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Low-Income Students

Aspirations Versus Assets in Children's Savings Accounts

July 15, 2013
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This post originally appeared on our sister blog, Higher Ed Watch.

This morning, our colleagues in the Assets Building Program at New America hosted an event around the release of Building Expectations, Delivering Results--a comprehensive bi-annual report that lays out the state of reserach around college savings accounts and presents interesting ideas around how these instruments could be used to help lower-income students. (You can read the whole report and see nice graphical representations of some of the findings at Save4Ed.com and go here to watch the video of the event.) It was an engaging conversation around what research already tells us about accounts, as well as where we still have some tough questions to answer. I particularly recommend listening to Dana Goldstein's discussion of talking to two students who made differing use of accounts and how it framed their behavior, as well as William Elliott's challenging assumptions around whether low income families can actually save or not. 

Our Assets Building colleagues also kindly invited me to participate on the panel, where I talked about how the structure for accounts would differ a lot from a government perspective based upon whether or not you wanted to maximize asset accumulation or drive increased expectations. I also laid out an idea for how better leveraging state funds through an account-like structure could be a promising way to achieve the latter goal. I've posted my remarks after the jump, but I highly recommend giving the report a read.

Prepared remarks for the event

It strikes me that the discussion around accounts focuses on two big benefits: (1) as a tool to help build aspirations so students are better prepared for college and (2) as a way to accumulate assets to help cover costs.

But those two goals are actually quite different and accounts designed to achieve each of them would not look the same. I’d argue that creative use of the account structure would be very effective at building aspirations, but actually seeding them with Federal dollars entails some very significant policy hurdles.

So I wanted to take a couple of minutes to discuss some of the difficulties that would apply in actually tapping into Federal dollars to fund accounts and then suggest an alternative way to consider the account structure that could help with the aspirational goals.

There are three big impediments to a Federal-based account system: cost, infrastructure, and conditions.

Cost is probably the biggest impediment because the largest source of higher ed support for postsecondary education, Pell Grants, are mostly funded through the discretionary process. That means that each year Congress has to come up with sufficient funds to cover the majority of the program’s cost.

What this means is that if you spend Federal dollars today that a kid would otherwise have gotten in the future, you don’t get credit for reduced future spending. It’s treated as a cost. And seeding accounts for millions of kids throughout their elementary and secondary education would probably add billions in additional spending that woudl have to compete with finding dollars to close significant shortfalls in the Pell Grant program over over the coming years.  

The next consideration would be infrastructure. The Pell Grant program also provides cash benefits to students, but as a just-in-time voucher when they go to college. But running that program is streamlined because the Federal government relies upon 7,500 middlemen in the form of colleges and universities to actually award the funds, make sure they are properly accounted for, etc. 

So a Federal-based account system would require either finding a way to set up accounts with millions of kids on an individual basis or you’d need to find ways to encourage states or someone else to set up their own structures to work with. That’s achievable, but would be very complicated to do.

Finally, Federal dollars come with more strings attached than a marionette. When I was at the Department of Education we worked to set up a savings account demonstration project through GEAR UP, which is a college access program that works with students in middle and high school. But for that structure to work with federal dollars required a series of complicated rules, such as having federal funds be properly maintained in their own separate account, limiting their investment into essentially riskless government assets, not to mention lots of restrictions around withdrawals and oversight. I think these challenges were among the main reasons why no one ultimately applied for the project.

But let’s say instead of being focused on an actual cash transfer, you wanted to optimize accounts to build students’ aspirations and behavior. If that’s your goal, then you could modify what some states are already doing to include accounts and avoid a lot of the challenges I just discussed.

The emphasis here would be less on moving actual dollars and more on having students understand the path that it takes to get to college and telling them about available college resources sooner.

This would be based on what’s known as “promise programs,” which a few states and localities are experimenting with. In these programs, the state signs agreements with low-income middle school students where in exchange for free tuition students agree to do things like take a college prep curriculum maintain a reasonable GPA—like a 2.0—fill out the FAFSA and apply to colleges.

But those programs don’t give students an intermediate sense of building to their goals—you either get the benefit at the end of four years or you don’t.

This is where accounts could help improve these programs. Rather than waiting until the end of four years to receive either all or none of the benefit, states could reward intermediate progress toward the goals by giving students “shares” of a college education. Such a structure strongly indicates how striving and doing well in earlier grades really is directly related to the end goal of college. And could include benefits for major benchmarks on the way to college--such as passing Algebra II.

This structure would be easier to set up, since states could control the details and make use of the funds they already put toward financial aid (especially so-called merit aid) and operating subsidies to cover the costs. You could even leverage the ill-targeted Federal education tax benefits if you were looking for some extra cash to encourage states to act.

Adding a Pell-related role to this structure could also be done through an expansion of existing unused flexibilities. Right now, low-income families find out about Pell eligibility more or less in the spring semester of senior year when they fill out the FAFSA.  But that’s really too late to guide aspirations or deal with college cost anxiety that could shape earlier behavior.

So why not expand an existing authorized but never used demonstration program to guarantee Pell awards for students based upon their eighth grade income? This would send a strong message to kids about a significant source of aid availability without needing to stand up a new system. Extra Pell costs would likely be minimal but could be addressed with a few design tweaks.

Again, it’s about what you see as the most important role for accounts. An account funded by state and federal college “shares” would send strong behavioral signals, but lacks the asset accumulation that comes with seeding actual Federal dollars. But that strategy carries a great degree of complications. And so are you think about design and goals its worth keeping in mind what the end result you are hoping for is and the challenges to getting there.

Aspirations Versus Assets in Children's Savings Accounts

July 15, 2013
Part of the Panel at Saving Financial Aid

This morning, our colleagues in the Assets Building Program at New America hosted an event around the release of Building Expectations, Delivering Results--a comprehensive bi-annual report that lays out the state of reserach around college savings accounts and presents interesting ideas around how these instruments could be used to help lower-income students. (You can read the whole report and see nice graphical representations of some of the findings at Save4Ed.com and go here to watch the video of the event.) It was an engaging conversation around what research already tells us about accounts, as well as where we still have some tough questions to answer. I particularly recommend listening to Dana Goldstein's discussion of talking to two students who made differing use of accounts and how it framed their behavior, as well as William Elliott's challenging assumptions around whether low income families can actually save or not. 

Our Assets Building colleagues also kindly invited me to participate on the panel, where I talked about how the structure for accounts would differ a lot from a government perspective based upon whether or not you wanted to maximize asset accumulation or drive increased expectations. I also laid out an idea for how better leveraging state funds through an account-like structure could be a promising way to achieve the latter goal. I've posted my remarks after the jump, but I highly recommend giving the report a read.

Event Summary: Saving Financial Aid

July 15, 2013
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Today, the Asset Building Program co-hosted an event with the Assets and Education Initiative (AEDI) at the University of Kansas. The event focused on new research on the issue of children's savings for college and how policy can better help low- and middle-income students both get to college and stay enrolled. The research from the field is clear: having a savings account in a child's own name has a positive impact that is sustained even when controlling for family income, educational background and other important factors. A new AEDI report Building Assets, Delivering Results: Asset-based Financial aid and The Future of Higher Education was released at the event and is available now for download. We've done something new for this event and summarized the conversation in a Storify. Check it out here, or scroll to the bottom of this post to read it.

Upcoming Event: Saving Financial Aid

July 11, 2013
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The Asset Building Program is looking forward to hosting an event this coming Monday morning in collaboration with the Assets and Education Initiative (AEDI) at the University of Kansas. Join us on Monday, July 15th at 9:30 am here at our office in D.C. or live online. The event, Saving Financial Aid: Expanding Educational Opportunity and Reimagining the Way We Pay for College by Promoting Children’s Savings, will explore the relationship between savings and educational outcomes, the potential for policy to support the savings of lower-income Americans, and the importance of including an assets-perspective in the higher education financial aid conversation.

KIDS COUNT Reports Bright Spots, Though Inequities Remain

July 10, 2013

Last month, the Annie E. Casey Foundation released its annual KIDS COUNT Data Book for 2013. While the report contains a few bright spots for children, authors find that few children from poor families are attending early childhood programs of the highest quality.

New Research: Targeted Parent Training Can Help Students Focus—and Succeed

July 8, 2013

As the Obama Administration ramps up its push for expanded early childhood education access for all children, it’s important to ensure that preschool quality remains a big part of the conversation. Fortunately, there’s good news on this front from the University of Oregon’s Brain Development Lab.

Syllabus: Week of June 24, 2013

June 28, 2013
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Welcome to the Syllabus, a guide that provides insight into what’s happening in higher education.
 
Read:
 
Education Week
 
On Monday, the U.S. Supreme Court ruled 7-1 that the U.S. Court of Appeals for the 5th Circuit applied the wrong legal standard when analyzing and affirming the race-conscious admissions program at the University of Texas at Austin. The case involved a white student, Abigail Fisher, who claimed that she was denied enrollment to the University due to race-conscious admissions. Ms. Fisher’s lawyers argued that she would have been admitted to the University had the program not existed, and that the program’s selection of students based on race violates the 14th Amendment’s equal protection clause. Justice Kennedy in his majority opinion stated that the lower court failed to apply “strict scrutiny” review to the case, as required in cases involving affirmative action in education. Under strict scrutiny, a school must show that its race-based admissions process meets a compelling government interest and be narrowly tailored to achieve that interest. Justice Kennedy went on to state that the court could not simply accept the school’s assertion that its race-based admission process was legal without conducting its own analysis regarding how the process works in practice. Justice Ruth Bader Ginsburg—in the only dissenting opinion—stated, “The University of Texas considers race only as a factor of a factor of a factor of a factor.” 
 
New Measure of Success, Scott Jaschik
Inside Higher Education
 
It has long been agreed by higher-education experts that the federal methodology for measuring completion rates is flawed. According to Scott Jaschik, “To date… no alternative system for measuring graduation rates has gained widespread currency in discussing the performance of colleges.” That may change with the news that six higher-education associations, which represent both two-year and four-year private and public institutions, endorsed the Student Achievement Measure (SAM). Under current federal methodology, students are analyzed based on whether first-time, full-time students have obtained a bachelor’s degree after six years or an associate degree after three years. Critics of this system point out that this methodology is only beneficial to residential colleges that cater to traditional-age college students. This methodology fails to measure non-traditional, part-time students who make up a significant portion of enrollments. SAM, unlike the federal methodology, monitors all types of statuses of a student such as enrolled, graduated, transferred, transferred and graduated, transferred and enrolled, and unknown. It will also measure time-to-degree in a more informative way than the federal “150 percent of enrollment.”
 
Watch:
 
Kalamazoo Promise, Julie Mack
 
Eight years ago the city of Kalamazoo, Michigan launched a Promise Program, pledging to provide free tuition at Michigan community colleges or public four-year universities to all of the city’s high school graduates.
 
Discuss:
 
The Washington Post
 
Over the last year, the U.S. Department of Education tightened the credit standards for the Parent PLUS loans program. This has contributed to a decline in student enrollment at some institutions, like historically black colleges and universities (HBCUs). The Parent PLUS program gives eligible parents access to federal loans with a fixed interest rate. Often these loans are taken on after a student has borrowed the maximum amount in federal Stafford and Perkins loans. Parents can borrow the full cost of attendance, including living expenses, to assist their child with college costs. Unfortunately, the loan carries a 7.9 percent interest rate with a four percent origination fee, compared to undergraduate student loan interest rates of 3.4 to 6.8 percent.
 
Although the Education Department’s changes to credit criteria for PLUS loans affects all higher-education institutions, parent loans at HBCUs have dropped 36 percent compared to the national average of 11 percent. To encourage student enrollment and persistence, HBCUs searched for alternative financing for students and/or slashed their budgets. While the U.S. Department of Education admits, “the top officials did not review the decision before it was implemented,” Secretary of Education Arne Duncan acknowledged he is concerned that parents are taking on a debt that they are unable to repay.  New America Foundation’s Kevin Carey, discussed this issue in this month’s Chronicle of Higher Education article titled, The Federal Parent Rip-Off Loan and stated, “having created a new class of student debtors, higher education is now reaching back in time to indenture the preceding generation.”
Higher Ed Watch readers, what do you think about the recent PLUS policy change?

Bipartisan Student Loan Interest Rate Reform Bill Released in the Senate

June 27, 2013

Would Senate Democrats walk away from a chance to cut interest rates and payments on student loans below where they would be if Congress enacted a one-year extension of current policy – a 3.4 percent interest rate for Subsidized Stafford loans and a 6.8 percent rate for Unsubsidized Stafford loans? Would they turn down a bipartisan plan to spend an estimated additional $30 billion over the next five years to lower rates for millions of borrowers? We will soon find out.

Today, a bipartisan group of senators officially introduced legislation, the Bipartisan Student Loan Certainty Act, that would lower rates and payments on student loans below an extension of the current 3.4 percent rate on Subsidized Stafford loans. The bill, led by Sens. Manchin (D-WV), Burr (R-NC), Coburn (R-OK), Alexander (R-TN), and King (I-ME), would tie fixed interest rates on newly issued student loans to the 10-year Treasury note rate – 1.81 percent for the 2013-14 school year – plus a markup of 1.85 percent on undergraduate Stafford loans, 3.4 percent on graduate Stafford loans, and 4.4 percent on PLUS loans.

The rates on the loan would be fixed for the life of the loan, but each year of loans would carry a new rate. The bill would maintain the existing cap on consolidation loans of 8.25 percent, a provision included (albeit not explicitly) in an earlier proposal from Sens. Coburn and Burr.

We’ve written a lot over the past few weeks about this bipartisan Senate proposal and in a recent analysis compare it to other plans. The benefits under the bipartisan plan exceed those of others proposals because it lowers rates on both types of loans undergraduates receive, Unsubsidized and Subsidized Staffords. And because Unsubsidized Stafford loans accrue interest while a student is in school, lowering rates on those loans reduces the amount of debt borrowers have when they leave school, cutting monthly and total payments, too.

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Why is the Democratic leadership in the Senate actively trying to defeat this bipartisan bill? And why are student and advocacy groups egging them on? Because they are worried that interest rates might, sometime in the future, on average, end up higher under the proposal than under current law (i.e. 6.8 percent). In that case, 6.8 percent would be a better deal they argue.

Senate Democrats and advocacy groups, in other words, have put their money on a big move up in long-term interest rates. Sure, they could be right, although the 10-year Treasury note would have to return to its 2007 pre-recession level for the rate under the bipartisan plan to exceed 6.8 percent. But what if they are wrong about future interest rates? What if rates stay lower for longer?

Take a look at Congress’ track record on picking interest rates for student loans. The rates are currently fixed at 6.8 percent because back in 2001 legislators picked that number based on Congressional Budget Office interest rate projections.

That should be reason enough to get Congress out of the business of setting student loan interest rates. But armed with another Congressional Budget Office interest rate projection (which simply extrapolates average interest rates from the past into the future), Democrats and advocacy groups are busy making tables and charts showing exactly where interest rates are headed, all to make the case that 6.8 percent is a good rate.

According to Sen. Durbin (D-IL), student groups have told Democratic lawmakers to let the rate on Subsidized Stafford loans double to 6.8 percent rather than consider any of the alternatives currently being floated. When Congress picked the 6.8 percent rate in the early 2000s, student groups rejoiced. They were sure it was a great deal for students. They even took out full page newspaper advertisements thanking Congress for "lowering rates." Later, as everyone knows, Democratic lawmakers and student advocates cried foul when rates plunged but the 6.8 percent rate remained. Could they be wrong again? 

Check back with Ed Money Watch for more details in the coming week.

New CREDO Charter School Study Provides Talking Points for Both Sides

June 27, 2013

A new report on charter school performance from Stanford’s Center for Research on Educational Outcomes is—like CREDO’s last major report, in 2009—inspiring a host of talking points. With 95 pages of findings to sift through, there is something for charter school friends and foes alike—which is why it is a mistake to use this, or any CREDO study, as an empirical justification for or argument against the charter school sector in general.

The report indicates that charter schools serve roughly double the percentage of African-American students, a higher percentage of Hispanic students, and a higher percentage of students in poverty than traditional public schools. But CREDO also found that charters serve fewer English language learners and special education students than both traditional public schools as a whole and charter school “feeders”—demographically similar schools that students may attend before enrolling in charters.

The study found that charter school students are, on average, making bigger reading gains than their traditional public school peers, amounting to about eight days of additional learning time. In math, charter school students are making learning gains equivalent to their traditional school peers. In both areas, the charter school sector has improved its performance since 2009.

CREDO’s school-level achievement numbers are particularly amenable to ideological massaging. On one hand, they clearly show that a majority of charter schools perform the same or worse than traditional public schools in math (40 percent the same + 31 percent worse) and reading (56 percent the same + 19 percent worse). Hence the Washington Post’s headline about the study: “Charters not outperforming traditional public schools, report says.” It’s settled: charter schools are a disaster!

But wait! The data also clearly show that a majority of charter schools perform the same or better than traditional public schools in math (40 percent same + 29 percent better) and reading (56 percent same + 25 percent better). Hence the AP’s more encouraging headline, which references “general gains” at charters. It’s settled: charter schools are a triumph!

What’s that old line about lies, damned lies, and statistics?

The real lesson from the new CREDO study is less dramatic, and thus gets less attention. The national aggregate data on charters mask wide variance in school quality; charters in Washington, D.C. are good and getting better, for example, while Nevada charters are weak. In other words, “charter schools” alone aren’t the solution to our educational ills, though high-quality charters can make a big difference in students’ lives.

The CREDO study shows that the rules states set for their charter school sectors affect the quality of their schools. Indeed, the paper states, “The rise in average student growth across the continuing schools is due in no small part to the closure of low-performing schools, which amounted to about 8 percent of the 2009 sample of schools.” This ought to be intuitive. Charter schools work better in states (and the District of Columbia) with laws that maintain strict school accountability standards. The study found that “the use of the option to close schools represents the strongest available tool to improve overall sector quality for the time being.” (For a more comprehensive look at the promise and challenges of closing charter schools, see this report from the Progressive Policy Institute.)

To repeat the analogy I offered on Twitter yesterday: “Charter schools don’t solve U.S. education’s quality problem any more than oatmeal solves the problem of eating a quality breakfast.” Like oatmeal, charter schools are just one, potentially beneficial option—but by no means a guarantee of educational quality.

Harkin Interest Rate Proposal Costs Students More than Bipartisan Bill

June 25, 2013

Less than a week before interest rates are scheduled to double on some federal student loans, yet another proposal has surfaced in the Senate. Sen. Tom Harkin (D-IA), chair of the Senate Health, Education, Labor, and Pensions Committee, is reported to be circulating a proposal similar to one Sens. Manchin, King, Coburn, and Burr released last week, only his plan includes lower rates on Subsidized Stafford loans (but higher rates on Unsubsidized) than the bipartisan Senate proposal and Senator Harkin adds a cap on rates.

Harkin’s plan ties rates to the 10-year Treasury-note rate, plus a 1.5 percent markup for Subsidized Stafford loans; a 3.4 percent markup on Unsubsidized loans; and a 4.5 percent markup on PLUS loans. Stafford loans would be capped at 8.25 percent, and PLUS loans would be capped at 9.25 percent. (Consolidation loans, currently capped at 8.25 percent, would no longer have a cap.) The Manchin-King plan, on the other hand, would start with the same 10-year Treasury rate with a 1.95 percent markup on undergraduate Stafford loans; a 3.4 percent markup on graduate Stafford loans; and a 4.4 percent markup on PLUS loans.

Yesterday, we compared monthly payments for a hypothetical student taking out the maximum in Subsidized and Unsubsidized Stafford loans for four years of school, under several of the existing proposals. (We used the current Treasury rate as a basis for our estimates.) Today, we’re adding the Harkin proposal to those estimates. Readers should note that the bipartisan proposal is still a better deal for undergraduates than the Harkin proposal. And because the bipartisan bill reduces the interest rate for both Subsidized and Unsubsidized loans, more students will  get a better deal.

The bipartisan Senate proposal achieves lower loan balances and overall interest rates for undergraduates than the Harkin plan because it charges graduate students more than undergraduates on Unsubsidized Stafford loans. We think charging graduate students higher rates to provide undergraduates lower ones is smart policy. It’s also progressive. Student loan borrowers with graduate degrees are hardly an economically oppressed class. Meanwhile, too many Americans struggle to obtain an undergraduate degree.

Maybe progressives could learn a thing or two from Sens. Manchin (D-WV), King (I-ME), Coburn (R-OK), and Burr (R-NC). The bipartisan proposal is a better deal for students, and it’s a better solution to the problem.  

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