Education

A clear divide has emerged in the debate over the interest rates on federal student loans. In one camp are House and Senate Republicans, along with President Obama; in the other are the congressional Democrats. But before explaining what makes those camps different, a quick refresher on the interest rate issue is in order.

Undergraduates are currently charged two different fixed interest rates: 3.4 percent on Subsidized Stafford loans and 6.8 percent on Unsubsidized Stafford loans. Loans issued on or after July 1, 2013, though, will carry the 6.8 percent rate. (That policy has its roots in a 2006 Democratic congressional campaign and you can read the history here.) The rates are different for graduate students and parents of undergraduates, and were never subject to the expiring policy. The two-rate policy on undergraduate loans was originally set to expire last year, but President Obama called for extending it for one year. Congress went along with that at a $6 billion cost.

Unfortunately, the interest rates on federal student loans are just numbers Congress made up (seriously). And in debating the expiring two-rate policy last year, lawmakers never tried to come up with a more rational approach. Instead, they just extended the made-up numbers. We criticized that approach and offered an alternative last year.

What a difference a year makes.

A real debate about student loan policy is now underway in Congress. House Republicans (Kline), Senate Republicans (Coburn), and President Obama have all put forth proposals to peg student loan interest rates to the rates on U.S. Treasury notes. While their proposals are all slightly different, these lawmakers have put forth proposal that would be permanent, fiscally sustainable, keep rates well below market rates for all borrowers, and ensure that those interest rates reflect economic conditions.

So here is where the divide in the debate emerges. Other lawmakers – House and Senate Democrats mainly – have proposed either gimmicky solutions, wildly expensive ideas, or a two-year extension of the made-up rates. A side-by-side table is available here. 

• Rep. Courtney suggests a two-year extension of current policy.

• Senator Warren would set the rate at 0.75 percent, but only for undergraduates and only for Subsidized Stafford loans, and only for one year. The cost would be close to $12 billion, by our estimates.  Senator Warren claims her proposal has something to do with an emergency lending program at the Federal Reserve, which is really just a rhetorical gimmick that has no practical effect.

• Senator Reed introduced a bill that requires the Department of Education to set the rates at the “cost” of the program, and let borrowers with outstanding loans refinance to those rates. That would drop rates to about 2% by our estimates (official cost estimates understate the cost of the program, so the rates would be artificially low).  Even though the program would operate at “cost,” the reduced interest payments compared to current law would actually show up in the budget as increasing the deficit (i.e. as a cost) of about $175 billion over the next 10 years according to numbers released by the Congressional Budget Office yesterday. That is before factoring in the refinancing component, which could easily top $50 billion in costs.

We’ve received a lot of inquiries about the merits of all of these proposals. Obviously, the shortcomings of the congressional Democrats’ proposals need no further explanation. The president’s and the House and Senate Republicans’ proposals, on the other hand, are all a huge improvement over current policy – and a huge improvement over what lawmakers were discussing last year. None would be a step backwards.

That said, the House proposal gives borrowers the most options and protections – floating interest rates with the option to take a fixed rate and an interest rate cap – but those options and protections mean the proposal has a lot of moving pieces that will require a lot of explaining. It will also confuse borrowers, some of whom will inevitably make a bad choice on when to lock in their interest rate. The president’s proposal needlessly charges undergraduates two different interest rates just to score political points. The Senate Republican bill, on the other hand, has no complicated options and no moving pieces, or gimmicks to score political points.

Those should be guiding principles as Congress and the president work to finalize a bill by July 1.

For more on this issue, check out this post from Amy Laitinen on our sister blog, Higher Ed Watch.

Establishing a commission to study an issue is, in the words of President Obama, “Washington-speak for ‘we’ll get back to you later.’” This week, House Education and Workforce Committee member Rep. Luke Messer (R-IN) proposed yet another to study how to collect higher education data and which data points to include. The bill falls well short of resolving the concerns of students, families, businesses, and policymakers who don’t know what they’re getting for all the time and dollars spent on postsecondary education.

While the House bill, the Improving Postsecondary Education Data for Students Act, is still debating the question of whether we even need better data other members of Congress have rightly moved on. Sen. Ron Wyden (D-OR) authored the Student Right to Know Before You Go Act along with Sen. Marco Rubio (R-FL) and Sen. Mark Warner (D-VA). The bill, also supported in the House by Education and Workforce Committee member Rep. Duncan Hunter (R-CA) and Rep. Robert Andrews (D-NJ), would collect student-level higher education data in state data systems from colleges and universities, making it available to students, policymakers, and other stakeholders.

The data would include remedial education rates, graduation rates, transfer rates, post-graduation employment, and student debt levels. And for the first time, it would move beyond the “first-time, full-time” reporting model currently in place – an embarrassingly incomplete glimpse of the higher education landscape, given that only a quarter of full-time undergraduate students lived on campus in 2008 and more than half of students were over the age of 23.

Some critics have expressed concern about students’ privacy if we collect outcomes at the individual level. Those complaints grew out of a fearmongering campaign back in 2007 during the Higher Education Act reauthorization that ultimately led to a ban on a student unit record system. But the data under the Wyden-Rubio bill would be anonymous, so student privacy would be protected.

Amy Laitinen, deputy director of higher education for the New America Foundation’s Education Policy Program, has a rundown of the support proffered in recent years for improved higher education data over at our sister blog, Higher Ed Watch. House Majority Leader Eric Cantor (R-VA) announced late last year that better data would be at the top of the House Republicans’ agenda. He joins the Chair of the House Subcommittee on Higher Education and Workforce Training Virginia Foxx (R-NC),  the congressionally created Committee on Measures of Student Success, the White House, the Chamber of Commerce, Young Invincibles and other advocacy and research groups, the National Governors Association, and many more education leaders in a chorus of voices calling for data and transparency in higher education.

The Student Right to Know Before You Go Act is a critical piece of legislation. It will help answer the questions of whether students are graduating from certain colleges and universities, whether they’re shouldering excessive debt or earning enough to pay back their loans, and how “nontraditional students” – the new majority – are faring in institutions around the country. In the words of Senator Wyden, the new legislation will move the debate from access to higher education to “access plus.” Stakeholders will be able to demonstrate the value institutions can (or cannot) provide their students. That’s the kind of information students and families need to ensure they sign up for a good investment – not another brushoff from Congress.

As a sneak peek to her policy paper to be released this week, we talked late last week with senior policy analyst Laura Bornfreund about how schools are experimenting with rating teachers' effectiveness in the PreK-3rd grades.

On March 1, 2013, federal agencies were directed by the White House budget office to cut spending for the remainder of the 2013 fiscal year, through Sept. 30. The cuts, known as “sequestration” in Washington parlance, apply evenly to almost every program, so agencies do not have much leeway to protect certain programs at the cost of others. Now, two-and-a-half months later, the big question is how the cuts are affecting people on the ground. The answer: We have anecdotes, but no firm numbers.

In a blog post from earlier this week I examined the issues of funding streams and dosage. We currently have no way to track a state-funded pre-K center’s level of funding or the different ways it is funded. We also have no reliable way of measuring how some pre-K programs supervise children for much longer than others because we rely on a vague binary measurement of “half-day” versus “full-day”. In this post I will explain how we can fix these problems.

Yesterday, the New America Foundation's Education Policy Program released "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind." Author Stephen Burd reveals a full-fledged "financial aid arms-race" between private colleges and universities, and a burgeoning one among publics as well. Schools adopt a "high-tuition, high-aid” model that allows them to attract wealthy and high-achieving students to boost their rankings with significant amounts of merit aid – money that could have instead been directed to need-based aid for low-income students. That means that the neediest students are left with an impossibly high tuition bill.

Burd uses data, many of which are available through our Federal Education Budget Project database, on Pell Grant enrollment and net price for the lowest-income students at thousands of individual colleges. The analysis shows that hundreds of public and private non-profit colleges expect the neediest students to pay an annual amount that is equal to or even more than their families' entire yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or to behave in ways that are demonstrated to reduce the likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return. Only a few dozen exclusive colleges meet the full financial need of the lowest-income students they enroll. Nearly two-thirds of the private institutions analyzed charge students from the lowest-income families, those making $30,000 or less annually, a net price of over $15,000 a year.

Many private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. According to the report, the poorest schools are often the ones that enroll the largest share of federal Pell Grant recipients, but they charge these students high net prices because of their own limited resources. At the same time, many of these institutions provide deep tuition discounts to wealthier students to attract those high-achieving students to the school.

This is not just a question of institutional wealth, though. Some of the country's most prosperous private colleges are, in fact, the stingiest with need-based aid. These institutions tend to use their institutional financial aid as a competitive tool to reel in the top – and the most affluent – students to help them climb the U.S. News & World Report rankings and maximize their revenue.

We created an interactive graphic that groups institutions into four categories based on whether they charge low-income students a high or low tuition and whether they enroll a high or low percentage of Pell recipients. We also used data from the Department of Education, FEBP, and The Chronicle of Higher Education to determine the number of endowment dollars available per student.

We can see from this graphic, for instance, that Washington & Lee University enrolls a very low proportion of Pell students (eight percent) and charges the lowest-income students over $14,000 a year in tuition after Pell Grants and financial aid. That’s an average tuition bill of over half of a family’s total income. What's worse is that Washington & Lee has a relatively large endowment of around $450,000 per student. 

While the problem is not as extreme among public universities, it is rapidly getting worse. As more states cut funding for their higher education systems, public colleges are increasingly adopting the enrollment management tactics of their private college counterparts - to the detriment of low-income and working-class students alike.

In many states, public institutions are following the same high-tuition, high-aid model – and in some cases, including in Pennsylvania and South Carolina, the neediest students are facing net prices more than double what they are charged in low-tuition states such as North Carolina. At Penn State University, for example, in-state students attending the university's flagship campus in University Park pay about $16,000 in tuition and fees annually, which is double the average tuition charged at all national public four-year colleges and universities examined in his paper. Despite the fact that Penn State spends nearly $14 million a year on institutional aid, its lowest-income in-state students pay an average net price of nearly $17,000, the fifth-highest of any public institution this report examines. In other words, Penn State's neediest students do not appear to be getting any discount relative to other students at all. At the same time, about 6 percent of the school's first-time freshmen received an average of $3,800 in so-called "merit aid" in 2010-11.

Schools like Penn State seem to be using their pricing autonomy to gain an advantage as they fiercely compete for the students they most desire: the "best and brightest" students - and the wealthiest. These actions fly in the face of national goals to increase access to higher education and help more students earn high-quality degrees.

Over the past several decades, a powerful enrollment management industry has emerged to show colleges how they can use their institutional aid strategically in the pursuit of high-achieving and affluent students. And worse yet, there is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants, the primary source of federal aid for low-income students, to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. This is one reason that, even after historic increases in Pell Grant funding, the college-going gap between low-income students and their wealthier counterparts remains as wide as ever.

According to recent budget documents from the Department of Health and Human Services, the Head Start program has surpassed a statutory requirement that half of Head Start teachers have bachelor’s degrees in early childhood by September 30, 2013. In fact, according to the Department, 62 percent of teachers had earned the degree by fiscal year 2012.

In today’s blog post, I will examine some basic problems with current data collection processes in pre-K, kindergarten and across the PreK-12 landscape. Look for Part 2 later this week, when I’ll propose hourly tracking -- an outside-the-box approach to solving some of these issues. 

Last week, the New America Foundation’s Education Policy Program published an issue brief on the recently completed (and two months late) fiscal year 2013 budget, with an early analysis of how the 2014 budget process is likely to affect education programs. One careful reader noticed that the explanation about sequestration failed to mention two lesser-known education programs: the TEACH Grants and Iraq-Afghanistan Service Grant programs.

The former provides tuition aid to prospective teachers, but it converts to a loan if the student fails to complete four years of teaching to high-needs students after graduation. The latter provides tuition aid to the children of military parents who died during military service after September 11. Both programs are affected by across-the-board spending cuts implemented last year.

Although sequestration was meant to apply uniformly to most education programs, slicing evenly program by program, there were some exceptions. Pell Grants, as we’ve reported, were exempt, and student loans were subject only to a fee increase to reduce costs. And it appears that cuts will be larger for TEACH Grant and the Iraq-Afghanistan Service Grant than for other programs.

How much larger will the cuts be?

Recall that in accordance with the Budget Control Act of 2011, the failure of an appointed “supercommittee” to find $1.5 trillion in deficit reduction over 10 years triggered the execution of across-the-board spending cuts in mid-fiscal year 2013. The final size of the cuts was 5.0 percent cut for education programs funded through appropriations, and 5.1 percent for those funded on the so-called mandatory side of the budget. (Both TEACH Grants and Iraq-Afghanistan Service Grants are considered mandatory funding.)

For the Iraq-Afghanistan Service Grant program, though, the reduction will be 10.0 percent. For the TEACH Grant, it will be 7.1 percent. Therefore, the maximum Iraq-Afghanistan Service Grant will drop from $5,645 (the program is meant to match the size of the maximum Pell Grant) to $5,081 next year. The maximum annual TEACH Grant drops from $4,000 to $3,716. Those reductions affect the first disbursement that occurs after March 1, 2013, which in most cases means the 2013-14 school year, and the reductions are effectively permanent, so they’ll remain at that lower level thereafter.

Why did sequestration impose larger reduction for these programs than for others? And why 10.0 percent for one and 7.1 percent for the other? The reasons remain unclear, and the U.S. Department of Education has not offered much explanation. Some media reports have suggested that the White House is working to limit the impact of sequestration by moving money around and restoring some funding under its budget authority – but thus far, there’s no word from the White House that such flexibility options were the case for these Department of Education programs. We’ll keep an eye out for a good explanation over the coming weeks and months.

And the confusion isn’t limited to these programs. The president’s fiscal year 2014 budget request, which usually includes spending levels for the prior two years, didn’t even incorporate final, post-sequester fiscal year 2013 spending into its budget tables, for the Department of Education or other agencies. So one thing is clear: The government still isn’t able to provide much evidence around sequestration’s implementation. In spite of anecdotal stories about children losing access to Head Start and special education and Title I services being cut across the country, there’s not yet a comprehensive understanding of how sequestration is affecting education programs.

For more on last year’s budget, check out our issue brief, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis.

This week, the National Journal’s expert blog asked writers to respond to a series of questions about assessment. I zoomed in on several lessons from early childhood assessments, PreK-3rd grade, that educators can and should integrate into 3rd – 12th grade standardized assessment practices.