Examining Trends in the Pell Grant Program

The U.S. Department of Education recently released its annual report on the federal Pell Grant program, which provides detailed information about the program’s finances and who is receiving grants. The most recent report includes data from the 2015-16 academic year, and I summarize the data and trends over the last two decades in this annual post on the status of the Pell program. (Very preliminary data on Pell receipt for the first two quarters of the 2016-17 academic year can be found in the Title IV program volume reports on the Office of Federal Student Aid’s website.)

The number of Pell recipients fell for the fourth year in a row in 2015-16 to 7.66 million. This represents a 7.9% decline in the last year and an 18.9% drop since the peak in 2011-12. The decline is steepest in the for-profit sector (down 13.9% in one year and 36.7% since 2011-12) and among community colleges (down 13.3% and 28.3%, respectively), while private nonprofit and public four-year colleges stayed relatively constant. For the first time since at least 1993, more students at public four-year colleges received Pell Grants than community college students. While most of this change is likely due to a drop in community college enrollment, some could be due to community colleges offering a small number of bachelor’s degrees being counted as four-year colleges. (Thanks for Ben Miller of the Center for American Progress for pointing that out!)

Pell Grant expenditures fell to $28.6 billion in 2015-16, down from $35.7 billion in 2010-11. After adjusting for inflation, program expenditures are down 26% since the peak. This has allowed the Pell program to develop a surplus of $10.6 billion, $1.3 billion of which was taken to use for other programs in the 2017 budget deal. This surplus also allowed for the Pell Grant to be available for more than two semesters per year as of July 1, which was allowed between 2008 and 2011 before being cut due to budgetary concerns.

Most of the decline in Pell enrollment and expenditures can be attributed to a drop in the number of students who are considered independent for financial aid purposes (typically students who are at least 24 years of age, are married, or have a child). The number of independent Pell recipients fell by 28% in the last four years (to 4.05 million), while the number of dependent Pell recipients fell by just 6.4% (to 3.61 million), as shown in the chart below. However, independent students still make up the majority of Pell recipients, as they have every year since 1993.

There has been an even larger drop in the number of students with an automatic zero expected family contribution, who automatically qualify for the maximum Pell Grant based on family income and receiving means-tested benefits. (For more on these students, check out this article I wrote in the Journal of Student Financial Aid in 2015.) The number of independent students with dependents who received an automatic zero EFC fell by 50% since 2011-12, while the number of dependent students in this category fell by 29%. (Independent students without any dependents are not eligible to receive an automatic zero EFC.) Part of this decline was due to a decrease in the maximum income limit that automatically qualified students for an automatic zero EFC, while the rest can be attributed to an improving economy that has both induced adult students to return to the labor market and raised some incomes beyond the threshold for qualifying for an automatic zero EFC.

The Tangled Web of Student Debt Consolidation Companies

Like seemingly most American households, the Kelchens get far more junk in the mail than actual mail of value. We get about as many credit card applications as our shredder can handle, as well as folks trying to sell us a broad array of products and services. But letters that mention student loan debt and say “Final Notice” on them always get my attention, both as a researcher of higher education finance and as a proud part-owner of my wife’s law school debt.

The letter below came last week from a company called Direct Document Solutions out of Irvine, California. It says that we may be eligible to consolidate our existing federal student loan into a lower-interest federal loan—and that we may be eligible for loan forgiveness. While the fine print says that the company is fee-based and that they are not a part of the Department of Education, it’s in much smaller font than the rest of the letter.

After looking at this letter for a while, I realized that it looked vaguely like another student loan consolidation letter we had received several months prior. I dug through my Twitter media archives and found a nearly-identical letter (presented below) from last August from a company called Certified Document Center (which operates as Document Preparation Services at the same address as Direct Document Solutions). The Better Business Bureau gave the company a C rating, with 18 complaints in the last 12 months alone.

Just before I got the letter last week, NerdWallet put out a helpful list of about 130 companies that are less-than-ideal actors in the student debt consolidation business. To get on this list, companies needed to have faced significant complaints or have a D or F rating from the Better Business Bureau. So this means that Document Preparation Services sneaks over the bar and doesn’t make the list.

But in my research of this company, I discovered it was a part of the Association for Student Loan Relief—a group of 118 companies that specialize in student loan consolidation. A number of these companies show up on NerdWallet’s watch list. These companies tend to be clustered in certain areas—for example, nine are located in Irvine, California and quite a few are located in South Florida. This, along with the multiple aliases that several companies appear to have used, suggest the possibility that a number of these companies may be run by the same people or group of people.

People who are struggling to repay their federal loans (or are simply seeking a better deal) should probably start by talking with their current servicer or even reaching out to their former college’s financial aid office. If an income-driven repayment plan is the best choice, there is usually little need to involve a paid consolidation company. For students who are seeking a lower interest rate, there are legitimate companies (like Earnest and SoFi) and banks that will refinance student loans. Refinancing can be a great option for people who are certain that they won’t benefit from income-driven repayment plans and have fairly high incomes, but this is a decision that should be researched before making. Read reviews, look at BBB ratings (and the number of complaints), and be very skeptical when changing anything with your student loans.

No matter what you do, don’t put your student loans in the hands of some random company sending you “Final Notice” letters even though you have no relationship with them. That’s a great way to ruin your credit and empty your bank account.

Comments on the Trump Higher Education Budget Proposal

The Trump administration released its first full budget proposal for Fiscal Year 2018 today, and it is safe to say that it represents a sharp break from the Obama administration’s budget proposals. The proposed discretionary budget for the Department of Education is about $69 billion, $10 billion less than the Fiscal Year 2017 budget. Below, I offer brief comments on three of the key higher education proposals within the budget, as well as my take on whether the proposals are likely to be enacted in some form by a Republican-controlled Congress that seems fairly skeptical of the Trump administration’s higher education policy ideas.

Public Service Loan Forgiveness would no longer be available for new borrowers. Public Service Loan Forgiveness (PSLF) was first made available in 2007 in an effort to encourage individuals to work in lower-paying nonprofit or government jobs. This plan allows students enrolled in income-driven repayment plans who annually certified their income and employment status to have any remaining balances forgiven after ten years of payments of 10% of discretionary income. However, the plan has been criticized due to its likely high price tag to taxpayers and because it provides far larger subsidies to graduate students than undergraduate students.

The Trump administration’s budget proposal would end PSLF for new borrowers as of July 1, 2018—and require all people currently on PSLF to maintain continuous enrollment in the program to remain eligible. This is likely to be a difficult hurdle for many people to clear, as a large number of students have been tripped up by annual recertification in the past. I’m glad to see that the Trump administration didn’t completely end PSLF for current students (as people reasonably relied on the program to make important life choices), but otherwise saving PSLF in the current form isn’t at the top of my priority list because of how most of the subsidy goes to reasonably well-off people with graduate degrees instead of low-paid individuals with a bachelor’s degree in early childhood education.

Prognosis of happening: Low to medium. This will generate howls of outrage in The New York Times and The Washington Post from groups such as the American Bar Association and the National Education Association, but there is a reasonable argument for at least curtailing the amount of money that can be forgiven under PSLF. A full-fledged ending of the program may not happen, but some changes are quite possible as quite a few members of Congress are upset with rising costs of loan forgiveness programs.

Subsidized loans for undergraduates would be eliminated, and income-driven loan repayment periods would change. Undergraduate students can qualify for between $3,500 and $5,500 per year in subsidized student loans (meaning interest is not charged while they are in school), with the remainder of their federal loans being unsubsidized (with interest accumulating immediately). The Trump administration would end subsidized loans, with the likely rationale that the interest subsidy is not an efficient use of resources (something that is hard to empirically confirm or deny, but is quite plausible).

The federal government currently offers students a menu of income-driven loan repayment options, and the Trump administration proposed to simplify these into one option.  Undergraduates would pay up to 12.5% of the income over 15 years (from 10% over 20 years for the most popular current plan), while grad students would pay up to 12.5% for 30 years. Undergraduate students probably benefit from this change, while graduate students decidedly do not. This plan hits master’s degree programs hard, as any graduate debt would either trigger a 30-year repayment period for a potentially small amount of additional debt or push people back into a standard (non-income-driven) plan.

Prognosis of happening: Medium. There has been a great deal of support for streamlining income-driven repayment plans, but the much less-generous terms for graduate students (along with ending PSLF) would significantly affect graduate student enrollment. This will mobilize the higher education community against the proposal, particularly as many four-year colleges are seeking to grow graduate enrollment as a new revenue source. But potentially moving to a 20-year repayment period for graduate students or tying repayment length to loan debt are more politically feasible. The elimination of subsidized loans for undergraduates hits low-income students, but a more generous income-driven repayment program mainly offsets that and makes that change more realistic.

Federal work-study funds would be cut in half and the Supplemental Educational Opportunity Grant would be eliminated. The federal government provides funds for these two programs to individual colleges instead of directly to students, and colleges are required to provide matching funds. The SEOG is an additional grant available to needy undergraduates at participating colleges, while federal work-study funds can go to undergraduate or graduate students with financial need. Together, these programs provide about $1.7 billion of funding each year, with funds disproportionately going to students at selective and expensive colleges due to an antiquated funding formula. Rather than fixing the formula, the Trump administration proposed to get rid of SEOG (as being duplicative of Pell) and halve work-study funding.

Prognosis of happening: Slim to none. Because funds disproportionately go to wealthier colleges (and go to colleges instead of students), the lobbying backlash against cutting these programs will be intense. (There is also research evidence showing that work-study funds do benefit students, which is important to note as well.) Congressional Republicans are likely to give up on changing these two programs in an effort to focus on higher-stakes changes to student loan programs.

In summary, the Trump administration is proposing some substantial changes to how students and colleges are funded. But don’t necessarily expect these changes to be implemented as proposed, even if there are plenty of concerns among conservatives about the price tag and inefficient targeting of current federal financial aid programs. It will be crucial to see the budget bill that will go up for a vote in the House of Representatives, as that is more likely to be passed into law than the president’s proposed budget.

A Look at Unmet Financial Need by Family Income

One of the perks of my job is that I get to talk with journalists around the country on a regular basis—it gives me the chance to keep up on what are the hot topics in the broader community as well as build connections with some wonderful people. I recently chatted with Jeff Selingo of The Washington Post for his latest column on whether college is affordable for middle-class families. My quote in the piece was, “They are getting squeezed on both ends because they barely miss Pell Grants and they are not the types of students getting grants from colleges themselves.”

Because I’m a data person at heart, I wanted to provide some supporting evidence for my claim. I used the most recent wave of the Beginning Postsecondary Students Longitudinal Study—a nationally representative study of first-time college students in the 2011-12 academic year—to look at financial need among new students at four-year colleges by family income quintile (for dependent students, who are mainly traditional-aged). The key column in the table below is unmet financial need, which is how much money students and their families have to come up with to cover the cost of attendance after grant aid and the expected family contribution (EFC)—a rough estimate of how much the government thinks families can contribute.

Quintile Unmet need EFC Total grants Parent income
Bottom $10,000 $0 $9,318 $13,150
Second $10,637 $557 $8,550 $34,238
Middle $9,912 $5,440 $5,550 $61,388
Fourth $4,820 $14,537 $2,750 $95,763
Top $0 $31,663 $2,000 $161,361

 

Source: NPSAS 2011-12.

Note: Values presented are medians and are only for dependent students attending four-year colleges.

The key point here is that families in the middle income quintile have to come with roughly the same amount of additional money beyond the EFC to pay for a year of college as families in the bottom two quintiles. Grant aid drops off substantially after the second quintile (where Pell eligibility starts to phase out), so middle-income families certainly do have reasons to be concerned about college affordability. Federal loans and PLUS or private loans can help to bridge the gap for students, but these figures do illustrate why student debt burdens (although relatively modest from a lifetime perspective) are a mounting concern for a larger percentage of undergraduate students.

Which Factors Affect Student Loan Repayment and Default Rates?

As student loan debt has surpassed $1.25 trillion, policymakers and members of the public are increasingly concerned about whether students are able to manage rising (but often still modest) loan burdens. The federal government has relied on a measure called cohort default rates—the percentage of former borrowers who defaulted on their loans within a few years of entering repayment—to deny federal financial aid access to colleges with a high percentage of struggling students. Yet default rates can be easily manipulated using strategies such as deferment and forbearance (which often don’t help students in the long run), meaning that default rates are a very weak measure of students’ post-college outcomes.

The 2015 release of the College Scorecard dataset included a new measure—student loan repayment rates, defined as the percentage of borrowers repaying any principal within a certain period of entering repayment. This gets at whether students are paying down their loans, which seems to be a more helpful indicator than relying heavily on default rates. But since repayment rates are a new measure, colleges had no incentive to manipulate repayment rates as they did default rates. This creates a research opportunity to examine whether colleges may have been acting strategically to lower default rates even as their students’ underlying financial situations did not change.

I teamed up with Amy Li, an assistant professor at the University of Northern Colorado, to examine whether the factors affecting loan repayment rates differ from those factors affecting default rates—and whether the factors affecting repayment rates varied based on the number of years after the student entered repayment. Our article on this topic is now out in the ANNALS of the American Academy of Political and Social Science, with a pre-publication version available on my personal website.

We used default and repayment data on students who entered repayment in fiscal years 2006 and 2007 so we could track repayment rates over time. Default rates at the time covered the same time period as the one-year repayment rate, while we also looked at repayment rates three, five, and seven years after entering repayment. (And we had to scramble to redo our analyses this January, as the Department of Education announced a coding error in their repayment rate data in the last week of the Obama Administration that significantly lowered loan repayment rates. If my blog post on the error was particularly scathing, trying to revise this paper during the journal editing process was why!) We then used regressions to see which institutional-level factors were associated with both default and non-repayment rates.

Our key findings were the following:

(1) Being a traditionally underrepresented student was a stronger predictor of non-repayment than default. Higher percentages of first-generation, independent, first-generation, or African-American students were much more strongly associated with not repaying loans than defaulting after controlling for other factors. This suggests that students may be avoiding default (perhaps with some help from their former colleges), but they are struggling to pay down principal soon after leaving college.

(2) For-profit colleges had higher non-repayment rates than default rates. Being a for-profit college (compared to a public college) was associated with a 1.7 percent increase in default rates, yet an 8.5% increase in non-repayment. Given the pressure colleges face to keep default rates below the threshold needed to maintain federal loan eligibility—and the political pressures for-profit colleges have faced—this result strongly suggests that colleges are engaging in default management strategies.

(3) The factors affecting repayment rates changed relatively little in importance over time. Although there were some statistically significant differences in coefficients between one-year and seven-year repayment rates, the general story is that a higher percentage of underrepresented students was associated with higher levels of non-repayment across time.

As loan repayment rates (hopefully!) continue to be reported in the College Scorecard, it will be interesting to see whether colleges try to manipulate that measure by helping students close to repaying $1 in principal get over that threshold. If the factors affecting repayment rates significantly change for students who entered repayment after 2015, that is another powerful indicator that colleges try to look good on performance metrics. On the other hand, the growth of income-driven repayment systems that allow students to be current on their loans without repaying principal, could also change the relationships. In either case, as colleges adapt to a new accountability system, policymakers would be wise to consider additional metrics in order to get a better measure of a college’s true performance.

The Challenges Facing New York’s Tuition-Free College Program

Although tuition-free public college will not become a federal policy anytime soon, more states and local communities are considering different variations of free college. There are nearly 200 active college promise or free college programs in the United States, with two states (Arkansas and New York) enacting tuition-free programs in recent weeks.

New York’s Excelsior Scholarship program has garnered quite a bit of attention because it covers students at four-year colleges (most larger programs are limited to less-expensive two-year colleges), because of the conditions attached, and because New York governor Andrew Cuomo is likely to run for president in 2020. Yet the ambitious program (the legislation text starts on page 142 of this .pdf) also has to overcome a number of challenges in order to be truly effective. I discuss three of the key challenges with this program below.

Challenge 1: Will scholarship funds be available to all qualified students? The budget includes $163 million in funding for the program, which is probably far below the amount of money needed to fund all students. Judith Scott-Clayton of Teachers College estimated that an earlier version of the program could cost about $482 million per year. Even requirements that students complete 30 credits per year and clawbacks for students who leave the state after graduation (more on that later) may not bring the cost down enough—particularly if the program is successful in increasing enrollment at public colleges. The budget has a provision that allows awards to be cut or allocated via lottery if funds run short, which is a distinct possibility if the state faces another recession. Needless to say, this would be a PR nightmare for the state.

Challenge 2: Will colleges use fees as a tuition substitute? A full-tuition scholarship sounds great, but students and their families often forget about fees. Right now, fees are a sizable portion of direct educational prices. For example, at SUNY-Albany, tuition is $6,470 and fees are $2,793, while Hostos Community College charges $4,800 in tuition per year for a full-time student alongside $406 in fees. Since the scholarship only covers tuition, the state may pressure colleges to increase fees in an effort to reduce program costs. This happened in Massachusetts for years and still happens in Georgia, both states with large merit-based grant aid programs. Over time, it is quite possible that the value of the grant fails to keep up with inflation as a result—particularly if the state shifts funding from appropriations to student aid and colleges scramble for another revenue source.

Challenge 3: Will the state be able to manage a large “groan” program? Perhaps the most controversial portion of New York’s program is the requirement that students must live and work in the state after college for the same number of years that they received the grant; if they fail to do so, the grant converts to a loan (also known as a “groan” to financial aid wonks). Many people have raised concerns about the fairness of this idea, but here I’ll touch on the logistics of the program. Can the state of New York track students after graduation and see where they both live and work? Will they feel pressures to exempt students who live out of state but work in New York and pay state income taxes? What will the terms of the converted loans look like? There are a lot of unanswered questions here, but it is clear that the state must invest in a larger student loan agency in order to manage this complex of a program.

As Governor Cuomo prepares for a likely presidential bid in 2020, he is counting on the tuition-free college proposal to be one of his signature policy ideas. Some of the biggest concerns with this legislation may take years to develop, but even a period of two or three years may be enough to see whether the program can work effectively around some of the significant concerns noted here.

Should Part-Time Students Have Their Borrowing Limited?

One of the key higher education policy interests of Senate Health, Education, Labor, and Pensions chairman Lamar Alexander (R-TN) has been to limit student borrowing in an effort to help reduce rising student loan debt. I’ve written in the past about how “overborrowing” is not as big of a concern as students not borrowing enough for college, but there is one group of students that may actually benefit from not being able to take out the maximum allowed amount in student loans.

Currently, students who attend college part-time can borrow the same amount as full-time students as long as there is space in their financial aid package. This can be a concern for students, as it means that they can run out of federal loan eligibility before they complete a bachelor’s degree. Current federal loan limits are the following:

Year in college Dependent student Independent student
First $5,500 $9,500
Second $6,500 $10,500
Third $7,500 $12,500
Fourth and beyond $7,500 $12,500
Lifetime $31,000 $57,500

 

This equates to about four and a half years of borrowing at the maximum for dependent students and five years for independent students. Given that a sizable percentage of students complete a bachelor’s degree in more than five years, running out of loan eligibility before graduation can be a real concern for students. This is particularly true among students who begin at a community college, where tuition is relatively low compared to at a four-year college. If a student reasonably expects to take six years to complete a bachelor’s degree, then she and her financial aid office should have a conversation about how to best preserve her loan eligibility for when she needs it the most.

A fairly straightforward way to reduce the number of students who exhaust their loan eligibility would be to allow students to get a certain amount of money per credit hour. Students can currently receive a Pell Grant for up to 12 full-time equivalent semesters, with full-time defined as taking at least 12 credits. The current loan limit could be divided by 12 (roughly $2,600 per semester), or this could be done on a per-credit basis (perhaps $200 per credit) to recognize that students who take more classes need to work less.

A completely different proposal would allow students to use their student loan eligibility in any way they see fit. For example, dependent students could use their $31,000 in two years if desired—as long as they had space in their aid package. This idea of an education line of credit was raised by Jeb Bush in his short-lived presidential campaign, but it is unclear what Senator Alexander thinks of this proposal. At this point, it seems like the idea of limiting borrowing for part-time students at an individual college’s discretion is the most likely policy outcome.

How Should States Structure “Free” College?

It is safe to say that the idea of free public college has gone dormant at the national level with the election of Donald Trump and a Republican Congress. But a number of states are considering adopting free college plans in light of the Tennessee Promise’s success from both political and enrollment perspectives.1 According to the Education Commission of the States, legislation was introduced in 23 states to adopt some type of free college plans between 2014 and November 2016. These bills died in most states, but five states in addition to Tennessee (Delaware, Kentucky, Minnesota, Oregon, and Rhode Island) enacted free college plans during this period.

On the same day that Republicans officially took control of the U.S. Senate, New York’s Democratic governor Andrew Cuomo announced a proposal to make SUNY and CUNY institutions tuition-free for students with family incomes below $125,000.2  This proposal, which Cuomo introduced alongside Vermont senator Bernie Sanders, would make public colleges tuition-free as a last-dollar scholarship. This appears to be similar to the Tennessee Promise, in which additional state funds are applied only after federal, state, and private grants are used.

While President Obama’s free community college proposal would have been a first-dollar scholarship (supplementing instead of supplanting other aid), Cuomo’s plan would keep the price tag down to about $163 million per year—an important consideration given the state’s other pressing priorities. Because New York is a low-tuition, high-aid state, the neediest students already have their tuition covered by grants and would thus receive no additional funds.

Therefore, the benefits of the program would go to two groups of students. The first group is fairly obvious: middle-income and upper-middle-income families. In New York, $125,000 falls at roughly the 80th percentile of family income—an income level where families may not be able to pay tuition without borrowing, but college enrollment rates are quite high. The second group consists of lower-income students who are induced to enroll by the clear message of free tuition, even though they would have received free tuition without the program. Tennessee’s enrollment boost suggests this group is far from trivial in size.

Students attending New York public colleges currently have fairly modest debt burdens. College Scorecard data show that the median student attending public 2-year colleges graduates with about $10,000 in debt, while students at 4-year colleges graduate with about $20,000 in debt. Will the New York program (if adopted) make a sizable dent on students’ debt burdens? My expectation is that the reduction in debt will not be as much as expected. This is because tuition and fees are less than half of the total cost of attendance at four-year colleges and an even smaller fraction at community colleges. Students will still need to borrow for books and living expenses, which are not covered in Cuomo’s proposal.

This gets back to a seemingly-eternal question in the education policy realm. Given limited resources, is it better to give more money to the neediest students to help them cover living expenses or is it better to give some money to middle-income families in a state with high tax burdens?3 Most politicians seem to prefer the latter, as the message of “free” college and giving money to more students seems to be a political winner. But the former could appeal to politicians who strongly prioritize equity.

But from a researcher’s perspective, which one is better for students as a whole is less clear. (It could even be the case that giving the money to colleges to improve the educational experience while charging higher tuition could be better for students in the long run.) One great thing about America is that there are 50 laboratories of democracy. I hope that states take different pathways in student financial aid and funding colleges to see what works best.

 

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1 It is too early to truly tell whether the program increased educational attainment levels or labor market outcomes, or whether the program has been cost-effective given additional state funding for higher education.

2 I have to gripe about the language in the press release regarding “crushing” student loan debt, particularly given how students can use income-driven repayment plans to reduce the risk of federal loans. But I’m spitting into the wind on this one, given how journalists and politicians routinely use this language that could scare students away from attending college.

3 Some may disagree with the idea that resources are limited, but former White House staffer Zakiya Smith summed it up nicely by stating that there are plenty of other good uses for available funds in any budget.

How to Improve Income-Driven Repayment Plan Cost Estimates

The Government Accountability Office (GAO) took the U.S. Department of Education (ED) behind the proverbial woodshed in a new report that was extremely critical of how ED estimated the cost of income-driven repayment (IDR) programs. (Senate Republicans, which asked for the report, immediately piled on.) Between fiscal years 2011 and 2017, ED estimated that IDR plans would cost $25.1 billion. The current estimated cost is up to $52.5 billion, as shown in the figure below from the GAO report.

gao_fig1

The latest estimate from the GAO—and the number that got front-page treatment in The Wall Street Journal—is that the federal government expects to forgive $108 billion of the estimated $352 billion of loans currently enrolled in income-driven repayment plans. Much of the forgiven loan balances are currently scheduled to be taxable (a political hot topic), but some currently unknown portion will be completely forgiven through Public Service Loan Forgiveness.

gao_fig2

The GAO report revealed some incredible concerns with how ED estimated program costs. Alexander Holt of New America has a good summary of these concerns, calling them “gross negligence.” In addition to the baffling choices not to even account for Grad PLUS loans in IDR models until 2015 (!) and to not assume borrowers’ incomes increased at the rate of inflation (!!), ED ran very few sensitivity analyses about how different reasonable assumptions would affect program costs. As a result, the estimates have not tracked tremendously closely with reality over the last several years.

But there are several reasonable steps that could be taken to improve the accuracy of cost estimates within a reasonable period of time. They are the following:

(1) Share the current methodology and take suggestions for improvement from the research community. This idea comes from Doug Webber, a higher ed finance expert and assistant professor at Temple University:

ED could then take one of two paths to improve the models. First, they could simply collect submissions of code from the education community to see what the resulting budget estimates look like. A second—and better—way would be to convene a working group similar to the technical review panels used to improve National Center for Education Statistics surveys. This group of experts could help ED develop a set of reasonable models to estimate costs.

(2) Make available institutional-level data on income-driven repayment takeup rates and debt burdens of students enrolled in IDR plans. This would require ED to produce a new dataset from the National Student Loan Data System, which is no small feat given the rickety nature of the data system. But, as the College Scorecard shows, it is possible to compile better information on student outcomes from available data sources. ED also released information on the number of borrowers in IDR plans by state last spring, so it’s certainly possible to release better data.

(3) Make a percentage of student-level loan data available to qualified researchers. This dataset already exists—and is in fact the same dataset that ED uses in making budget projections. Yet, aside from one groundbreaking paper that looked at loan defaults over time, no independent researchers have been allowed access to the data. Researchers can use other sensitive student-level datasets compiled by ED (with the penalty for bad behavior being a class E felony!), but not student loan data. I joined over 100 researchers and organizations this fall calling for ED to make these data available to qualified researchers who already use other sensitive data sources.

These potential efforts to involve the research community to improve budget estimates are particularly important during a Presidential transition period. The election of Donald Trump may lead to a great deal of turnover within career staff members at the Department of Education—the types of people who have the skills needed to produce reasonable cost estimates. I hope that the Trump Administration works to keep top analysts in the Washington swamp, while endeavoring to work with academics to help improve the accuracy of IDR cost projections.

Clinton and Trump Proposals on Student Debt Explained

This article was originally published on The Conversation. Read the original article.

The high price of attending college has been among the key issues concerning voters in the 2016 presidential election. Both Democratic nominee Hillary Clinton and Republican nominee Donald Trump have called the nearly US$1.3 trillion in student debt a “crisis.” During the third presidential debate on Oct. 19, Democratic nominee Hillary Clinton raised the issue all over again when she said,

“I want to make college debt-free. For families making less than $125,000, you will not get a tuition bill from a public college or a university if the plan that I worked on with Bernie Sanders is enacted.”

Republican nominee Donald Trump has also expressed concerns about college affordability. In a recent campaign speech in Columbus, Ohio, Trump provided a broad framework of his plan for higher education should he be elected president.

In a six-minute segment devoted solely to higher education, Trump proceeded to call student debt a “crisis” – matching Clinton’s language. He also called for colleges to curb rising administrative costs, spend their endowments on making college more affordable and protect students’ academic freedom.

The highlight of Trump’s speech was his proposal to create an income-based repayment system for federal student loans. Under his proposal, students would pay back 12.5 percent of their income for 15 years after leaving college. This is more generous than the typical income-based plan available today (which requires paying 10 percent of income for 20 to 25 years). The remaining balance of the loan is forgiven after that period, although this amount is subject to income taxes.

As a researcher of higher education finance, I question whether these proposals on student debt will benefit a significant number of the over 10 million college-going voters struggling to repay loans.

How student loan interest rates work

Typically, students pay interest rates set by Congress and the president on their federal student loans.

Over the last decade, interest rates for undergraduate students have fluctuated between 3.4 percent and 6.8 percent. Rates for federal PLUS loans have ranged from 6.3 percent to 8.5 percent. Federal PLUS loans require a credit check and are often cosigned by a parent or spouse. Federal student loans do not have those requirements.

While students pay this high a rate of interest, rates on 15-year mortgages are currently below three percent.

It is also important to note the role of private loan companies that have recently entered this market. In the last several years, private companies such as CommonBond, Earnest and SoFi as well as traditional banks have offered to refinance select students’ loans at interest rates that range from two percent to eight percent based on a student’s earnings and their credit history.

However, unlike federal loans (which are available to nearly everyone attending colleges participating in the federal financial aid programs), private companies limit refinancing to students who have already graduated from college, have a job and earn a high income relative to the monthly loan payments.

Analysts have estimated that $150 billion of the federal government’s $1.25 trillion student loan portfolio – or more than 10 percent of all loan dollars – is likely eligible for refinancing through the private market.

Many Democrats, such as Senator Elizabeth Warren of Massachusetts, have pushed for years, for all students to receive lower interest rates on their federal loans. In the past Republican nominee Donald Trump too has questioned why the federal government profits on student loans – although whether the government actually profits is less clear.

Issues with refinancing of loans

The truth is that students with the most debt are typically college graduates and are the least likely to struggle to repay their loans. In addition, they can often refinance through the private market at rates comparable to what the federal government would offer.

Struggling borrowers, on the other hand, already have a range of income-driven repayment options through the federal government that can help them manage their loans. Some of their loans could also be forgiven after 10 to 25 years of payments.

Furthermore, the majority of the growth in federal student loans is now in income-driven plans, making refinancing far less beneficial than it would have been 10 years ago. Under income-driven plans, monthly payments are not tied to interest rates.

So, on the face of it, as Clinton has proposed, allowing students to refinance federal loans would appear to be beneficial. But, in reality, because of the growth of private refinancing for higher-income students and the availability of income-driven plans for lower-income students, relatively few students would likely benefit.

Focus needed on most in need students

In my view, Clinton’s idea of allowing students to refinance their loans at lower rates through the federal government is unlikely to benefit that many students. However, streamlining income-based repayment programs (supported by both candidates) has the potential to help struggling students get help in managing their loans.

Nearly 60 percent of students who were enrolled in income-driven repayment plans fail to file the annual paperwork. That paperwork is necessary if students are to stay in those programs. And failure to do so results in many students facing higher monthly payments.

At this stage, we know many details of Clinton’s college plan. Her debt-free public college proposal (if enacted) would benefit families in financial need, but her loan refinancing proposal would primarily benefit more affluent individuals with higher levels of student debt.

In order to access Trump’s plan we need more details. For example, the current income-based repayment system exempts income below 150 percent of the poverty line (about $18,000 for a single borrower) and allows students working in public service fields to get complete forgiveness after ten years of payments. The extent to which Trump’s plan helps struggling borrowers depends on these important details.

The Conversation