to pay the bills and to help fund other students. Second, the average net price at public universities increased by 9.4% during this period for the highest income students, compared to only 4.6% at nonprofit and 0.4% at for-profit institutions. As per-student state appropriations declined during this period, public institutions relied more on tuition increases and recruiting out-of-state and foreign students if at all possible. Finally, the flat net price profile of for-profit colleges across the income distribution is worth emphasizing. It seems like these colleges have reached a point at which additional increases in the price of attendance will result in net revenue decreases.

I would love to hear your feedback on these figures, as well as suggestions for future analyses using the net price data. I am eagerly awaiting the 2011-12 net price data, but that may not be available until this fall.

Another Acceptance Angst Article

Having spent three years in a college admissions office, I know this is the time of year in which some students find out whether they were accepted to the college(s) of their dreams. I am particularly annoyed by the New York Times’s “The Choice” blog, which is clearly aimed toward students with academic credentials suitable for Ivy League institutions. My annoyance rises because this blog focuses its attention on such a small number of institutions which are academically out of reach of nearly all students and perceived to be financially out of reach of almost everyone (although this is not the case).

The Choice annually follows a small group of students who apply to many of these highly selective institutions, and are shocked when they receive a rejection letter. While I am glad that the blog now includes more students from geographically and economically varied backgrounds, most of the bloggers’ stories are still sufficient to cause angst to many well-prepared students. Take for example Leobardo Espinoza, Jr., from Topeka, Kansas. His most recent post was full of angst about getting rejected by Washington University in St. Louis, one of the most selective colleges in the Midwest. Thankfully, he eventually realized that he was already accepted by American, Amherst, and Bowdoin, as well as Kansas and Wichita State. But I am concerned that many readers will get the wrong impression about his post.

I am glad that the blog is finally featuring students who apply to at least a few local options. If students have a choice, I strongly recommend avoiding as much debt as possible along the road to a bachelor’s degree by staying in-state or attending private colleges with generous financial aid options. Yes, getting rejected by one prestigious college stings and it makes for great reading among the NYT’s elite readership. But it’s not the end of the world, and I think that Mr. Espinoza has realized that in spite of the title of the article.