Higher Ed Watch

A Blog from New America's Higher Education Initiative

 

Guest Post: A Missed Opportunity to Stimulate Change in Higher Education

February 9, 2010

By Travis Reindl

In its first days, the Obama administration made two bold moves affecting higher education. One was declaring that the nation would regain world leadership in college attainment by 2020.  The other was pushing through the $787 billion American Recovery and Reinvestment Act (aka the stimulus), which to date, has pumped an estimated $6.5 billion into the nation’s public colleges and universities. As administration officials look back on their first year, they need to consider the possibility that the stimulus may end up doing little to advance the president’s goal and may even frustrate progress toward it.

That does not mean that the stimulus has been a waste or a boondoggle, as some pundits suggest and many Americans appear to believe. A recent report by Illinois State University and the State Higher Education Executive Officers indicates that the stimulus cushioned the blow to states’ higher education budgets, trimming what would have been a 3.5 percent one-year cut to a 1.1 percent cut. At the same time, I think it’s fair to say that policymakers missed a golden opportunity. The federal government had a chance to use this money—and states’ eagerness to have it—to leverage real change in higher education but didn’t take it.

So how could the federal government have exerted more leverage? 

States could have been asked for spending plans reflecting a commitment to increasing college attainment levels.  Instead, some of the states receiving the most in stimulus funding are the very same ones that are capping or even reducing college enrollment. California, for example, has received nearly $2 billion in stimulus funds while cutting enrollment at its universities. If the nation’s largest state is turning tens of thousands of qualified students away, what does that say about our prospects for regaining world leadership on college attainment? 

States could have been required to invest in long-term strategies for getting a handle on higher education costs. Given that the U.S. continues to outspend the rest of the world while posting lackluster college completion rates, major new investments by federal or state governments must focus on cost containment and innovation. Instead, the stimulus legislation simply asked states to maintain their higher education funding levels. There are models for delivering courses, programs, and services—developed by college faculty and staff—that are aimed at delivering better results at lower cost: such as those being undertaken by the University of Maryland;  the University of Akron and Lorain County Community College; and Northern Arizona University and Yavapai College. At a time when our economy and our demographic makeup are experiencing radical change, we should be investing in what’s next rather than just maintaining effort.

By contrast, the administration has articulated reform expectations for K-12 funding through its Race to the Top program. Why couldn’t the same have been done for higher education? Some argue that the Administration is pursuing reform through the Community College Initiative and College Access and Completion Fund, which are part of the Student Aid and Fiscal Responsibility Act legislation that is currently pending in Congress. That is a fair point, but it still does not answer the question of why some portion of stimulus funds could not have been used to drive reform.

A few states have used at least part of their stimulus funding on long-term improvements in higher education, including:

Indiana: The state is now implementing one of the most aggressive performance funding systems in the nation. Stimulus funds helped to expand this system, which awards a significant portion of base funding (not supplemental funding) to individual institutions on the basis of overall degree completion as well as degree completion for low-income students.

Montana: Last year, the state legislature allocated a portion of the state’s stimulus funds to create a virtual community college designed to re-package existing courses and programs focusing on dual high school-college enrollment and workforce training and deliver them online to every corner of the state.

Texas: In 2009, legislators allocated $80 million in stimulus funds to establish a Performance Incentive Fund that rewards public colleges and universities for helping students to complete certificates and degrees, especially at-risk students and students pursuing certificates and degrees in high-need areas.

Granted, the jury is still out on whether or not these efforts will achieve their intended goals. These states, however, deserve credit for using this unique opportunity to try and bring innovation and reform to their higher education systems, rather than just being satisfied with the status quo. For those who would dismiss this argument as wonky and wishful, consider a couple of realities:

There won’t be another stimulus of this size and scope. The President has made that pretty clear by proposing a domestic spending freeze for the next three years.

The states are not out of the fiscal woods by a long shot. With unemployment still in the double digits, it will be at least two years before state revenues begin to move in a positive direction, and even when that happens, higher education will not be at the top of the “must do” list. 

All of this suggests that, absent an economic turnaround that defies conventional wisdom or divine intervention (or both), states will trod the well-worn path of providing less access to higher education and charging more for it. This will move us away from President Obama’s goal, not closer to it.

The American Recovery and Reinvestment Act may offer a corollary to Bowen’s Revenue Theory of Cost (colleges will raise as much as they can and spend everything they raise): governments can spend money for higher education quickly, they can spend it strategically, but they rarely (if ever) can do both.

Travis Reindl is the state policy and campaigns director at CommunicationWorks, a public affairs firm that specializes in educational improvement. Prior to joining the firm, he had 15 years of experience in higher education policy and advocacy. Most recently, he served as program director at Jobs for the Future, where he led a national initiative focused on increasing productivity in higher education. Before that, he headed the state policy analysis unit at the American Association of State Colleges and Universities. He has written extensively on issues of college affordability, accountability, and governance. His views are his own and do not necessarily reflect those of the New America Foundation.

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Five Higher Education Budget Questions for Obama

February 4, 2010

By Ed Policy

Higher Ed Watch has some questions for the Obama administration about the president's fiscal year 2011 budget request, which it released earlier this week. We hope these questions are helpful to policymakers, the news media, and the public in evaluating these proposals.

1) Legislation is pending in Congress to eliminate the Federal Family Education Loan (FFEL) program and move all new federal students loans to the Direct Loan program. Under the House-passed proposal (H.R. 3221), the savings from this change would be spent on a number of new and existing education programs, including Pell Grants, school construction, and community college reform grants. The president's 2011 budget states that the administration "supports mandatory funding for priority education programs that are included in this legislation." It's unclear, however, which education programs in the pending bill are considered a "priority" by the administration. Given that the House-passed bill creates $77.4 billion in new education spending over ten years, but the president's 2011 budget request shows that changes to student loan programs in the bill will save only $45.6 billion over that time, are there any programs in H.R. 3221 that the administration would be willing to forgo? Or does the administration support the additional deficit spending that would occur under H.R. 3221 according to its own estimates?

2) Last year, the president's 2010 budget request proposed using all savings from eliminating the FFEL program to make the Pell Grant an entitlement, removing it from the annual appropriations process. The 2011 request includes the proposal again. However, legislation pending in Congress would use only some of the savings to increase Pell Grant funding without making it an entitlement, and would spend the remaining savings on school construction funding and other programs. The president's 2011 budget states that the administration supports the pending bill (H.R. 3221). Can the administration support both the House-passed legislation and a Pell Grant entitlement? Does the administration plan to make a renewed push for a Pell entitlement in the future? And do Obama officials believe that Congressional resistance to the proposal -- particularly among budget hawks and appropriators -- can be overcome?

3)The campus-based aid programs -- Federal Work Study, Perkins Loans, and Supplemental Educational Opportunity Grants (SEOG) -- are intended to assist low-income students with college expenses. The federal government provides campus-based aid funds to postsecondary institutions, which then award them to their students. However, the formula the government uses to distribute the aid overwhelmingly benefits elite public and private colleges and universities, even though these institutions serve a relatively small proportion of low-income students. The administration has criticized this formula and proposes changing it for the Perkins Loan program. However, the president's 2011 budget request would leave the formula unchanged for the SEOG and work study programs. Does the administration plan to address this discrepancy in the future?

4) The president's 2011 budget request includes $64 million for the Fund for the Improvement of Postsecondary Education (FIPSE), a program that awards competitive grants to support innovative reform and improvements in higher education. As the Obama administration knows, FIPSE is a favorite place for lawmakers to fund earmarks for colleges and universities in their home states and districts. In fiscal year 2010, Congress included over $100 million in special projects under FIPSE. The president's 2011 budget proposal does not include any funding for earmarkes under FIPSE, and the president has generally taken a strong stand against Congressional earmarks. Will President Obama take any special action to ensure Congress honors his FIPSE budget request for 2011? Or is the FIPSE program an exception to the administration's opposition to Congressional earmarks?

5) The Obama administration has put a very high priority on increasing the academic preparation and college awareness of low-income students. However, for the second year in a row, the president does not seek to increase spending on the federal government's two main middle school and high school intervention programs, the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) and the TRIO programs for disadvantaged students. Each would remain at its fiscal 2010 funding levels of $323 million and $910 million respectively. Instead,  President Obama calls on Congress to spend $3.5 billion over five years (using savings derived from eliminating lender subsidies) to create a new College Access and Completion Grant program, which would provide grants to states and colleges to carry out many of the same types of activities as those programs do. Why has the administration left these programs level funded? Does it believe that they are ineffective? Has the administration put any thought into consolidating these programs, as we have suggested?

For all of the New America Foundation's Federal Education Budget Project questions on President Obama's fiscal 2011 budget request, click here. To read a summary and analysis of the proposed budget, click here. We hope you find both of these documents helpful and useful.

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Update: What's Behind New CBO Direct Loan Savings Estimate

  • By
  • Jason Delisle
January 31, 2010

The Congressional Budget Office (CBO) has made more details available to Congressional staff about how updates to its baseline estimates for federal program costs will affect a student aid proposal pending in Congress. Higher Ed Watch first highlighted this issue several weeks ago, noting that the proposal, which has passed the House but not the Senate, could be subject to a new set of budget estimates when the Senate debates the bill later this year. We learned last Thursday that student loans savings from moving all federal student loans to direct lending were unaffected by the update, but that a new Pell Grant entitlement would cost considerably more. Until now few details were available about the CBO findings, especially concerning the student loan estimates.

According to the CBO correspondence, eliminating subsidies to private lenders in the Federal Family Education Loan (FFEL) program and moving to 100 percent direct lending will save $87 billion over the 2010-2019 period, the same as the estimate under the March 2009 baseline and the estimate for the bill that passed the House last fall, the Student Aid and Fiscal Responsibility Act (H.R. 3221). Savings for the five-year period, however, are $39.7 billion, about $2 billion less than the March 2009 estimates.

CBO explains that a number of assumptions did indeed change in its January 2010 estimate, as we predicted, but that the changes offset one another, leaving the final savings figures for a switch to 100 percent direct lending nearly identical to those from a year ago. Here is how it all adds up.

CBO assumes that FFEL volume will be a smaller share of new loan volume in the future (60 percent instead of 70 percent) and this reduces savings because fewer loans will be switched into direct lending under the proposed legislation. This effect, however, is mostly offset by CBO’s revised estimate for total loan volume, which it says is now 16 percent higher. So it’s a matter of relative loan volume versus absolute volume. FFEL loans will make up a smaller share of future loans, but because there are more loans, the absolute volume of FFEL loans switched to direct lending is largely unchanged from last year’s estimate. Still, the changes do reduce the ten-year savings by $2.7 billion compared to the March 2009 estimate.

CBO also assumes under its January 2010 estimate that interest rate changes will make FFEL loans less expensive relative to direct loans, reducing the ten-year savings calculated last March by $1.3 billion. But similar to the loan volume component, this effect is more than offset by another change from last year’s estimate.

In the March 2009 estimate, CBO assumed that a new auction for Parent PLUS loans under FFEL set to begin later that year would “significantly” reduce the cost of a FFEL loan as lenders bid down the subsidy payments they would receive from the government. Under the January estimate, however, CBO assumes that bidding in the current market would not reduce the subsidy rate by as much, making FFEL loans more expensive compared to last year’s estimate. (It should be noted that the Department of Education cancelled the first round PLUS loan auction last year.) This means that switching this set of now more expensive future PLUS loans into direct lending yields even greater savings, producing an additional $4.0 billion in ten-year savings compared to what CBO estimated last year.

As explained, CBO-estimated savings for a switch to direct lending now pending in Congress remain largely unchanged from a year ago, despite all the changes in the landscape for federal student loans over that time. Now we know that even under the most up-to-date estimates, subsidizing private lenders still costs more than direct lending. It’s time for the Senate to move forward with its version of the House-passed Student Aid and Fiscal Responsibility Act.

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Breaking News: New CBO Estimate Says Student Loan Savings Same, Pell Grant Costs Explode

  • By
  • Jason Delisle
January 28, 2010

Last week Higher Ed Watch raised the possibility that new Congressional Budget Office estimates released on Tuesday could complicate the fate of a major student aid bill pending in Congress. With the release of the new estimates -- the January baseline -- and CBO correspondence to a few select Congressional staff, it looks like we were half right. Projected costs for a Pell Grant entitlement funding stream that the House passed last fall have exploded compared to earlier estimates, but savings projected from a switch to 100 percent direct lending are virtually unchanged.

We thought that the loan program savings might be less under the more recent estimate given that many schools have already switched from the Federal Family Education Loan program to direct lending. Perhaps that fact has not affected the new estimate, or is offset, but until CBO distributes more detailed information, we won’t know what underlying factors have and have not changed since last March.

On the other hand, we did get the Pell Grant story right. Pell Grant funding in the House bill will now cost $56 billion over 10 years, not the originally estimated $39 billion, thanks to greater student enrollment and higher inflation expectations. That would eat up a lot more of the $87 billion in savings created by doing away with private lender subsidies in the Federal Family Education Loan program.

As is common practice, however, official spending and savings estimates that the Senate will use for any student aid bill that moves in the chamber in the coming months will likely reflect CBO’s March 2009 baseline, not the recently released January 2010 numbers. But as we pointed out last week, the Senate Budget Committee chairman could break with precedent and use the most up-to-date estimates. Republicans (and maybe a few self-described Democratic budget hawks) will surely wince at the ever rising Pell Grant costs and cry foul if the Senate goes with the lower number.

In the face of rising Pell Grant costs, the Obama administration and Congress may have to dial back their spending ambitions. If Democrats want to ensure the kind of Pell Grant increases they are promising, they might want to consider putting all direct loan savings toward the program. After all, that’s more in line with what President Obama proposed a year ago.

Nelnet Defends Decision to Subpoena the Ed. Dept.

  • By
  • Stephen Burd
January 26, 2010

Late last week, the student loan company Nelnet acknowledged for the first time that it has subpoenaed the U.S. Department of Education for records it believes will definitively show that the Bush administration had approved the company’s plans to aggressively grow its 9.5 percent student loan holdings. Higher Ed Watch broke the story in a blog post earlier this month.

In an interview with the Lincoln Journal Star, Ben Kiser, a spokesman for Nelnet, defended the company’s decision to issue the subpoena, saying that it would provide the corporation with evidence it needs to fight a whistleblower lawsuit brought by Jon Oberg, the former Education Department researcher who uncovered the 9.5 student loan scandal. In December, a federal court judge allowed the lawsuit, which seeks the return to the federal government of $1 billion in taxpayer subsidy overpayments, to proceed against Nelnet and five other student loan companies.

“In order to defend against the groundless claims in the lawsuit, it is natural that Nelnet would request documents in the Department’s file,” Kiser told the newspaper. “Since the government elected not to intervene and prosecute the case, a subpoena to the Department is the proper way to obtain this evidence.”

As we have previously stated, the release of these documents could be a major breakthrough in helping to resolve some of the long unanswered questions surrounding the Bush administration’s role in the 9.5 student loan scandal. Specifically, we hope that these records, which are likely to become public as the lawsuit progresses, will provide answers to the following questions: what did the Education Department’s former political leaders know about the lenders’ scheme to gain windfall profits, when did they know it, and why did they take so long to do anything about?

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Abandoning the Mission at Public Universities

  • By
  • Stephen Burd
January 21, 2010

Public flagship universities and other top state colleges are spending nearly the same amount of their institutional financial aid dollars to try and lure in wealthier students as they are using to help fill the financial need of low-income and working-class students, according to a new report from Education Trust, a research and advocacy group.

The report, “Opportunity Adrift,” argues that by focusing on trying to compete for the “best and brightest” as well as the most affluent students, these heavily state-taxpayer subsidized institutions are becoming nearly impossible to distinguish from elite private colleges. This is certainly not what Congress had in mind in 1862 when it approved the Morrill Act, which provided federal land to states to create land-grant universities that would “promote the liberal and practical education of the industrial classes.”

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The Day After: G.O.P. Win in Massachusetts May Complicate Student Loan Fight

  • By
  • Stephen Burd
January 20, 2010

The path to getting President Obama’s proposal to overhaul the federal student loan programs through Congress may have just gotten a whole lot more complicated.

As has been widely reported, Republican Scott Brown’s stunning victory in yesterday’s special election in Massachusetts for the Senate seat long held by the late Edward Kennedy puts an end to the Democrats’ short-lived filibuster-proof majority. This is certainly not a deal killer for the student loan reform legislation as Democratic Congressional leaders plan to push it through using a “fast-track” procedure known as budget reconciliation, which requires only a simple majority to pass.

However, Brown’s long-shot win makes it much more likely that the legislation to end the Federal Family Education Loan (FFEL) program will become even more entangled with the Democrats’ efforts to pass a health care overhaul bill. If this happens, there could be significant additional delays before the student loan measure is brought up for consideration in the Senate -- delays that could potentially jeopardize this vital legislation.

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Senator Conrad's Choice on Student Loan Bill

  • By
  • Jason Delisle
January 19, 2010

It was nearly a year ago that President Obama proposed eliminating federal subsidies for student loan companies and using the savings to fund the Pell Grant program for low income college students. While the House of Representatives adopted much of the President’s proposal last September, the Senate has yet to even publicly release a companion bill, let alone vote on one. This delay is about to become a problem for supporters of the legislation, and Senator Kent Conrad, not exactly a friend to student loan reform, is about to have a lot more influence over the bill’s fate.

On January 26th the Congressional Budget Office (CBO) will update its “baseline” estimate of federal program costs, including those for student loan programs and Pell Grants. CBO measures all new legislation considered by the Congress against its baseline estimates to determine how much the legislation will save or cost compared to current law. Normally, CBO uses the baseline it calculates every March for this purpose, but as the Senate gets ready to take up a companion bill to the House-passed Student Aid and Fiscal Responsibility Act, Senators must decide whether the March 2009 baseline still provides a meaningful estimate of the bill’s costs.

The CBO for its part looks set to provide Congress with two sets of estimates -- one using the March 2009 baseline and the other using the January 2010 baseline -- for any student aid bill that moves through the chamber. It will be up to the Senate Budget Committee chairman, Kent Conrad (D-ND), to decide which one will be used. (The Congressional Budget Act of 1974 gives the chairman this responsibility and authority.) Senator Conrad hasn’t been a big supporter of the bill, mainly because the Bank of North Dakota generates a lot of business and revenue through federal payments under the Federal Family Education Loan program (FFEL), which would be terminated under the proposed reforms.

EXCLUSIVE: Nelnet Subpoenas Ed. Dept. for Records that Could Show the Bush Administration’s Complicity in 9.5 Scandal

  • By
  • Stephen Burd
January 14, 2010

Higher Ed Watch has learned that the student loan company Nelnet recently had a subpoena issued to the U.S. Department of Education for documents it believes will definitively show that the agency's former leaders signed off on the company's plan to aggressively grow its 9.5 percent student loan holdings. Nelnet took this action shortly after a federal court judge ruled in favor of allowing a False Claims lawsuit filed by Jon Oberg, the former Education Department researcher who uncovered the 9.5 student loan scandal, to proceed against the company and five other lenders.

The release of these documents, which are likely to become public as the lawsuit progresses, could be a major breakthrough in helping to resolve some of the long unanswered questions surrounding the Bush administration’s role in the 9.5 student loan scandal. Specifically, what did the Department’s former political leaders know about the lenders’ scheme to gain windfall profits, when did they know it, and why did they take so long to do anything about it?

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Guest Post: Getting Rid of Collection Agencies Part 2

January 12, 2010

By Deanne Loonin

As I argued last week, the growing reliance of the federal government, student loan guaranty agencies, and colleges on private collection agencies not only to collect on student loans but to resolve disputes and provide repayment information to financially distressed borrowers has been a disaster. Debt collectors are not adequately trained to understand and administer the complex borrower rights available under the Higher Education Act, and the government doesn’t provide sufficient oversight over their activities.

I firmly believe that the time has come to eliminate private collection agencies from the federal student loan programs. The Department of Education, for example, should terminate its contracts with these agencies and, like the I.R.S., hire in-house staff to resolve disputes and collect debts.

I fully recognize, however, that these steps will not be accomplished overnight. So today, I am recommending interim steps the government and other loan holders can take to help protect borrowers’ rights during the collection process. Most of the following steps do not require Congressional or regulatory change but rather a commitment to provide respectful and accurate services to borrowers and to oversee the process so that violations are punished at all levels of the organization:

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