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Key Questions on the Obama Administration's 2014 Education Budget Request

Published:  April 11, 2013
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President Barack Obama submitted his fiscal year 2014 budget request to Congress on April 10, 2013. The New America Foundation has reviewed the president’s proposals and generated a list of key questions that policymakers, the media, stakeholder groups, and the public should ask about the proposals.

Below are a few of our questions on postsecondary education. To read the full report, click here.
 
  • The president proposes expanding the recently enacted, more generous Income-Based Repayment plan for federal student loans, Pay As You Earn, to all borrowers rather than just new borrowers as of October 1, 2007, and eliminating the tax on loans forgiven for borrowers. Last year, the New America Foundation argued for those exact policy changes – provided that Congress and the administration first address the perverse incentives and windfall benefits the program will provide to graduate and professional students and the schools that enroll them.

    If Pay As You Earn is expanded to all borrowers and loan forgiveness benefits are made tax-free, as the president is proposing, isn’t it even more important to rein in the program’s windfall benefits and perverse incentives? Does the administration have any thoughts on how to address these issues while maintaining the program’s benefits for lower-income and lower-debt borrowers?             
  • The president proposes setting interest rates on student loans at the 10-year Treasury note plus an additional 0.93, 2.93, and 3.93 percent for Subsidized and Unsubsidized Stafford and Grad PLUS loans, respectively.  The rate would adjust every year for newly issued loans based on the Treasury rate, but is fixed the life of the loan. The proposal closely mirrors one originally proposed by the Education Policy Program’s Jason Delisle.

    Unlike Delisle's proposal, the interest rate in the president’s budget for Subsidized Stafford loans is lower than those for other loans. However, the Income-Based Repayment program makes the lower rate on Subsidized Stafford loans an unnecessary benefit, given that loans can always be paid as a low percentage of income regardless of the interest rate. What is the justification for the lower rate? Why provide an extra benefit for borrowers when Income-Based Repayment is available for struggling borrowers? Couldn't the budgetary resources used to provide the lower rate be put toward the Pell Grant program instead, where they are certain to help low-income students?
     
  • The president proposes a program that would allow non-accredited providers of learning to receive federal funding for two-year degrees that are both free to the student and high-quality, with demonstrable outcomes.  The goal of Pay for Success is to provide students with alternate pathways for high-quality, low-cost higher education.  Providers would front the costs and be reimbursed only when and if students succeed. This would allow learning acquired and/or certified through means as varied as MOOCs, work-based training, AP exams, and more to be packaged together to create a free, coherent, high-quality competency-based degree.

    The budget documents indicate that demonstrated competencies, passage of field-appropriate licensing tests, and job placement are possible indicators of success. How will these indicators be determined? Will the agreed-upon indicators be transparent? How will the outcomes be verified? Will additional measures include acceptance of the two-year degrees for transfer by four-year institutions? How would this work if the “degrees” are not accredited? If students can demonstrate competencies and the outcomes are solid, what would be the justification for not accrediting these new degree programs? How would findings from this experiment on an outcomes-focused delivery model inform the broader conversation around higher education quality?
     
  • Providing students and families with better information in order to help them make more informed college-going choices is a recurring theme in the budget. It is highlighted as an area for state reform in the proposed $1.0 billion Race to the Top College Affordability and Completion competition and given as an example of an area to study under a $67.0 billion proposed higher education/financial aid research and evaluation program. And the president unveiled his College Scorecard in the 2013 State of the Union address to provide better, more actionable data to students in a user-friendly manner. Yet one of the main indicators on the Scorecard—employment—is essentially blank. Although the department has said that it is working to provide the information, it is not clear how or when that will occur. Given bipartisan interest in better postsecondary outcomes data, what is the department’s plan to provide accurate employment data to students? Does the president plan to make the Scorecard mandatory? If so, when? If the department wants to encourage states to provide better information, shouldn't it also lead by example?

Click here to view the full report.

 

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