Higher Ed Watch

While Congress has debated extending the 3.4 percent interest rate on Subsidized Stafford loans issued this year to undergraduates, advocacy groups are gearing up for a debate on longer-term reforms. They know the odds don’t favor Congress adopting a one-year extension of the lower rate again next year. Besides, spending $6 billion to save college graduates $9 a month isn’t a great deal for borrowers or taxpayers. So it’s good that student aid advocates want a better plan. But they aren’t off to a great start. They are gathering support for an outrageously expensive proposal that turns a blind eye to far more worthy aid, like Pell Grants.

The student loan interest rate proposal that is dominating discussions among advocates and other stakeholders would provide borrowers with variable interest rates that would be capped at the current fixed rates of 6.8 percent on Stafford loans and 7.9 percent on PLUS loans for parents and graduate students.

The rate on all newly-issued federal loans would be adjusted annually based on interest rates on short-term (three month) U.S. Treasury debt, plus a markup of two to three percentage points to partially offset costs. Today, that would translate into an interest rate of about 3 percent. If short-term U.S. Treasury rates rise, the rate borrowers pay would too, though it would never exceed 6.8 percent. Such a proposal would represent a return to the policy of the 1990s and early 2000s, except the cap on the variable rate then was 8.25 percent.

This variable-rate-with-a-cap proposal would give borrowers a “heads-I-win, tails-you-lose” arrangement. If short-term rates stay low, borrowers benefit. If short-term rates rise, the loans convert to low, fixed rates and the borrower wins again. When short-term rates decline, the fixed-rate loan converts back to a variable rate, and the borrower wins again.

The policy effectively shelters borrowers from the financial tradeoffs that they would normally face when they choose between fixed and variable interest rates on loans in the private market. Variable rates are lower at first, but can go higher. Fixed rates might be higher on average, but they provide certainty.

The variable-rate-with-a-cap proposal doesn’t, however, make that fundamental tradeoff disappear. It just shifts the cost entirely onto taxpayers.

How much would taxpayers have to pay to provide borrowers with this no-lose insurance policy? According to sources on Capitol Hill, the Congressional Budget Office says it would cost $200 billion over 10 years.

To put this price tag in perspective, Congress could fund an $8,000 maximum Pell Grant (up from $5,550 today) for the next 10 years if it allocated an additional $200 billion to the program over that time period.

Still, there are other options for policymakers to modify student loan interest rates that would make meaningful improvements for borrowers without breaking the bank. One even generates savings (read more here).

Students and aid advocates would be wise to rally around some version of a more feasible interest rate reform proposal in the coming months. But if they really want to get behind a proposal that costs $200 billion, please make it one that supports the Pell Grant program rather than college graduates’ monthly budgets.

This was originally posted on Higher Ed Watch's sister blog, Ed Money Watch.

Every year the Department of Veterans Affairs (VA) directs a huge chunk of federal spending to higher education for veterans education benefits — more than $1.7 billion in the 2009-10 school year alone. But VA education benefits are often overlooked in education policy discussions. This is largely because of a lack of transparency in the VA budget. The agency doesn’t make good accounting information readily available. On top of these opaque budgeting practices, little information is available on the effectiveness of the current iteration of the GI Bill, how schools spend that money, or the degree to which veterans actually benefit from these programs. That’s starting to change. But policymakers can do more.

President Obama issued an executive order last week to crack down on how schools use VA and Department of Defense (DoD) funds. (Benefits for veterans are provided through a slew of VA programs, most notably the Post-9/11 GI Bill. Active duty servicemembers receive funding through the Department of Defense’s Tuition Assistance Program, rather than through the G.I. Bill.)

Under the president’s order, all schools enrolled in VA’s Post-9/11 GI Bill program (approximately 6,000 institutions) will be encouraged—and all DoD Tuition Assistance participating institutions mandated—to improve transparency and provide documentation of tuition and fees, financial aid information, and details of student outcomes at the school – much like the Consumer Financial Protection Bureau’s (CFPB) proposed “Know Before You Owe” sheet. The order also restricts the recruiting practices of Institutions participating in veterans education benefit programs.

The president’s executive order seeks to improve the quality of services the DoD and VA provide students by developing a complaint system whereby the agency quickly responds to concerns about funding or support services. Media reports earlier this year revealed disturbing figures concerning VA administrative failures. Tens of thousands of veterans education benefits were stalled in processing – as many as 62,000 applicants in one branch alone. As a result, tuition payments hadn’t reached many schools and housing stipends were delayed for months in many cases.  The VA argued that during peak enrollment periods, it often experiences backlog. 

Separately, a new report from the Center for American Progress (CAP), “Easing the Transition from Combat to Classroom,” provides some previously unavailable information on veterans education benefits that also helps to illuminate some of the delays in processing mentioned above. Largely thanks to the passage of the Post-9/11 GI Bill, VA has seen a dramatic increase in federal education funding in recent years commensurate with increasing numbers of veterans and major enrollment growth – 37 percent from 2009 to 2010.

But the administrative concerns that the president seeks to address in his executive order beg a larger question: What is the quality of VA oversight?

Though lawmakers funnel a significant amount of education benefits to veterans through the VA, limited access to information about those funds and programs mean veterans—and taxpayers—are often left in the dark. Public funds are spent with minimal information as to the success of federal efforts. The president’s order may shine a light on certain aspects of VA Post-9/11 GI Bill, but it may not go far enough to provide veterans what they were promised – access to equitable and high-quality education.  That’s going to require more oversight and regulation from the White House and Congress.

The U.S. Department of Education this month announced that it has developed a preliminary plan to increase reporting requirements for graduation rates at colleges and universities. The “Action Plan for Improving Measures of Postsecondary Success” was developed around input from the Committee on Measures of Student Success (CMSS), a committee appointed by the Department of Education as required by the passage of the Higher Education Opportunity Act of 2008. The pending regulations, which the Department is crafting both for two-year and four-year colleges, are intended to provide a fuller picture of college completion rates. But although the new graduation rates will pull more students under their umbrellas, schools may struggle to meet the data collection needs they trigger.

Community colleges particularly stand to benefit from the new regulations because part-time and transfer students, currently excluded from completion rate calculations, make up a large portion of enrolled students. Returning students – those in degree- or certificate-granting programs who are not entering college for the first time – may also be counted in the new completion rates.

Under the current system by which schools report graduation rates to the Department of Education, the measure is limited to students who complete community college with a degree or certificate. The metric does not give community colleges any credit for students who transfer to four-year institutions, even though that fulfills a central goal of community colleges. Furthermore, schools are not necessarily required to report transfer-out rates, and those that do face difficulties caused by limited data or capacity to analyze existing data. Although the Integrated Postsecondary Education Data System (IPEDS) reports both graduation rates and transfer-out rates, it reports them separately.

The Department of Education’s plan, following Committee recommendations, will include a requirement that institutions incorporate both graduates in degree or certification programs and students who transfer to a four-year degree-granting institution in its calculations of college completion rates. CMSS asserted that a combined graduation and transfer-out rate such as that one would provide a clearer picture of a school’s success.  

The Committee also recommended that institutions of higher education collect additional data, like the number of students earning a degree or certification in their two-year program who subsequently transferred to a four-year institution, those who transferred without completing their two-year program, and those who transferred after completing a two-year program but without earning a degree. Though the data collection requirements would be onerous, the information would provide a far more comprehensive view of schools’ outcomes. However, the Department did not adopt this recommendation in its plan. 

Recalculating graduation rates to include transfer-out students could bring community colleges much closer to President Obama’s goal—laid out in the American Graduation Initiative—of increasing the number of community college graduates by 5 million by 2020. According to the American Association of Community Colleges, counting those transfer students would increase the completion rate from 22 percent to 40 percent. (The Federal Education Budget Project, Ed Money Watch’s parent initiative, collects and displays the graduation and transfer-out rates for every community college that reports such data in its database.)

But perhaps the biggest hurdle for the new regulations is not defining them, but implementing them. To combat these challenges, the Committee recommended that the Department continue to incentivize states to create longitudinal data systems that track students’ postsecondary outcomes. And the Department’s action plan does, indeed, include references to the Statewide Longitudinal Data Systems grant program. It promises to help schools build capacity to collect and disseminate data.

Schools face significant challenges to implementation because there is no national system in place to track students’ transfers – something that would require substantial coordination across states and institutions. Even though some states might possess the capacity to track students within their own state, tracking that student across state lines becomes nearly impossible.

So the Committee also recommended that the Department establish a national data system requiring any school that administers federal student aid to collect and report to it comprehensive data on students (including those who transfer between schools). But such a system is explicitly disallowed under the Higher Education Opportunity Act of 2008 following outcries from privacy advocates and institutions wary of more extensive reporting requirements.

Although the Department has not yet issued a timeline on when it will start to implement the “Action Plan,” it remains to be seen whether schools will have the resources, time, and capacity to achieve the new standards without significant changes to their data collection and reporting systems. That would certainly be a costly endeavor in the current period of fiscal austerity. And without the ability to track students as they move around the country and across institutions, students—particularly those at the highest risk for jumping in and out of schools—could slip through the cracks.

The Federal Education Budget Project maintains the most comprehensive and easy-to-use database available on education funding, student demographics, and outcomes for every school district and institution of higher education in the country.Graduation rates and other data points for two- and four-year institutions are available from the Federal Education Budget Project here.

Many student aid advocates and pundits have panned the House Budget Committee’s loosely outlined funding plan for Pell Grants. The plan was part of the fiscal year 2013 budget resolution (aka the “Ryan Budget”) that the House passed a few weeks back. Critics say it would make deep cuts to Pell Grants and kick a million students out of the aid program. Indeed, the House Republican proposal would make some changes to the program to permanently address a $7 billion funding cliff that the program will face in 2014. But where were these critics when President Obama outlined his Pell Grant funding proposal earlier this year?

The president’s proposal included only a one-year fix for the massive $7 billion Pell Grant funding cliff. After the one-year fix, the president’s budget simply assumes that an extra $7 billion will materialize in the annual appropriation for Pell Grants each year. But this extra funding must be offset by $7 billion in cuts to other programs funded with annual appropriations, which the president’s budget doesn’t specify.

Do student aid advocates really believe the president’s “let’s not make tough decisions now; we’ll find an extra $7 billion later” is the better proposal?

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