“Bang for the Buck” and College Ratings

President Obama made headlines in the higher education world last week with a series of speeches about possible federal plans designed to bring down the cost of college. While the President made several interesting points (such as cutting law school from three to two years), the most interesting proposal to me was has plan to create a series of federal ratings based on whether colleges provide “good value” to students—tying funding to those ratings.

How could those ratings be constructed? As noted by Libby Nelson in Politico, the federal government plans to publish currently collected data on the net price of attendance (what students pay after taking grant aid into account), average borrowing amounts, and enrollment of Pell Grant recipients. Other measures could potentially be included, some of which are already collected but not readily available (graduation rates for Pell recipients) and others which would be brand new (let your imagination run wild).

Regular readers of this blog are probably aware of my work with Washington Monthly magazine’s annual set of college rankings. Last year was my first year as the consulting methodologist, meaning that I collected the data underlying the rankings, compiled it, and created the rankings—including a new measure of cost-adjusted graduation rate performance. This measure seeks to reward colleges which do a good job serving and graduating students from modest economic means, a far cry from many prestige-based rankings.

The metrics in the Washington Monthly rankings are at least somewhat similar to those proposed by President Obama in his speeches. As a result, we bumped up the release of the new 2013 “bang for the buck” rankings to Thursday afternoon. These rankings reward colleges which performed well on four different metrics:

  • Have a graduation rate of at least 50%.
  • Match or exceed their predicted graduation rate given student and institutional characteristics.
  • Have at least 20% of students receive Pell Grants (a measure of effort in enrolling low-income students).
  • Have a three-year student loan default rate of less than 10%.

Only one in five four-year colleges in America met all four of those criteria, which highlighted a different group of colleges than is normally highlighted. Colleges such as CUNY Baruch College and Cal State University-Fullerton ranked well, while most Ivy League institutions failed to make the list due to Pell Grant enrollment rates in the teens.

This work caught the eye of the media, as I was asked to be on MSNBC’s “All in with Chris Hayes” on Friday night to discuss the rankings and their policy implications. Here is a link to the full segment, where I’m on with Matt Taibbi of Rolling Stone and well-known author Anna Kamenetz:

http://video.msnbc.msn.com/all-in-/52832257/

This was a fun experience, and now I can put the “As Seen on TV” label on my CV. (Right?) Seriously, though, stay tuned for the full Washington Monthly rankings coming out in the morning!

Financial Aid as a Paycheck?

President Obama is set to make a series of speeches this week addressing college affordability—a hot topic on college campuses as new students move into their dorm rooms. An article in this morning’s New York Times provides some highlights of the plan. While there are other interesting proposals, most notably tying funding to some measure of college success, I’m focusing this brief post on the idea to disburse Pell Grants throughout the semester—“aid like a paycheck.”

The goal of “aid like a paycheck” is to spread grant aid disbursals out through the semester so students take ownership of their education. Sounds great, right? The problem is that it’s only been tested at a small number of community colleges in low-tuition states, such as California. If a student has more financial aid than the cost of attendance, then there is “extra” aid to disburse. But this doesn’t apply to the vast majority of students, particularly those at four-year schools. Spreading out aid awards for students with unmet need creates an even bigger financial gap at the beginning of the semester.

In order for “aid like a paycheck” to work for the vast majority of students, we have to make other costs look like a monthly bill. If students still have to pay for tuition, books, and housing upfront (or face a hefty interest rate), this program will create a yawning financial gap. If colleges want to be accountable to students, perhaps they should bill students per month for their courses—that way, dropped courses hurt the institution’s bottom line more than the student’s. This would delay funds coming in to a college, which can result in a loss of interest given the large amounts of tuition revenue.

Before we try “aid like a paycheck” on a large scale, Mr. President, let’s try making colleges get their funds from students in that same way. And let’s also get some research on how it works for students whose financial need isn’t fully met by the Pell Grant. The feds have the power to try demonstration programs, and this would be worth a shot.

Does This Explain Opposition to Market-Based Interest Rates?

As of this writing, it appears that the U.S. Senate has finally reached an agreement on student loan interest rates after subsidized Stafford rates doubled from 3.4% to 6.8% on July 1. The general terms of the agreement are similar to what President Obama proposed in his FY 2014 budget and what the House of Representatives agreed to back in June, with some compromises on each side.

The big difference between current law and the Senate agreement is that interest rates for nearly all student loans will be tied to the 10-year Treasury rate, which currently sits at about 2.5%.  (Undergraduates would pay a 2.05% premium above the Treasury rate on Stafford loans to account for program costs and the risk of offering the loans.) However, the Treasury rate is expected to increase to 5.6% by 2016, pushing the interest rate for undergraduates to 7.65% from less than 5%. The plan includes a cap at 8.25%, which may be reached according to the CBO report.

The Senate agreement is not without its critics, particularly on the political Left. Senator Bernie Sanders, a Vermont independent and a self-described “socialist,” criticized the plan as “dangerous” in an article in The Hill. His criticism lies in the fact that interest rates can rise well above the current 6.8% over time, a very real concern given the interest rate projections. While the plan is expected to pass the Senate (and the House), some other Senate Democrats will likely vote no as well.

At this point in the great interest rate debate, I have to wonder if there is another reason some politicians oppose market-based interest rates. Tying student loan interest rates to the 10-year Treasury note directly connects students’ future payments to the cost of federal borrowing. And that cost of federal borrowing is influenced by the federal government’s fiscal policy.

This connection between federal borrowing and student loan rates could potentially have the following repercussions. If loans are tied to Treasury notes—and there is no way to fix the rate as has been done for the past seven years—students should have an incentive to push for federal policies which lower the federal government’s cost of borrowing. (With the decline in home ownership rates among younger adults, fewer 20- and 30-somethings have mortgages, which are affected by federal borrowing costs.)

The policy that best reduces the cost of borrowing is a balanced budget, which reduces the need for additional borrowing. The passage of the Omnibus Budget Reconciliation Act of 1993, which reduced the budget deficit through a combination of tax hikes and spending cuts, had the effect of driving down long-term interest rates. (For more on this, I highly recommend reading Bob Woodward’s Maestro about Alan Greenspan’s role in the policy discussions.)

My question to readers is whether you think that some politicians may oppose market-based interest rates because more young adults may place pressure on Congress to find some legislative solution to balance the budget—although the solutions certainly vary by political persuasion. Say it’s 2016 and undergraduate Stafford rates are 7.5%, with hitting the 8.25% cap becoming more likely. Could we see student advocacy organizations pushing for a balanced budget to bring down interest rates? I don’t know how many people will think this way, but it’s something to consider.

Something Old, Something New: The FY 2014 Obama Budget

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

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

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

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

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

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

PLUS: Treasury plus 3.93% (about 5.75%)

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

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

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

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

The Benefits of Biennial Budgets

The federal government had a substantial problem with its budgeting process over the past several years, with funding being provided by a series of continuing resolutions outside the annual process for more than three years. With bipartisan frustration over this process growing, a group of centrist Senators, led by Jeanne Shaheen (D-NH) and Johnny Isakson (R-GA), have proposed a switch from annual to biennial budgets. This proposal was introduced in the past Congress and was not seriously discussed, but is likely to be considered this time around with the interest of Senate Majority Leader Harry Reid (D-NV).

Biennial budgets are not uncommon at the state level. A 2011 report from the National Conference of State Legislatures shows that 19 states have biennial budgets, including Ohio, Texas, and Wisconsin. Only four of these states have legislatures that only meet every two years, meaning that 15 states have actively chosen the biennial path.

Biennial budgeting allows for more time for debate and discussion of tricky matters, but the budgets often have to be adjusted because of the balanced budget requirements. (Budget repair bills are well-known here in Wisconsin.) The lack of such a requirement at the federal level makes biennial budgeting even more feasible. While I am a staunch supporter of a balanced budget, I recognize that a small error in economic growth or demographic assumptions can result in a slightly unbalanced budget over a two-year period. As long as the assumptions are reasonable, I’m fine with a small error which can be addressed in the future.

Requiring a budget every two years instead of one can help provide more stability to federal education funding, particularly regarding policies and levels of student financial aid and education research. This stability has the potential to have positive impacts which are independent of the actual funding levels. For example, if the exact dollar amount for the maximum Pell Grant is known, a push should be made to communicate that level to students who are likely to qualify upon entering college. Providing earlier information of financial aid could induce the marginal student to enroll in college and perhaps even take an additional high school course which would lower the likelihood of remediation. This push toward earlier notification of financial aid is consistent with other parts of my research agenda, and would have the added benefit (in my view) of allowing Pell Grant funding to be flexible as needed in the future.

A biennial budget process could also have the benefit of making student loan interest rates more predictable. Under current law, undergraduate subsidized Stafford interest rates are currently set to double (from 3.4% to 6.8%) on July 1. (This is a budgetary matter because the interest rate does determine the level of profit or loss for the federal government.) While I am a strong supporter of plans to tie student loan interest rates to market conditionssuch as the rate paid on Treasury bills plus 3%—biennial budgeting would at least allow interest rates to not face a cliff every single year.

Biennial budgeting has the potential to result in more stability in education funding, as well as result in budgets which are well-discussed and passed under regular order. For those reasons, I am supportive of moving from annual to biennial budgets. I would love to hear your thoughts on this proposal in the comments!

Tying FAFSA Data to IPEDS: The Need for “Medium Data”

It is safe to say that I’m a fan of data in higher education. Students and their families, states, and the federal government spend a massive amount of money on higher education, yet we have relatively little data on outcomes other than graduation rates and student loan default rates for a small subset of students—those who started as first-time, full-time students. The federal government currently operates on what I call a “little data” model, with some rough institutional-level measures available through IPEDS. Some of these measures are also available through a slightly more student-friendly portal in the College Navigator website.

As is often the case, some states are light years ahead of the federal government regarding data collection and availability. Florida, Texas, and Ohio are often recognized as leaders in terms of higher education data availability, both in terms of collecting (deidentified) student-level data and tying together K-12, higher education, and workforce data outcomes. The Spellings Commission in 2006 did call for a student-level dataset at a national level, but Congress explicitly denied the Department of Education this authority in the reauthorization of the Higher Education Act. Although there are sporadic movements toward “big data” at the national level, making this policy shift will require Congressional support and a substantial amount of resources.

Although I am willing to direct resources to a much more robust data system (after all, how can we determine funding priorities if we know so little about student outcomes?), a “medium data” approach could easily be enacted by using data sources already collected by colleges or the federal governemnt. I spent a fair amount of the morning today trying to find a fairly simple piece of data—the percentage of students at given colleges whose parent(s) did not complete college. The topic of first-generation students is important in policy circles, yet we have no systemic data on how large this group of students is at most colleges.

FAFSA data could be used to expand the number of IPEDS measures to include such topics as the following, in addition to first-generation status:

(1)    The percentage of students who file the FAFSA

(2)    Average/median family income

(3)    Percentage of students with zero EFC

(4)    Information on means-tested benefit receipt (such as food stamps or TANF)

(5)    Marital status

Of course, these measures would only include students who file the FAFSA—which would exclude many students who would not qualify for need-based aid, as well as some students who are unable to navigate through the complicated form. But these measures would provide a better idea of institutional diversity beyond racial/ethnic diversity and the percentage of students receiving Pell Grants and could be incorporated into IPEDS at a fairly low cost. Adding these FAFSA measures would help move IPEDS from “little data” to “medium data” and provide more useful measures to higher education stakeholders.

Wisconsin Higher Education Policy Issues for 2013

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

(1)    Increasing college performance

(2)    Funding for public colleges and universities

(3)    Tuition prices and policy

(4)    State grant aid programs

(5)    Academic preparation for college

(6)    Immigration policy

(7)    Competency-based education

(8)    Concealed carry on campus

(9)    Workforce/economic development

(10) For-profit college regulation

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

Priority #1: Workforce and economic development

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

Priority #2: Increasing college performance

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

Priority #3: Competency-based education

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

Priority #4: State grant aid programs

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

Priority #5: Funding for public colleges and universities

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

 

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

Streamlining Financial Aid in Wisconsin

The Wisconsin Higher Educational Aids Board, the state’s agency administering need-based and merit-based financial aid programs, was recently tasked with forming a commission on financial aid consolidation and modernization. The commission had two primary charges:

(1)    Explore consolidating all state need-based grants into one program.

(2)    Study options for providing grants to students attending college less than half-time.

The current system of need-based grants has separate grants for four different sectors of Wisconsin higher education: the University of Wisconsin System (UWS), the Wisconsin Technical College System (WTCS), the state’s tribal colleges, and the private, non-profit sector (WAICU).  Sadly, HEAB’s final report, which was recently released, failed to streamline the complicated financial aid system in Wisconsin. Each of the four sectors’ grants currently has separate pools of funding, and the report encourages this practice to continue.

The current system of awarding grants by sector needs to be revamped. Buried on page 42 of the report is the current distribution of funding by sector:

Sector Num. Eligible Awarded (%) Spent ($) Unfunded ($) Max Award ($)
UW System 43,808 70.1 58,321,266 32,922,506 2,384
WTCS 74,284 26.2 18,326,312 63,835,738 1,084
Tribal 1,204 26.0 441,963 1,593,276 1,800
Privates 17,935 58.6 26,613,208 23,291,709 2,900
Total 137,231 44.4 103,702,749 121,643,229  

 

This distribution makes absolutely no sense, in both the percent of eligible students awarded grant money (due to budget constraints) and the maximum award. I can’t speak to the needs of students attending the tribal colleges due to my lack of knowledge of these institutions and the students’ other financial aid awards, but it seems logical to have the same percentage of students receive need-based aid across systems. Given the lower cost of tuition for the technical colleges, I can see why they are receiving smaller grants.

I also don’t see a compelling reason for the state to give more aid to students attending private colleges than those attending public colleges. It is true that the state saves money if a student attends a private college (by being able to appropriate less money for the public sector), but I seriously doubt that students will change their decision to attend a private college if their grant aid is cut by about $500. This is especially the case since some students attending private colleges can receive need-based aid even if they are ineligible for the federal Pell Grant, which is not the case for public colleges.

The report also called for the status quo regarding the lack of eligibility for state grants if a student attended college less than half-time (five or fewer credits per semester). This would only be reversed if each sector supported changing the eligibility rules, sufficient funding became available, and HEAB had additional staff to monitor the additional students, conditions which are unlikely to be met anytime soon.

In my view, the commission completely failed to respond to its charge as little was done to streamline financial aid in Wisconsin or fix persistent inequities in the funding system. The Legislature should seriously consider combining all need-based grant programs into one pot even though the stakeholders on the committee disagree.

Right Idea, Wrong Time

It’s election season once again, so President Obama is coming back to Madison for a large campaign event right smack dab in the middle of the University of Wisconsin-Madison campus Thursday afternoon. Given the amount of security required to host a Presidential visit (regardless of the purpose), it is not surprising that all of the buildings on Bascom Hill will be closed on Thursday. This campaign rally will require all classes in affected buildings to be moved—many of them will likely be cancelled despite this being midterm exam season for undergraduates.

I am always happy to have politicians come to campus to ask for the community’s support, but two things just grate me the wrong way about the visit. The first thing is the timing. When Obama came to campus the previous two times (February 2008 and September 2010), his events were scheduled later in the day. While classes were still moved from the immediate area of Bascom Hill for the 2010 visit, the rally was held later in the afternoon so more classes could be held. Ann Althouse, prominent blogger and faculty member in the UW Law School, isn’t too happy about the class disruption:

“Nice for the campaign, but positioned to maximize disruption of regular classes. Is that a bug or a feature? If there are no classes and it’s a class day, students are around and they are free to attend. Classes are being cancelled to supply the photogenic crowd for the President?”

Badgers are a pretty photogenic lot. (It’s hard to be humble when you’re from Wisconsin, after all.) But starting the event at, say, 4 PM instead of noon would allow for a much more normal day of classes. For reference, recall the hubbub about having a night football game on the Thursday before classes even started. I’m guessing that the folks complaining about a night football game aren’t complaining about the President’s campaign stop—I’m happy to complain about both.

I have one more gripe about the rally: in order to get into the event in the heart of campus, people have to register with the President’s campaign team. I don’t have any problems with metal detectors and tight security (there are plenty of crazy people out there), but requiring registration with an aggressive political campaign team to attend an on-campus event does not support sifting and winnowing. (To be fair, Romney’s folks do the same thing to harvest voter information—but he is never coming to far-left Madison.)

I have taken steps to cancel or postpone all of my events on campus on Thursday and will likely listen to the rally online. Hopefully, all of the people displaced by the campaign event can have a fairly normal day of work if they so choose.