Key Takeaways from the House Higher Education Act Reauthorization Bill

Majority Republicans on the U.S. House Committee on Education and the Workforce unveiled their draft legislation today to reauthorize the Higher Education Act—the most important piece of legislation affecting American higher education. The Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act checks in at a hefty 542 pages and touches many important aspects of higher education. I live-tweeted my first read through the bill (read the thread here), and in this blog post I am sharing some thoughts on the key themes of the legislation.

Takeaway 1: This bill would undo many Obama-era regulations and salt the earth on future regulations. It’s no secret that Republicans didn’t care for regulations such as gainful employment, borrower defense to repayment, or providing a federal definition of the credit hour. The PROSPER Act would not only undo the regulations, but prohibit the Secretary of Education from promulgating any future regulations (meaning that Congress would have to pass legislation to create any new rules). The Secretary of Education would also be prohibited from creating a federal college ratings system, even though the Obama-era effort to do so was unsuccessful.

Takeaway 2: The federal student loan system would be radically overhauled. Instead of the array of loans that are now available, there would be three flavors of a federal ONE Loan—for undergraduates, parents, and graduate students. The key details are below.

 

  Undergrad (dependent) Undergrad (independent) Parent Grad student
Annual limit (current) $5,500-$7,500 $9,500-$12,500 Cost of attendance Cost of attendance
Annual limit (PROSPER) $7,500-$11,500 $11,500-$14,500 $12,500 $28,500
Lifetime limit (current) $31,000 $57,500 Cost of attendance Cost of attendance
Lifetime limit (PROSPER) $39,000 $60,250 $56,250 $150,000

Note: Medical students have higher loan limits than what is listed above.

Undergraduate students actually have higher loan limits, but the PROSPER Act would also allow colleges to limit borrowing by student major if they feel students are unlikely to repay their obligations. Financial aid administrators have sought this authority for years, which means that students could actually see lower loan limits. Graduate students, on the other hand, would be limited to $28,500 per year and $150,000 overall in federal loans. Given that tuition alone often exceeds this number, expect students to turn to the private market (when possible) to finance their education.

The PROSPER Act also drastically changes income-driven repayment programs. Instead of the range of programs available now, future borrowers could choose between the standard ten-year payment plan or an income-driven plan that would allow them to pay 15% of their discretionary income (over 150% of the federal poverty line) for as long as necessary to repay the loan. There would be no ending date to payments, and payments for married couples would be based on both spouses’ incomes even if they file their taxes separately. (Both of these provisions differ from current law.) The Public Service Loan Forgiveness program, which was only mentioned once in passing in the entire bill, would also end. However, people in the program now would be grandfathered in.

Takeaway 3: Colleges would be held accountable for their outcomes in new ways. The cohort default rate metric (which I’m no fan of) would be replaced by a repayment rate metric. If a program (not a college) had more than 45% of its borrowers at least 90 days delinquent or in certain types of deferment for three consecutive years, it would lose access to all federal financial aid. This is a more generous definition of repayment for colleges than the College Scorecard’s definition (repaying at least $1 in principal), so I can’t say how many colleges would actually be affected.

Another interesting piece is that colleges would have to repay at least a portion of federal financial aid dollars given to students who left college during a semester. Right now, colleges can try to claw back those funds, but this proposal would limit colleges to trying to collect 10% of the amount owed back from students. This is similar to what Matt Chingos and Kristin Blagg have proposed in a policy brief.

There are so many other interesting points in this legislation, but I think these are the three most important ones that I can speak to based on my experience and research. Keep in mind that the Senate will also introduce a Higher Education Act reauthorization bill sometime in 2018, and that the two bills may differ significantly from each other.

Not-so-Free College and the Disappointment Effect

One of the most appealing aspects of tuition-free higher education proposals is that they convey a simple message about higher education affordability. Although students will need to come up with a substantial amount of money to cover textbooks, fees, and living expenses, one key expense will be covered if students hold up their end of the bargain. That is why the results of existing private-sector college promise programs are generally promising, as shown in this policy brief that I wrote for my friends at the Midwestern Higher Education Compact.

But free college programs in the public sector often come with a key limitation—the amount of money that the state has to fund the program in a given year. Tennessee largely avoided this concern by endowing the Tennessee Promise program through lottery funds, and the program appears to be in good financial shape at this point. However, two other states are finding that available funds are insufficient to meet program demand.

  • Oregon will provide only $40 million of the $48 million needed to fund its nearly tuition-free community college program (which requires a $50 student copay). As a result, the state will eliminate grants to the 15% to 20% of students with the highest expected family contributions (a very rough proxy for ability to pay).
  • New York received 75,000 completed applications for its tuition-free public college program, yet still only expects to give out 23,000 scholarships. Some of this dropoff may be due to students attending other colleges, but other students are probably still counting on the money.

In both states, a number of students who expected to get state grant aid will not receive any money. While rationing of state aid dollars is nothing new (many states’ aid programs are first-come, first-served), advertising tuition-free college and then telling students they won’t receive grant aid close to the beginning of the academic year may have negative effects such as choosing not to attend college at all or diminished academic performance if they do attend. There is a sizable body of literature documenting the “disappointment effect” in other areas, but relatively little in financial aid. There is evidence that losing grant aid can hurt continuing students, yet this does not separate out the potential effect of not having money from the potential disappointment effect.

The Oregon and New York experiences provide for a great opportunity to test the disappointment effect. Both states could compare students who applied for but did not receive the grant in 2017-18 to similar students in years prior to the free college programs. This would allow for a reasonably clean test of whether the disappointment effect had any implications for college choice and eventual persistence.

My 2017 Higher Education Finance Reading List

The middle of July marks the two-thirds point in my academic summer, so I’m spending time getting ready for the fall semester in addition to packing in as much research and fun into this wonderful time of year. I am teaching a higher education finance class at Seton Hall University for the fourth time this fall semester and just posted my syllabus for my students to look at before the semester begins.

Here is the reading list I am assigning my students for the course, which is my best effort to capture the current state of knowledge in higher education finance. I teach students who are primarily administrators and practitioners, so I especially value articles that are clearly-written and explain research methods in a concise manner. I link to the final versions of the articles whenever possible, but those without access to an academic library should note that earlier versions of many of these articles are available online via a quick Google search.

I hope you enjoy the list!

 

Introduction to higher education finance

Lumina Foundation video on how the federal government distributes financial aid to students: https://www.luminafoundation.org/looking-back-to-move-forward-4

Chetty, R., Friedman, J. N., Saez, E., Turner, N., & Yagan, D. (2017). Mobility report cards: The role of colleges in intergenerational mobility. Working paper. (Also, look at their website for data on how your favorite college fares: http://www.equality-of-opportunity.org/college/.)

Ehrenberg, R. G. (2012). American higher education in transition. Journal of Economic Perspectives, 26(1), 193-216. (link)

Madzelan, D. (2013). The politics of student aid. Washington, DC: American Enterprise Institute. (link)

Schanzenbach, D. W., Bauer, L., & Breitwieser, A. (2017). Eight economic facts on higher education. Washington, DC: The Hamilton Project. (link)

National Center for Education Statistics (2015). IPEDS data center user manual. Washington, DC: Author. (skim as a reference) (link)

 

Institutional budgeting

Barr, M.J., & McClellan, G.S. (2010). Understanding budgets. In Budgets and financial management in higher education (pp. 55-85). San Francisco, CA: Jossey-Bass. (link)

Varlotta, L.E. (2010). Becoming a leader in university budgeting. New Directions for Student Services, 129, 5-20. (link)

Seton Hall’s FY 2016 Forms 990 and 990-T to the Internal Revenue Service: https://www13.shu.edu/offices/finance/index.cfm

The College of New Jersey’s FY 2016 audited financial statements: https://treasurer.tcnj.edu/files/2016/02/FY2016-Audited-Financials-and-Schedules-of-Federal-State-Awards.pdf

Moody’s credit rating report for The College of New Jersey: https://treasurer.tcnj.edu/files/2016/09/Moodys-TCNJ-Final-Report-8.15.2016.pdf

Information on The College of New Jersey’s budgeting cycle: https://treasurer.tcnj.edu/files/2012/06/FY2018-TCNJ-Strategic-Budget-Planning-Cycle.pdf

 

Policy analysis and higher education finance

DesJardins, S.L. (2001). Understanding and using efficiency and equity criteria in the study of higher education policy. In J.C. Smart & W.G. Tierney (Eds.), Higher education: Handbook of theory and research, Vol. 17 (pp. 173-220). Norwell, MA: Kluwer Academic Publishers. (link)

Ness, E. C. (2010). The role of information in the policy process: Implications for the examination of research utilization in higher education policy. In J. C. Smart (Ed.), Higher education: Handbook of theory and research, Vol. 25 (pp. 1-49). Dordrecht, The Netherlands: Springer. (link)

Weimer, D.L., & Vining, A.R. (1999). Thinking strategically about adoption and implementation. In Policy analysis: Concepts and practice (3rd Ed.) (pp. 382-416). Upper Saddle River, NJ: Prentice-Hall. (link)

Winston, G. C. (1999). Subsidies, hierarchy and peers: The awkward economics of higher education. Journal of Economic Perspectives, 13(1), 13-36. (link)

 

Higher education expenditures

Altonji, J. G., & Zimmerman, S. D. (2017). The costs of and net returns to college major. Cambridge, MA: National Bureau of Economic Research Working Paper 23029. (link)

Archibald, R. B., & Feldman, D. H. (2008). Explaining increases in higher education costs. The Journal of Higher Education, 79(3), 268-295.

Cheslock, J. J., & Knight, D. B. (2015). Diverging revenues, cascading expenditures, and ensuing subsidies: The unbalanced and growing financial strain of intercollegiate athletics on universities and their students. The Journal of Higher Education, 86(3), 417-447. (link)

Hurlburt, S., & McGarrah, M. (2016). Cost savings or cost shifting? The relationship between part-time contingent faculty and institutional spending. New York, NY: TIAA Institute. (link)

Commonfund Institute (2015). 2015 higher education price index. Wilton, CT: Author. (skim) (link)

Desrochers, D. M., & Hurlburt, S. (2016). Trends in college spending: 2003-2013. Washington, DC: American Institutes for Research. (skim) (link)

 

Federal sources of revenue

Cellini, S. R. (2010). Financial aid and for-profit colleges: Does aid encourage entry? Journal of Policy Analysis and Management, 29(3), 526-552. (link)

Kirshstein, R. J., & Hurlburt, S. (2012). Revenues: Where does the money come from? Washington, DC: American Institutes for Research. (link)

Pew Charitable Trusts (2015). Federal and state funding of higher education. Washington, DC: Author. (link)

Pew Charitable Trusts (2017). How governments support higher education through the tax code. Washington, DC: Author. (link)

(Note: I will add a draft paper I’m working on looking at whether law, medical, and business schools responded to a 2006 increase in Grad PLUS loan limits by raising tuition later in the semester. I’ll have a public draft of the paper to share in early November, but I think it’s good that students see a really rough draft to see how the research process works.)

 

State sources of revenue

Chatterji, A. K., Kim, J., & McDevitt, R. C. (2016). School spirit: Legislator school ties and state funding for higher education. Working paper. (link)

Doyle, W., & Zumeta, W. (2014). State-level responses to the access and completion challenge in the new era of austerity. The ANNALS of the American Academy of Political and Social Science, 655, 79-98. (link)

Fitzpatrick, M. D., & Jones, D. (2016). Post-baccalaureate migration and merit-based scholarships. Economics of Education Review, 54, 155-172. (link)

Hillman, N. W. (2016). Why performance-based funding doesn’t work. New York, NY: The Century Foundation. (link)

State Higher Education Executive Officers Association (2017). State higher education finance: FY 2017. Boulder, CO: Author. (skim) (link)

 

College pricing, tuition revenue, and endowments

Goldrick-Rab, S., & Kendall, N. (2016). The real price of college. New York, NY: The Century Foundation. (link)

Jaquette, O., Curs, B. R., & Posselt, J. R. (2016). Tuition rich, mission poor: Nonresident enrollment growth and the socioeconomic and racial composition of public research universities. Journal of Higher Education, 87(5), 635-673. (link)

Kelchen, R. (2016). An analysis of student fees: The roles of states and institutions. The Review of Higher Education, 39(4), 597-619. (link)

Levin, T., Levitt, S. D., & List, J. A. (2016). A glimpse into the world of high capacity givers: Experimental evidence from a university capital campaign. Cambridge, MA: National Bureau of Economic Research Working Paper 22099. (link)

Yau, L., & Rosen, H. S. (2016). Are universities becoming more unequal? The Review of Higher Education, 39(4), 479-514. (link)

Ma, J., Baum, S., Pender, M., & Welch, M. (2016). Trends in college pricing 2016. Washington, DC: The College Board. (skim) (link)

National Association of College and University Budget Offices (2017). 2016 NACUBO-Commonfund study of endowment results. http://www.nacubo.org/Research/NACUBO-Commonfund_Study_of_Endowments/Public_NCSE_Tables.html (skim)

 

Student debt and financing college

Akers, B., & Chingos, M. M. (2016). Game of loans: The rhetoric and reality of student debt (p. 13-37). Princeton, NJ: Princeton University Press. (link)

Boatman, A., Evans, B. J., & Soliz, A. (2017). Understanding loan aversion in education: Evidence from high school seniors, community college students, and adults. AERA Open, 3(1), 1-16. (link)

Chakrabarti, R., Haughwout, A., Lee, D., Scally, J., & van der Klaauw, W. (2017). Press briefing on household debt, with focus on student debt. New York, NY: Federal Reserve Bank of New York. (link)

Houle, J. N., & Warner, C. (2017). Into the red and back to the nest? Student debt, college completion, and returning to the parental home among young adults. Sociology of Education, 90(1), 89-108. (link)

Kelchen, R., & Li. A. Y. (2017). Institutional accountability: A comparison of the predictors of student loan repayment and default rates. The ANNALS of the American Academy of Political and Social Science, 671, 202-223. (link)

 

Financial aid practices, policies, and impacts

Watch the Lumina Foundation’s video on the history of the Pell Grant: https://www.luminafoundation.org/looking-back-to-move-forward-3

Bird, K., & Castleman, B. L. (2016). Here today, gone tomorrow? Investigating rates and patterns of financial aid renewal among college freshmen. Research in Higher Education, 57(4), 395-422. (link)

Carruthers, C. K., & Ozek, U. (2016). Losing HOPE: Financial aid and the line between college and work. Economics of Education Review, 53, 1-15. (link)

Goldrick-Rab, S., Kelchen, R., Harris, D. N., & Benson, J. (2016). Reducing income inequality in educational attainment: Experimental evidence on the impact of financial aid on college completion. American Journal of Sociology, 121(6), 1762-1817. (link)

Schudde, L., & Scott-Clayton, J. (2016). Pell Grants as performance-based scholarships? An examination of satisfactory academic progress requirements in the nation’s largest need-based aid program. Research in Higher Education, 57(8), 943-967. (link)

Baum, S., Ma, J., Pender, M., & Welch, M. (2016). Trends in student aid 2016. Washington, DC: The College Board. (skim) (link)

 

Free college programs/proposals

Deming, D. J. (2017). Increasing college completion with a federal higher education matching grant. Washington, DC: The Hamilton Project. (link)

Goldrick-Rab, S., & Kelly, A. P. (2016). Should community college be free? Education Next, 16(1), 54-60. (link)

Harnisch, T. L., & Lebioda, K. (2016). The promises and pitfalls of state free community college plans. Washington, DC: American Association of State Colleges and Universities. (link)

Murphy, R., Scott-Clayton, J., & Wyness, G. (2017). Lessons from the end of free college in England. Washington, DC: The Brookings Institution. (link)

Map of college promise/free college programs: https://ahead-penn.org/creating-knowledge/college-promise

 

Returns to education

Deterding, N. M., & Pedulla, D. S. (2016). Educational authority in the “open door” marketplace: Labor market consequences of for-profit, nonprofit, and fictional educational credentials. Sociology of Education, 89(3), 155-170. (link)

Doyle, W. R., & Skinner, B. T. (2017). Does postsecondary education result in civic benefits? The Journal of Higher Education. doi: 10.1080/00221546.2017.1291258. (link)

Giani, M. S. (2016). Are all colleges equally equalizing? How institutional selectivity impacts socioeconomic disparities in graduates’ labor outcomes. Research in Higher Education, 39(3), 431-461. (link)

Ma, J., Pender, M., & Welch, M. (2016). Education pays 2016: The benefits of higher education for individuals and society. Washington, DC: The College Board. (link)

Webber, D. A. (2016). Are college costs worth it? How ability, major, and debt affect the returns to schooling. Economics of Education Review, 53, 296-310. (link)

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.

Which States Search for FAFSA Information the Most?

In advance of this week’s National Spelling Bee finals, Google released data on the word that people located in each state searched “how to spell” on a regular basis. (Kudos to South Dakota for being so interested in how to spell “college!”) I used the Google Trends tool to search for how often people in each state searched for information on the FAFSA over the last five years and one year, as well as how often they searched for the “FASFA”—a pronunciation that is like fingernails on the chalkboard for many folks in higher education.

Between 2012 and 2016, interest in both the FAFSA (in blue) and the FASFA (in red) followed a pretty typical pattern, as shown in the first graph below. Searches picked up in frequency on January 1 (the first day to file for the new application year) before peaking around March 1 (when many state aid deadlines occur) and falling off dramatically in September. But in the 2016-17 application cycle (the second graph), searches spiked near October 1 (the new first date for filing the FAFSA) with a smaller peak around January 1 and an equal peak around March 1. This shows how the early FAFSA changes did reach students and their families.

Note: The “FAFSA” is in blue and the “FASFA” is in red.

I also looked at search intensity by state over the last year, with the most intense state receiving a value of 100. Mississippi had the highest intensity of FAFSA searches, while Oregon’s value of 42 was less than half of Mississippi’s value. Louisiana and Arkansas tied for the highest FASFA value (30), while Minnesota (7) had the lowest value. Looking at FAFSA-to-FASFA search ratios (a proxy for how commonly people searched for the wrong term), Louisiana had the lowest ratio of 3.07—indicating the highest frequency of incorrect searches. Meanwhile, Minnesotans were the least likely to type “FASFA” relative to “FAFSA,” with a ratio of 10.

FAFSA and FASFA search intensity, May 31, 2016 to May 31, 2017.

State FAFSA FASFA Ratio
Mississippi 100 28 3.57
Arkansas 95 30 3.17
Oklahoma 93 25 3.72
Louisiana 92 30 3.07
New Mexico 89 26 3.42
West Virginia 88 23 3.83
Idaho 87 18 4.83
Kentucky 87 23 3.78
Alabama 84 22 3.82
Tennessee 82 20 4.10
Indiana 80 22 3.64
Vermont 79 13 6.08
Maryland 79 18 4.39
Hawaii 78 9 8.67
South Dakota 78 14 5.57
Alaska 77 15 5.13
California 77 14 5.50
Wyoming 77 23 3.35
Utah 77 15 5.13
Montana 77 11 7.00
Arizona 76 18 4.22
Delaware 75 25 3.00
Rhode Island 74 18 4.11
Iowa 74 18 4.11
North Dakota 74 9 8.22
South Carolina 73 19 3.84
North Carolina 72 18 4.00
Virginia 72 15 4.80
Connecticut 72 16 4.50
Florida 72 18 4.00
Nebraska 72 13 5.54
Ohio 71 18 3.94
Missouri 71 20 3.55
Nevada 71 16 4.44
New Jersey 71 15 4.73
Maine 71 17 4.18
Pennsylvania 70 17 4.12
Minnesota 70 7 10.00
New Hampshire 68 15 4.53
Michigan 67 17 3.94
Washington 66 12 5.50
New York 66 15 4.40
Wisconsin 66 10 6.60
Georgia 65 18 3.61
Illinois 63 13 4.85
Massachusetts 60 12 5.00
Colorado 60 15 4.00
Texas 56 14 4.00
Kansas 54 14 3.86
District of Columbia 45 11 4.09
Oregon 42 8 5.25

Source: Google

Google search data can have the potential to provide some interesting insights about public perceptions and awareness of higher education, yet they have been used relatively infrequently. If there are any terms you would like me to dig into, let me know in the comments section!

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.

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.

The Importance of Negative Expected Family Contributions

The Free Application for Federal Student Aid (FAFSA) has received a great deal of attention in the past year. From a much-needed change that allowed students to file the FAFSA in October instead of January for the following academic year to the pulling of the IRS Data Retrieval Tool that made FAFSA filing easier for millions of students, the federal financial aid system has had its ups and downs. But one criticism that has been consistent for years is that the FAFSA remains an extremely blunt—and complex—financial aid allocation instrument.

After students fill out the FAFSA, they receive an expected family contribution (EFC), which determines their eligibility for federal and other types of financial aid. EFCs are currently truncated at zero for reporting purposes, which lumps together millions of students with various levels of (high) financial need into the zero EFC category. In a previous article, I showed that more than one-third of undergraduate students have a zero EFC and how that rate has generally increased over time.

Yet the underlying FAFSA data allows for negative EFCs to be calculated, and these negative EFCs can be used for two different purposes. First, they could be used to give additional Pell Grant aid to the neediest students; there have been several proposals in the past to allow EFCs to go down to -$750 in order to boost Pell Grants by up to $750. Second, the sheer number of students classified in the zero EFC category makes identifying the very neediest students difficult when there are insufficient funds to help all students from lower-income families. Reporting negative EFCs would at least allow colleges to help target their often-scarce resources in the best possible manner.

In my newest article (just published in the Journal of Student Financial Aid, which is open-access!), I used five years of student-level FAFSA data from nine colleges to show how calculating negative EFCs can help identify students with the greatest levels of financial need. The graphics below give a rough idea of what the distributions of negative EFCs could look like under various scenarios and current FAFSA filing situations. (I show dependent students here, but the same story is generally true for independent students.)

I also looked at how much it might cost the federal Pell Grant program to fund EFCs of -$750 by increasing maximum Pell Grants by an additional $750 for the neediest students. I estimated that funding negative EFCs would have increased Pell Grant expenditures by between $5 billion and $7 billion per year, depending on the specification. This is far from a trivial change for a program that spent about $31.5 billion in 2013-14, but it would roughly return Pell spending to its high point following the Great Recession. To save money, additional Pell funds could be given just to students with an automatic zero EFC—students with low family incomes who are already receiving some kind of means-tested benefit (such as free lunches in high school). That sort of limited expansion could be funded out of the current Pell surplus (assuming it doesn’t get used for other purposes, as is currently proposed).

Regardless of whether students get more money from the federal government under a negative EFC, it is a no-brainer for Congress and the Department of Education to work together to at least release the negative EFC number alongside the current number. That way, states, colleges, and private foundations can better target their funds to students with the absolute greatest need. Until the FAFSA is simplified, it makes sense to better use all of the information that is collected on students so everyone can make better decisions on allocating scarce resources.

How Popular Was the IRS Data Retrieval Tool?

The financial aid application season for the 2017-18 academic year started out on a high note for current and prospective students. Thanks to the adoption of “prior prior year” or “early FAFSA,” students could file the FAFSA beginning October 1 instead of the following January 1 for the 2017-18 academic year. Students took advantage of this change in large numbers, with about 5.4 million students completing the FAFSA before the previous opening date of January 1.

But FAFSA filing hit a significant roadblock in early March when the federal government quietly pulled access to the IRS Data Retrieval Tool (DRT), which allowed students to quickly and seamlessly transfer their tax records from the IRS to the FAFSA. The tool was down for nearly a week before the IRS issued a statement explaining that the site had been taken offline due to security concerns—and now it looks like the Data Retrieval Tool will be down until next fall at the earliest. Students can still complete the FAFSA by inputting information from their 2015 tax returns, but this is an extra hurdle for many students to jump.

It is possible that the DRT outage is already affecting FAFSA filing rates. Nick Hillman of the University of Wisconsin-Madison (one of the best higher ed finance researchers out there) and his sharp grad students Valerie Crespin-Trujillo and Ellie Bruckner) have been tracking FAFSA filing trends among high school students since the start of this application cycle. Their latest look at filing trends (which they update every Friday) shows the following, which suggests a possible dip due to the DRT outage.

One question that hasn’t been addressed yet is how many students were actually using the DRT when it was pulled. Unlike the great data that Federal Student Aid makes available on FAFSA filing trends, far less data are available on DRT usage. But I was able to find two data points that provide some insights about how many FAFSA filers used the DRT. The first data point came from Federal Student Aid’s 2016 annual financial report, which listed the DRT as a priority for the department. As the highlighted text below shows, about half of all applicants who filed taxes used the DRT in the 2014-15 filing season.

A tidbit of more recent data comes from a presentation that Federal Student Aid made to a conference of financial aid professionals last fall. As shown below, 56% of the 2.2 million FAFSA filers in October 2016 used the DRT. Early FAFSA filers may have different characteristics than filers across the whole application cycle, but this again shows the popularity of the DRT.

Another important group of students use the Data Retrieval Tool—students who are enrolling in income-driven repayment plans. These students have to certify their income on an annual basis (and a majority of borrowers already struggle to do this on time), which becomes more time-consuming without the DRT. It’s still possible for students to do by submitting documentation of income, but the loss of the DRT makes that a lengthier process. I was unable to find any information about DRT usage among people in income-driven repayment programs, but my gut instinct is that it’s a fairly high percentage of borrowers.

The bottom line here—the lengthy outage of the IRS Data Retrieval Tool doesn’t mean that students can’t apply for federal financial aid or income-driven student loan repayment programs. But it does create an additional roadblock for millions of students, their families, and financial aid offices to navigate. Only time will tell whether the DRT outage is associated with lower FAFSA or income-driven repayment filing rates, but a small negative effect seems plausible.

Thanks to Carlo Salerno of Strada Education for inspiring me to dig into the numbers. Twitter conversations can be useful, after all!