Are Free Lunches the Obama Administration’s Financial Aid Simplification Policy?

Politico’s Morning Education newsletter reported today that First Lady Michelle Obama will announce that all school districts with at least 40 percent of students eligible for free or reduced price lunches (FRL) will be given funds so all students in the district receive free meals. Currently, districts can get federal funds to give all students free meals if a much higher percentage of students is FRL eligible; lowering the threshold has the potential to reduce the stigma of receiving government benefits.

But from a higher education perspective, making more students eligible for FRL could have substantial implications for federal financial aid policy. Under current rules, students who had a family member receive FRL in the last two years would be eligible for a simplified FAFSA (eliminating parent and student/spouse asset questions) for the 2014-15 academic year if family income was below $50,000 in the previous year. That student could be eligible for an automatic zero EFC (and the maximum Pell Grant) if a family member received FRL in the past two years and family income was below $24,000 in the previous year.

This announcement means that some students in high-poverty schools may be able to file a simplified FAFSA as a result of now receiving FRL. FRL eligibility currently goes up to 185% of the federal poverty line, which was about $43,500 per year for a family of four in 2013. Students from families making more than 185% of the federal poverty line but less than $50,000 may now be able to file a much shorter and less intrusive version of the FAFSA. This policy change has the potential to increase access and potentially even financial aid awards for some students, and the resulting natural experiment should be rigorously examined.

The meaning of this change for early commitment programs, in which financial aid is tied to a student’s circumstances well before entering college, are less clear. For example, consider the idea that Sara Goldrick-Rab and I proposed of an early Pell program based on eighth grade means-tested program receipt (forthcoming in The Journal of Higher Education).  Granting universal free lunch eligibility to all students in a district may result in higher-income students becoming Pell-eligible based on their district of attendance. This may not be a bad thing (particularly if it voluntarily encourages more socioeconomically diverse schools), but it would reduce the program’s targeting and increase costs. Perhaps an income limit would need to be considered to gain eligibility in eighth grade.

I’ll be keeping an eye on this policy development and how it could affect financial aid policy going forward.

The Multiple Stakeholder Problem in Assessing College Quality

One of the biggest challenges the Department of Education’s proposed Postsecondary Institution Ratings System (PIRS) will face is how to present a valid set of ratings to multiple audiences. Much of the discussion at the recent technical symposium was about who should be the key audience: colleges (for accountability purposes) or students (for informational purposes). The determination of what the audience should be will likely influence what the ratings should look like. My research primarily focuses on institutional accountability, and I think that the federal government should focus on that as the goal of PIRS. (I said as much in my presentation earlier this month.)

The student information perspective is much trickier in my view. Students tend to flock to rankings and information sources that are largely based on prestige instead of some measure of “value-added” or societal good. As a result, I view the Washington Monthly college rankings (which I’ve worked on for the past two years) as a much more influential tool to incentivize colleges and policymakers than students. I think that is the right path to take to influence colleges’ priorities, as I have to question whether many students will use college rankings that provide very useful information to students but do not line up with the preexisting idea of what is a “good” college.

I was quoted in an article in Politico this morning regarding PIRS and what can be learned from existing rankings systems. In that article, I expressed similar sentiments, although in a less elegant way. (It’s also a good time to clarify that all opinions I express are my own.) I certainly hope that more than six students use the Washington Monthly rankings to inform their college choice sets, but I do not harbor grand expectations that students will suddenly choose to use our rankings over U.S. News. However, the influence of the rankings on colleges has the potential to help a large number of students through changing institutional priorities.

Will Federal Aid Be Tied to College Ratings? (Poll)

With all of the discussion of what will be included in the proposed Postsecondary Institution Ratings System (PIRS), there has been relatively little discussion about whether federal Title IV financial aid will actually be tied to the ratings by 2018—as the President has specified. I would love to get your thoughts on the feasibility by taking the following poll, and leaving any additional comments below.

 

 

I’ll share my thoughts in a subsequent post, so stay tuned!

Are Academics Public Intellectuals? (And What Can We Do?)

The Sunday New York Times included an editorial piece by Nicholas Kristof with the title, “Professors, We Need You!” In this piece, Kristof argued that the vast majority of faculty do not do a good job connecting with media and policymakers and thus do not get the importance of their work communicated beyond the proverbial ivory tower. Perhaps the most damning statement in the piece is Kristof’s assertion that “there are, I think, fewer public intellectuals on American university campuses today than a generation ago.”

Some of Kristof’s statements about the disincentives toward public engagements are certainly true, at least for some faculty at some institutions. Tenure-track faculty are often judged by the number of peer-reviewed publications in top journals, at the expense of public service and publishing in open-access journals. The increased specialization of many faculty members also makes communicating with the public more difficult due to the often technical nature of our work. Faculty who are not on the tenure track face an additional set of concerns in engaging with the public due to their often unstable employment situations.

With those concerns being noted, I think that Kristof is providing a somewhat misguided view of faculty engagement. Some (but not enough) academics, regardless of their employment situation, do make the extra effort to be public as well as private intellectuals. (If you’re reading this blog post, I’ve succeeded to at least some extent.) The Internet lit up with complaints from academics about Kristof’s take, which are well-summarized in a blog post by Chuck Pearson, an associate professor at Virginia Intermont College. He also created the #engagedacademics hashtag on Twitter, which is worth a look.

While I would love to see elite media outlets like the New York Times reach out beyond their usual list of sources at the most prestigious institutions, I don’t see that as tremendously likely to happen. So what can academics do in order to get their work out to policymakers and the media? Here are a few suggestions based on my experiences, which have included a decent amount of media coverage for a first-year assistant professor:

1. Work on cultivating a public presence. Academics who are serious about being public intellectuals should work to develop a strong public presence. If your institution supports a professional website under the faculty directory, be sure to do that. Otherwise, use Twitter, Facebook, or blogging to help create connections with other academics and the general public. One word of caution: if you have strong opinions on other topics, consider a personal and a professional account.

2. Try to reach out to journalists. Most journalists are available via social media, and some of them are more than willing to engage with academics doing work of interest to their readers. Providing useful information to journalists and responding to their tweets can result in being their source for articles. Help a Reporter Out (HARO), which sends out regular e-mails about journalists seeking sources on certain topics, is a good resources for academics in some disciplines. I have used HARO to get several interviews in various media outlets regarding financial aid questions.

3. Work through professional associations and groups. Academics who belong to professional associations can potentially use the association’s connections to advance their work. I am encouraged by associations like the American Educational Research Association, which highlights particularly relevant papers through its media outreach efforts. Another option is to connect with other academics with similar goals. An example of this is the Scholars Strategy Network, a network of “progressive-minded citizens” working to get their research out to the public.

4. Don’t forget your campus resources. If your college or university has a media relations person or staff, make sure to reach out to them as soon as possible. This may not be appropriate for all research topics, but colleges tend to like to highlight faculty members’ research—particularly at smaller institutions. The media relations staff can potentially help with messaging and making connections.

While Kristof’s piece overstates the problem that faculty face in being viewed as public intellectuals, it is a worthwhile wakeup call for us to step up for efforts for public engagement. Perhaps Kristof will turn his op-ed column over to some academics who are engaged with the public to highlight some successful examples?

[UPDATE: Thanks to The Chronicle of Higher Education for linking to this piece. Readers, I would love to get your comments on my post and your suggestions on how to engage the media and public!]

Spring Admissions: Expanding Access or Skirting Accountability?

More than one in five first-year students at the University of Maryland now start their studies in the spring instead of the fall, according to this recent article by Nick Anderson in the Washington Post. This seems to be an unusually high percentage among colleges and universities, but the plan makes a lot of sense. Even at selective institutions, some students will leave at the end of the first semester, and more space opens up on campus after other students graduate, study abroad, or take on internships. It can be a way to maximize revenue by better utilizing facilities throughout the academic year.

However, the article also notes that the SAT scores of spring admits are lower at Maryland. Among students starting in spring 2015, the median score was roughly a 1210 (out of 1500), compared to about 1300 for the most recent available data for fall admits in 2012. These students’ test scores suggest that spring admits are well-qualified to succeed in college, even if they didn’t quite make the cut the first time around. (It’s much less realistic to expect high-SAT students to defer, given the other attractive options they likely have.) This suggests Maryland’s program may have a strong access component.

However, deferring admission to lower-SAT students could be done for other reasons. Currently, colleges only have to report their graduation rates for first-time, full-time students who enrolled in the fall semester to the federal government. (That’s one of the many flaws of the creaky Integrated Postsecondary Education Data System, and one that I would love to see fixed.) If these spring admits do graduate at lower rates, the public will never know. Additionally, many college rankings systems give colleges credit for being more selective. With the intense pressure to rise in the U.S. News rankings, even a small increase in SAT scores can be very important to colleges.

So is Maryland expanding access or trying to skirt accountability systems for a number of students? I would probably say it’s more of the former, but don’t discount the pressure to look good to the federal government and external rankings bodies. This practice is something to watch going forward, even though better federal data systems would reduce its effectiveness of shaping a first-year class.

Senator Warren’s Interest Rate Follies

First-term Senator Elizabeth Warren (D-MA) is a darling of the progressive Left, and she has been mentioned as a possible Presidential candidate in 2016 (although she has stated she’s not running). One of the ways she has gained support with the Democratic base is through her many public statements about the federal government’s purported profit on student loans, which she cites to be $51 billion in Fiscal Year 2013. Given the huge profit, she has introduced legislation to drop interest rates to the overnight borrowing rate at the Federal Reserve: 0.75%.

Her argument suffers from one main problem: student loans carry risk for the federal government. (She made my 2013 not-top-ten list for this reason.) The Congressional Budget Office, where the $51 billion estimate came from, uses federal borrowing costs as a discount rate. This discount rate is very low, in part because the federal government is viewed as very unlikely to default (even with the possibility of debt ceiling shenanigans). As a result, numerous groups have suggested the use of fair-value accounting, in which the risk of default is considered. Indeed, the Washington Post’s fact-checking blog gave Senator Warren’s statement of a $51 billion profit “two Pinocchios” because it did not consider fair-value accounting.

[On Twitter, the wonderful Libby Nelson notes that my explanation of fair-value accounting vs. federal regulations is unclear. Here is a nice CBO summary of the different methods.]

With the debate over student loan profits and accounting methods as a backdrop, the release of Friday’s Government Accountability Office report on federal student loans was eagerly anticipated in the higher education community. The title of the report succinctly summarizes the rest of the document: “Borrower Interest Rates Cannot Be Set in Advance to Precisely and Consistently Balance Federal Revenues and Costs.” This resulted in a few howlers from policy analysts, including this gem from Matt Chingos at Brookings:

Karen Weise at Bloomberg was a little more diplomatic with her summary of the report:

The report itself is fairly dry, but it does emphasize something that should be kept in mind when considering the costs of student loan programs. Due to the growing prevalence of extended payment plans, increased rates of income-based repayment plan usage, and the continued risk of defaults, the actual amount of the subsidy or cost on student loans will not be known for 40 years after disbursement.  Each of these individual variables could also have a large effect on the long-run subsidy or cost; for example, a higher-than-expected rate of income-based repayment participation could increase program costs.

The following paragraph on pages 18 and 19 sums up a key point of the report:

“As of the end of fiscal year 2013, it is estimated that the government will generate about $66 billion in subsidy income from the 2007 to 2012 loan cohorts as a group. However, current estimates for this group of loan cohorts are based predominantly on forecasted cash flow data derived from assumptions about future loan performance. As more information on actual cash flows for these loans becomes available, subsidy cost estimates will change. As a result, it is unclear whether these loan cohorts will ultimately generate subsidy income, as currently estimated, or whether they will result in subsidy costs to the government. This will not be known with certainty until all cash flows have been recorded after loans have been repaid or discharged—which may be as many as 40 years from when the loans were originally disbursed.”

I read this paragraph as providing possible evidence that interest rates may have been set relatively high compared to the federal cost of borrowing. (Recall that the interest rates for subsidized Stafford loans declined from 6.8% in 2007 to 3.4% in 2011, while Treasury rates were at historic lows.) The spread between the 10-year Treasury yield in May versus the interest rate on subsidized Stafford loans has been the following for the past seven years:

Year Stafford (pct) 10-yr T-note (pct) Spread (pct)
2007 6.8 4.75 2.05
2008 6.0 3.88 2.12
2009 5.6 3.29 2.31
2010 4.5 3.42 1.08
2011 3.4 3.17 0.23
2012 3.4 1.80 1.60
2013 3.86 1.93 1.93

This interest rate spread is statutorily set at 2.05% for subsidized Stafford loans in the future, roughly the long-run average. So while future GAO reports a few years after disbursement may find similar results, what we’ll all be waiting for is longer-term data to see if the estimates hold true. The federal government doesn’t necessarily have a great history of long-run cost projections, so I’m expecting this spread to disappear over time. (And keep in mind this report doesn’t fully account for risk.)

Yet Senator Warren and eight other Democrats released a press release on Friday afternoon with the headline of “Democratic Senators Highlight Obscene Government Profits Off Student Loan Program.” They focused entirely on the initial projection of a $66 billion profit over five years and entirely ignored the long-run uncertainty highlighted by the GAO. This press release is a great example of selecting only the most favored parts of a report, while ignoring other important details along the way. Again, the Twittersphere (myself included) expressed its thoughts:

On a more fundamental note, I think that Senator Warren and colleagues are misguided in their efforts to continue lowering student loan interest rates. Given the reality that higher education funding is a zero-sum game, I would much rather see funds used to support the Pell Grant, work-study, and other upfront sources of aid for students than slightly lower loan payments after students have already left college. (The same argument holds against tax credits.) Senator Warren may not be running for President (yet), but she’s in the running for my 2014 not-top-ten list.