Pell Grants

Colleges Are Supposed to Report Pell Graduation Rates -- Here's How to Make Them Actually Do It

October 30, 2013
​Since 2008, the federal government has spent nearly $200 billion on the Pell Grant program. We know that this sizeable investment has bought a 50 percent increase in the number of people getting these awards. But how many graduates did these funds produce? What percentage of the individuals graduate? And which schools are doing the best with the lowest-income students?

Congress wanted to know the answer to all these questions. That’s why it included requirements in the 2008 reauthorization of the Higher Education Act (HEA) that required colleges to disclose the graduation rates of Pell Grant recipients, students who did not receive Pell but got a Subsidized Stafford Loan, and individuals who got neither type of aid. But it only asked institutions to disclose this information, either on their websites or potentially only if asked for it, not proactively report it to the Department of Education. The results have gone over about as well as a voluntary broccoli eating contest with toddlers. A 2011 survey of 100 schools by Kevin Carey and Andrew Kelly found that only 38 percent even complied with the requirement to provide these completion rates, in many cases only after repeated phone calls and messages.

Absent institutional rates, the only information of any sort we have about Pell success comes as often as the Olympics, when the National Center for Education Statistics (NCES) within the Department updates its large national surveys. These data are great for broad sweeping statements, but cannot report the results for individual institutions, something that’s especially important given the variety of outcomes different schools achieve. Instead, these surveys can only provide information about results by either the sector or Carnegie type of institution. And the surveys are too costly to operate more frequently.

Fortunately, there’s a chance to fix this problem and get colleges to report this completion data. The Department is currently accepting comments on its plans for data collection under the Integrated Postsecondary Education Data System (IPEDS) for the next several years (see here to submit a comment, here for the notice announcing the comment request, and here for the backup documentation of what the Department wants to do). This means there’s an opportunity for the public to provide suggestions before the comment period closes on November 14 as to what additional information IPEDS should include
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To be clear, a lot of what the Department is already proposing to add into IPEDS through this collection will help us get a significantly better understanding of student outcomes in postsecondary education. First, it would implement some recommendations from the Committee on Measures of Two-Year Student Success, which Congress called for in the 2008 HEA reauthorization to capture students that are not currently captured in the federal graduation rate because they are not full-time students attending college for the first time. The committee’s recommendations, which are being implemented here, aim to capture those missing students by requiring colleges to reporting on the success rates of three additional groups: (1) students who are enrolled part-time and attending for the first time, (2) those who are enrolled full-time and have attended college elsewhere, and (3) those who are enrolled part-time and have attended college elsewhere.  Colleges would then report how many of these students either received an award, are still enrolled, transferred, or dropped out after six and eight years. And it will start this reporting retroactively so that the public won’t have to wait until 2023 to find out the first results.

Other proposed changes to IPEDS are smaller-scale but also important. Colleges would be asked to provide information on the use veterans benefits on their campuses. And the way for-profit colleges report their finances data would be better-aligned with the way public and private non-profit colleges provide this information.
But these changes still leave us without one obvious set of completion information—rates disaggregated by socioeconomic status. Sure, attending full-time can be a proxy for a student’s financial circumstances, but not as definitively as getting a Pell Grant.

The Institute for College Access and Success and others have already argued that the Department should add these data into IPEDS. In response, NCES has noted that improvements to the federal student aid database may make it possible to calculate completion rates for Pell students. But that’s an incomplete solution. That database is legally prohibited from collecting information on students that don’t get federal student aid, so there’s no way to produce the HEA-mandated graduation rate for students who received neither Pell Grants nor subsidized Stafford loans.

Of course, you can’t bring up any discussion of data reporting without running into the “B” word: burden. But remember, this isn’t new burden—colleges are legally required by an act of Congress to provide these graduation rates. Any huge encumbrance these represent (and I’d argue it’s probably not much since you would just be taking a subset of an existing cohort that has easy to identify characteristics based on student aid receipt) has already occurred. In fact, U.S. News and World Report is already getting some schools to provide this information, but it won't share the raw data.

In an ideal world, we would not have to beg and plead with colleges to tell us whether they are successfully using the more than $30 billion they receive each year to educate low-income students. Instead, we would have a student unit record system capable of processing all this information without adding burden to colleges or forcing them to rely on costly alternatives like the National Student Clearinghouse. But thanks to Virginia Foxx (R-N.C.) and the college lobby (primarily the private institutions), we don’t live in that world. Instead, we’re left with IPEDS where these data should be.  

What the College Board Trends Reports Won't Tell You

October 22, 2013

Today, the College Board released its annual sets of trends reports, one on college pricing and one on student aid. Dense, chart-filled works, the documents tell a story of what today’s postsecondary students are facing. But each report typically carries a message with it, one that often tries to dampen the sense of unabated cost escalation.

This year’s desired headline is 2.9 percent. That’s the change in published tuition and fees at four-year public institutions from last academic year to this one in current dollars. Though an increase, it’s described as the smallest percentage increase in the last 30 years.

But herein lies the difficulty with percentage increases and college costs. One of the benefits of decades worth of uninterrupted price increases is that eventually the same size price hike leads to a smaller percentage change. And sure enough, that 30-year-low in percentage terms is actually a $247 increase in published tuition—the 19th lowest in the past three decades (or 12th highest if you want to look at in a more pessimistic light). In fact, it's larger in real terms than any single year increase that families at public four-year colleges felt from 1971-72 to 2000-01.

In fairness, that $247 increase is the lowest that families have faced in current dollars since the 2000-2001 year. But following on the heels of over a decade of stark increases, it means the base price families are paying is $5,400 more in current dollars than it was at the turn of the century. In that regard, the $247 only feels like some relief from charitable schools only when compared to some theoretical higher price they could have been charged.

Private nonprofit 4-year colleges provide an even better illustration of the wonders of the percentage increase bait and switch. From 2011-12 to 2012-13, published prices in current dollars went up 4.0 percent. But this year, they went up only 3.8 percent. A victory for families, right? Hardly. Published prices went up exactly $1 less than they did the year before--$1,106 versus $1,105. But thanks to prior jumps, that 3.8 percent increase was the third lowest in 30 years, even if the dollar change was the sixth highest in 30 years.

Understanding the dollar versus percentage dynamic is especially important for interpreting charts like the one below. What it shows is the average annual change in tuition and fees over a ten year period, adjusted for inflation. So from 1983-84 to 1993-94, the average real increase in tuition and fees at public four-year colleges was 4.3 percent. By contrast, in the past decade, which we tend to think of as a time of excessively high cost increases, the average annual change at public four-year colleges was just 4.2 percent. If it’s about the same as historical trends, then we’re not seeing bad behavior. It’s just how things go—death, taxes, college costs, as the cliché would go.

But again, smaller absolute changes on a lower base lead to higher percentage increases than they would on a larger amount. And sure enough, this chart essentially lets colleges off the hook through their own increases. Here’s the same chart recreated below, only instead of percentage changes, it shows how much tuition and fees changed when measured relative to the base year of 1983-84. In other words, if the base year is 100 and the following year is 103, then the change is 3. And each type of college has its own base year. So a change of 6 points for a community college is still going to be less of a dollar change than 6 points for a nonprofit college.

Suddenly that last decade does not look quite so rosy. Rather, it rightly shows that the amount costs have been going up at public 4-year schools actually exceeds older decades by a good bit. The chart below makes the same point framed a different way by showing the change in the cost of tuition and fees from the start to end of each decade. These figures also are measured in comparison to the base year of 100 for 1983-84, which represents a different dollar amount for each type of school.

The last decade has not been a good time for families. Incomes are down and have not really recovered except for those at the top of the income spectrum. Meanwhile, state budget struggles, unabated spending at private nonprofit colleges, and a host of other reasons have collaborated to keep college tuition on a steady upward path. While this year's figures show that the dollar change is lower in the public sector than it has been in the past couple of years, it's still greater than it was 12 months ago and still above the rate of inflation. That's not good news. That's just less bad news than usual. And we should not be desensitized by price increases to the point where that's acceptable.

The Federal Pell Grant Program: Recent Growth and Policy Options

September 16, 2013

A recent report from the Congressional Budget Office (CBO) provides analysis for the increased costs in the Pell Grant program since the 2006-07 academic year. The report also looks at the effects on both the federal budget and on students of various possible changes to the program.

Among the report’s findings:

  • The proportion of all students enrolled in postsecondary education who received Pell Grants grew from 24% to 36% from 2006-07 to 2010-11 which was an increase from 5.2 million to 9.3 million students.
  • The largest number of Pell recipients were enrolled in two-year public institutions in the 2011-12 academic year (3.4 million students), followed by public four-year institutions (2.8 million students), private for-profit institutions (2.1 million students), and private nonprofit institutions (1.2 million).
  • Pell grant recipients make up 63% of the student body at private for-profit schools, 37% at private nonprofit schools, 35% at public four-year schools, and 32% at public two-year schools.
  • The cost (inflation-adjusted) of the Pell grant program grew by 158 percent between 2006-07 and 2010-11, increasing from a cost of$12.8 billion to r$35.7 billion. This increase in the annual cost of the program was the result of two major factors – (1) an 80% increase in the number of recipients; and (2) a 43% increase (inflation-adjusted) in the amount of the average Pell grant.
  • The increase in the number of Pell recipients during this time was the result of the recession lowering the incomes of students and families; a poor job market causing the unemployed and underemployed to return to school to upgrade their skills; rising tuition; the expansion in online learning, especially at for-profit colleges; and expanded eligibility for the program.
  • The growth in the amount of the average Pell grant award which rose by more than 50% (in nominal terms) between 2006-07 and 2010-11 is attributable primarily to legislative changes made to the program, including increasing the maximum Pell grant award each year during this time, with the maximum Pell award increasing from $4050 to $5550); the creation of supplemental grants for year-round students in 2009-10 and 2010-11 which raised the average grant awards if all recipients by more than $200.  
  • The report offers analysis on a number of possible changes to the program, including some that would expand the Pell program but a majority that would reduce federal spending for the program.  The changes include ideas for reducing the number of grant recipients, reducing the grant amounts, increasing the grant amounts, and simplifying eligibility criteria.

New Pell Grant, Federal Loan Data Reveal Changing Tides in Financial Aid

September 12, 2013
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New data published by the U.S. Department of Education and by the Congressional Budget Office reveal changing tides in the American higher education system. And they uncover some interesting – and previously unknown – facts about federal financial aid.

The Department of Education’s Federal Student Aid (FSA) Data Center recently released data on the number of federal loan recipients and the total amount of loans disbursed in the 2012-13 academic year. (You can see those preliminary data by school in our easy-to-use database, the Federal Education Budget Project.) For the first time, the FSA data contain a breakdown between how much undergraduates and graduate students are borrowing, rather than rolling graduate and undergraduate Unsubsidized Stafford loans into one figure.

It’s a very important distinction. The data show that a whopping 41 percent of loan issuance in AY 2012-13 was for graduate and professional students. Meanwhile, graduate students were only 17.5 percent of all student loan recipients.

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Sources: New America Foundation, Federal Student Aid Data Center

Most people typically have undergraduates in mind when they think about the federal loan program, but in reality, the program is nearly as much about financing graduate studies as it is about undergraduate programs. Sure, graduate school can cost more than an undergraduate education, but that’s not necessarily why graduate loans feature prominently in the breakdown. Actually, it’s because the federal government does not limit how much graduate students can borrow for PLUS loans (and limits Graduate Stafford loans to $20,500 annually), but it imposes annual caps as low as $5,500 on undergraduates.

There’s another reason worth separating out loans for undergraduates and graduate students in the data. Under a bipartisan bill passed earlier this summer, interest rates will no longer be the same for Unsubsidized Stafford loans for graduates and undergraduates (both loan types had been set at 6.8 percent prior to AY 2013-14). Instead, starting this year, undergraduates will pay much lower interest rates on their loans (3.86 percent) than will graduate students (5.41 percent).

And that’s not the only news in federal student aid. Remember the Pell Grant funding cliff? For years we've heard about an impending drop-off in funding for the program – and it’s still baked into the budget, albeit a few years further out than first estimated. The Congressional Budget Office (CBO) reminds us of that looming funding cliff in a new report called The Federal Pell Grant Program: Recent Growth and Policy Options.

The CBO uses data on Pell grant aid and recipients to give policymakers an idea of what has driven costs in the past, what types of changes would reduce costs, and by how much. (Heads up: the biggest single cost-saver would be to allow only the lowest-income of the current Pell grant-eligible population to receive grants by requiring that they have a zero “expected family contribution” [$10.0 billion in 10-year savings], while the greatest cost would be increasing the maximum grant to $6,400 in AY 2014-15 [$5.3 billion over 10 years]).

Another interesting point in the CBO paper looks at the skyrocketing costs of the Pell Grant program. The big cost increases in the program in recent years owe a lot to community colleges. Much of the increase in the number of Pell recipients is due to a growing share of Pell students, more so than other factors, like growing enrollment. We wrote about that in 2011 after arriving at the same conclusion. Even so, Pell students still make up a far smaller share of total enrollment in community colleges than in the for-profit sector.

Both sets of data offer interesting insights into the growing and changing beast of federal student aid programs. The FSA data show the dramatically oversized influence of graduate and professional students in the distribution of loans, while the Pell data show the evolving nature of undergraduate aid. Both are work a close look as Congress returns to Capitol Hill and gets back to legislative business, so check out the Federal Education Budget Project to find your state or college.

The Ed Dept.'s New Proposed Language for Gainful Employment is Out. Here's What You Need to Know

August 30, 2013

With a little bit more than a week until the next round of negotiated rulemaking on gainful employment kicks off on Sept. 9, the U.S. Department of Education today released its initial proposal for the new rule along with reams of supporting data. Higher Ed Watch will be digging into this information over the coming days, but here's what you need to know right now.

Syllabus: Week of August 5, 2013

August 9, 2013
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Welcome to the Syllabus, a guide that provides insight into what’s happening in higher education.
 
Read:
 
Katherine Mangan, The Chronicle of Higher Education
 
On Tuesday the National Student Clearinghouse Research Center released the report, Baccalaureate Attainment: A National View of the Postsecondary Outcomes of Students Who Transfer From Two-Year to Four-Year Institutions. Their research shows that students who transfer from community colleges to four-year institutions after having already obtained a credential are obtaining a certificate or associate’s degree and transferring to a four-year institution. In addition, the report indicated that completion rates vary per college type. Those attending public institutions, for example, had a 65 percent completion rate, whereas non-profit institutions had 60 percent, and for-profit institutions had 30 percent of their students completing college. According to a study conducted in North Carolina the economic benefits of obtaining an associate’s degree before transferring to a four-year institution could be $50,000.
 
Doug Lederman, Inside Higher Ed
 
The House Education and Workforce Committee recently asked for ideas and advice as it moves to reauthorize the Higher Education Act (HEA). Many higher-education membership organizations reported with a wish list of proposals including more spending for key programs (Pell Grants, work study, funds for minority institutions, etc.). Although the number of groups who submitted reauthorization proposals is unclear; however, they did include the American Council on Education on behalf of 40 colleges and accrediting groups, and the Association of Private Sector Colleges and Universities (APSCU). According to APSCU’s comments “we all agree that higher education faces critical challenges. These range from cost, access, technology and the skills gap to quality, productivity, accountability, and globalization.” Even though the Education and Workforce committee appears to be gearing up for reauthorization, most experts agree that given Congressional gridlock, HEA probably won’t be reauthorized until the next president is in office.
 
Paul Fain, Inside Higher Ed
 
College graduates can now add various assessment results that indicate what they learned in college to their job applications. Three non-profit testing agents –Collegiate Learning Assessments, Educational Testing Service (ETS), and ACT Inc. –are using new assessments that were created to help students and institutions track learning outcomes. Not only can the assessments test basic competencies such as soft-skills mathematics, but the testing agencies claim they can also measure mastery of critical thinking, reading, and writing. Additionally, some testing firms provide students the ability to earn an, “Electronic certificate which can be shared with an unlimited number of recipients in academia and beyond,” to prove their various competencies. These certificates are affordable, costing only around $20 per certificate.

 

Senate Appropriations Panel Approves 2014 Spending Bill

July 15, 2013
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For more details on early education in the Senate Appropriations Committee Labor-HHS-Education bill, check out this post from our sister blog, Early Ed Watch.

The Senate Appropriations Committee voted last week to approve a fiscal year 2014 spending bill for the Departments of Labor, Health & Human Services (HHS), and Education. (Fiscal year 2014 starts this October 1.) That development is a reminder that key funding decisions for education programs are wending their way through Congress, and that the House and Senate could not be further apart in their proposals.

While the House hasn’t yet published or voted on an education appropriations bill for 2014, it indicated earlier this year that it would reduce overall funding substantially – from $150 billion in 2013 to $122 billion next year – for the Departments of Labor, Health & Human Services (HHS), and Education.

Why the big cut? The House wants to conform to the spending limit set forth in law by the Budget Control Act of 2011, which requires total appropriations funding be cut by $18 billion from fiscal year 2013 to 2014, to $966 billion. But the House also wants to hold defense spending harmless in those cuts, with domestic programs making up the difference. (For more details, check out our April issue brief on this issue, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis, and our May post, House Could Set Education Funding Back to Year 2001 to Fund Defense.)

Senate Democrats, meanwhile, are ignoring the $966 billion overall appropriations limit for fiscal year 2014, and instead drafting bills within a $1.058 trillion limit. The president, for his part, supports that higher level.

Leaving aside the gulf between the House and Senate, the Senate’s committee-passed Labor, HHS, and Education bill totaling nearly $166 billion gives us some clues about senators’ priorities in the budget fight that looms in the latter half of the year. (See table below for more details.)

For most programs, the Senate appropriations bill would reverse the across-the-board spending cuts (sequestration) that took effect earlier this year, and would actually increase funding for many programs. The Senate Appropriations Committee would increase the two largest federal K-12 programs, Title I grants to school districts and special education grants to states, from 2013 levels, even over the pre-sequester total. The committee would also reverse sequestration for Improving Teacher Quality State Grants and the Teacher Incentive Fund, but wouldn’t increase funding over those levels. It would bump up Impact Aid slightly from 2013 pre-sequester totals.

Under the bill, the Obama administration’s signature competitive grant programs, Race to the Top (RTT) and Investing in Innovation (i3), receive funding for new competitions next year. The Department of Education would run a Race to the Top college affordability and completion competition, rather than the early learning and K-12 ones it has already run. But the bill would appropriate only $250 million for the competition, shy of the $548 million it received last year pre-sequester and well short of the administration’s requested $1 billion. It would fund i3, meanwhile, at $170 million, above the $149 million provided in 2013. The committee also approved a healthy increase in funding for state data systems, from $38 million last year to $75 million.

Another of the administration’s own initiatives gets a mention, too: preschool. The Senate Committee explains that the president’s “Preschool for All” program isn’t included in the appropriations bill because the administration requested mandatory funding for it, which is provided outside the appropriations process. (Sen. Patty Murray [D-WA] has said she plans to introduce this portion of the pre-K plan separately.) But the Senate panel did include the president’s requested $750 million for Preschool Development Grants to help states build systems, as well as a $1.6 billion increase to Head Start, much of which will go to the White House’s proposed Early Head Start-child care partnerships.

On the higher education side, the Committee maintains a maximum Pell Grant award of $4,860, which, when combined with supplemental entitlement funding, brings the total figure to an estimated $5,785. It also awarded small funding increases to several pet projects, including international education and the high school intervention programs TRIO and GEAR UP. The president’s request for $250 million for a First in the World higher education competition was not granted.

In total, funding for the Department of Education – and for discretionary spending across these three agencies – would increase next year. But as explained above, it’s so far from what the House has indicated it will support that the two committees may as well be on different planets. It’s too early to say what the ultimate House-Senate agreement looks like for fiscal year 2014 education funding, but not too early to predict that a lot of squabbling lies ahead.

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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.

Five Key Points on Student Loan Interest Rates from the CBO

June 11, 2013

Yesterday, the Congressional Budget Office (CBO) released a brief on student loan interest rates. It’s a treasure trove of information, and it adds new information to the debate in Congress over how to set interest rates on student loans. Here are five key points from the report.

1.      The Government Won’t Make Money on Student Loans

Student advocates and left-leaning think tanks say that the federal government makes money on federal student loans and therefore Congress should cut interest rates. The CBO has repeatedly warned lawmakers that those figures are wildly out of whack and it reports them only because it has no choice – the law requires it. According to both the CBO and many financial economists, a more accurate measure would better account for risk that taxpayers bear in making the loans. From the latest CBO report:

FCRA accounting [the official rules] does not consider some costs borne by the government. In particular, it omits the risk taxpayers face because federal receipts from interest and principal payments on student loans tend to be low when economic and financial condition are poor and resources therefore are more valuable. Fair-value accounting methods account for such risk and, as a result, the program’s savings are less (or its costs are greater) under fair-value accounting than they are under FCRA’s rules. On a fair-value basis, CBO projects that the student loan program will yield $6 billion in savings in 2013 and will have a cost of $95 billion for the 2013–2023 period as a whole…

To be sure, on a fair-value basis the loans make money for the government – but only for the next three years. And that is a good argument for reducing rates on loans issued in those years. But then the loan program flips to a large cost of $13 billion per year, on average, starting in 2016, more than erasing any gains. Why the big change from gains to losses?  It’s because the government charges the same interest rate on student loans no matter what is happening to interest rates in the economy. As a result, when rates are low, the loan program generates small profits; when rates are higher, as they are projected to be in the near future, and the economy is doing better, it provides relatively larger subsidies to borrowers at a cost to the government.

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2.      Current Interest Rates Poorly Target Benefits

The best way to fix what the CBO calls subsidy rate variation is to peg interest rates on student loans to interest rates in the market – though the rates can still be held below-market. Such a plan would keep the size of the subsidy provided to students relatively equivalent, rather than providing a much smaller subsidy to students in a struggling economy. It would also reduce or eliminate any profits the government makes in low-rate years. According to the CBO:

There would be less yearly variability in subsidy rates under options that linked student loan interest rates to market rates than there is under current law.

Senate Republicans have a proposal to do that. President Obama does, too. House Republicans are on board. But both Republican plans only partially peg loans to market rates because they would cap interest rates at 8.25 percent. (The Senate Republican plan has a "hidden" cap that borrowers can trigger when they consolidate their loans once they leave school.) Both plans fall short of stabilizing the size of the subsidy in that regard. From the CBO report:

Imposing interest rate caps would increase the yearly variation in subsidy rates relative to options without caps. If a cap is binding—as would occur when rates on Treasury notes are high—interest rates on loans would be lower and the loans would receive a higher subsidy than they would without a cap.

3.      Senator Warren, Call Your Office: You’ve Been Outspent

Here is another revealing point in the new paper. It includes a hidden estimate of the cost of Senator Jack Reed’s proposal to reduce interest rates on student loans such that the program generates no “profit” for the government. Look at the estimated costs of the program under current law as show on the last line of Table 5 (and remember, these are under Federal Credit Reform Act accounting, not fair-value, so they’re not showing the true costs of the program). It shows savings of $184 billion over 10 years. The Reed proposal would effectively set the number to zero, meaning his proposal would cost $184 billion. And that’s not even the entire cost. That figure is for newly issued loans only. The Reed proposal would also let borrowers with old loans “refinance” into the new, lower rates his plan would set. That could easily add $50 billion, or even $100 billion, to the $184 billion figure.

Senator Warren, call your office. Senator Reed has sponsored the most expensive and most generous student loan proposal in Congress. You’ve been outspent by hundreds of billions of dollars.

4.      Option to Lock in Rates is Valuable

The CBO paper makes an important point about a provision in the House-passed plan, which provides borrowers with variable rate loans while in school, but allows them to lock in a fixed interest rate at any point during repayment.

The option to convert variable-rate to fixed-rate loans is valuable for borrowers and costly to the government because borrowers tend to convert when they believe interest rates will increase in the future. By contrast, when all loans carry fixed rates, there is no such timing incentive for consolidation.

Critics of the House-passed plan seem to have completely missed this point, as have the media. Providing borrowers with variable rate loans and an indefinite option to lock in a fix rate is a big benefit, albeit one that requires much more financial literacy on the part of students and borrowers.

5.      Interest Cap or Pell Grant? Take Your Pick

Also on the issue of interest rate caps, the CBO shows how much it costs to add them to various proposals. Capping rates at 8.25 percent adds a cool $40 billion to the cost of the fixed rate plans, like the one the President proposed. That is nearly enough to stave off the benefit cuts scheduled for the Pell Grant program in the coming years. All of the advocates and policymakers who insist that any proposal must have a cap should consider this:

Would you rather spend $40 billion arbitrarily capping interest rates for low-, middle-, and high-income borrowers, or shoring up the Pell Grant program for low-income college students?

The Higher Ed Arms Race: How the High-Tuition High-Aid Model Shuts Out Low-Income Students

May 9, 2013
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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.

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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.

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