Without federal student aid — loans, Pell Grants, tax credits — higher education would cost less and be less elitist, said economist Richard Vedder in a Nov. 15 speech in San Diego. While fewer people would enroll in college, those who do would be more likely to earn a degree and less likely to end up as sales clerks and bartenders. Colleges would hire fewer administrators.
Vedder recommends seven steps he thinks are “politically feasible.”
First, return the program to its roots: helping poor persons attend college. Right now, over 17 percent of students from families with incomes from $60,000 to $80,000 a year get Pell Grants—these individuals have above median incomes. Over a few years we should tighten eligibility significantly, reducing the number of Pell recipients by perhaps 50 percent. Similarly, PLUS loans to parents of high income kids should end. Tuition tax credits benefit families whose kids would go to college in the absence of the credit, mostly from above average incomes. Go to a single grant program and a single loan program.
Second, impose academic performance standards to continue receiving grants. Reward students who graduate in less than four years, and cut off aid for, say, students who are in their sixth year of full-time attendance.
Third, he’d get the federal government out of student loans and let private lenders “strengthen the tie between interest rates charged students and market rates.”
Fourth, make participating colleges have some skin in the game. If colleges accept students and promise them Pell grants or guaranteed loans, make them share in the burden of high levels of defaults on loans, or the failure associated with Pell recipients not graduating. This would lead to a needed reduction in lending to persons who lack the aptitude, background, or discipline for college level learning.
Fifth, he’d gear federal aid to the cost of a basic college education from a relatively low cost state university. Increases would be linked to the inflation rate to discourage colleges from raising tuition to capture increased aid.
In step six, Pell Grants would become a voucher for very low-income students tied to academic progress. “Top students could be paid extra for superior academic performance,” Vedder suggests.
Finally, he’d “encourage private investors to begin human capital equity funds.” Investors would pay college costs in return for a portion of the graduate’s future earnings for a set time period, Vedder writes. “A graduate from M.I.T. majoring in electrical engineering might have to pay 8 percent of his income for 12 years, while a graduate in anthropology from Central Michigan University might have to pay 15 percent for 20 years.” These market signals would be useful for students.
Directing aid to low-income students — and away from the middle class — doesn’t sound all that politically feasible to me. Setting performance standards also would generate a lot of resistance.
The “overeducated American” is a “myth,” states a new College Summit report. Workplace demand for college graduates is rising, according to Smart Shoppers: The End of the ‘College for All’ Debate? College graduates earn 80 percent more than high school graduates, the report estimates. Even in jobs that don’t require a degree, more-educated workers earn significantly more.
However, returns on the college investment have been exaggerated, concludes another new report, which focuses on higher education in California. The Economics of B.A. Ambivalence notes that most students take more than four years to complete a bachelor’s degree. In addition, some earn much less than others.
When the California Master Plan for Higher Education was enacted, in 1960, only 10 percent of Californians had a college degree, and the earnings gap between degree holders and non-degree holders was 35 percent. In 2010, they say, that earnings premium was 43 percent—higher than in the past, but still half the figure cited in the College Summit report. But, the researchers point out, the wage gap is higher now not because wages for college-degree holders have gone up, but because wages for people with only a high-school degree have gone down.
Graduating with burdensome debt is a higher risk, the researchers write.
College remains a good investment for the average California student and for American society. Nevertheless, it is true that more graduates now run the risk of not earning enough to make their investment in college worthwhile. This reality explains why many families of ordinary means are increasingly skeptical about paying for college.
“College is a ‘steppingstone’ to the middle class—not a ticket,” the authors warn. “It deserves the scrutiny an individual would give to any risky investment.”
They recommend better advising and more loan-repayment options.
Adults who’ve left school without a degree ask: Is College Worth It for Me? But few look at graduation and default rates when they choose a postsecondary option, reports Public Agenda. And many don’t understand that for-profit higher education will be more expensive.
Helping students avoid default is a new job for community and technical colleges, reports Community College Times. Despite relatively low tuition, more two-year college students are borrowing — and having trouble repaying their loans.
Amy Matteo graduated from Clover Park Technical College (CPTC) in Washington in 2012 with a pharmacy degree. She’d borrowed $20,000 to pay for tuition and expenses. It took her eight months to find a job. After six months, she was laid off.
. . . Matteo began to fall behind on her mortgage payments, and let her student loan repayments slide so she could take care of her housing costs first. Soon, she was on the verge of defaulting on her student loan, as email reminders about missing her $245-a-month loan payments piled up.
At that point, officials from CPTC contacted Matteo and urged her to take advantage of SALT, a third-party financial literacy program the college had just joined. Through SALT, Matteo was able to put her loan payments on pause until she can find a job.
The average two-year cohort default rate for community colleges was 15 percent in 2011, according to the National Association of Student Financial Aid Administrators (NASFAA). That compares to 9.6 percent for all colleges and universities.
SALT, developed by a nonprofit called American Student Assistance, is being used by more than 240 higher education institutions, including 94 community and technical colleges.
SALT is very interactive, with online videos, apps and “money 101” courses to help with budgeting, as well as the basics on student loans, “speaking the language our students speak,” said CPTC spokesperson Tawny Dotson. It provides immediate access to information in a variety of formats—such as downloadable PDFs, email or phone calls.
There is no charge to students who take advantage of SALT’s services, such as financial counseling and debt management. SALT can help them combine loan repayments from different services or change the repayment schedule but it can’t renegotiate interest rates.
Many Clover Park Tech students are “first-time college students, and they are not very well educated in money matters,” said Wendy Joseph, financial aid director.
Many community college dropouts don’t understand that they have to repay loans even if they left school without a degree, said NASFAA Policy Director Megan McClean. Many don’t know default could ruin their credit rating or lead to garnishment of wages.
Redesign Pell Grants, stretch out income-based loan repayment and simplify college cost estimates urged outside experts at a Hamilton Project forum today.
Pell Grants should provide guidance and support services tailored to recipients’ needs, write Sandy Baum of George Washington University and Judith Scott-Clayton of the Community College Research Center at Teachers’ College, Columbia.
They also propose dramatically simplifying eligibility and the application process and strengthening incentives for students to move quickly to a degree.
Income-based repayment should extend beyond the first 10 years after college, propose Susan Dynarski and Daniel Kreisman of the University of Michigan. Payments would rise and fall with a borrower’s income.
This model could prove less costly for taxpayers than the current system and it could even be less expensive; the proposal would reduce defaults and cut the cost of loan servicing, as well as eliminate what would become redundant policies, such as the student-loan interest deduction and the in-school interest subsidy. For the very small percentage of borrowers who take on significant student debt, the authors propose improving bankruptcy protection as well as tightening regulation of the private lenders who own most of these very large loans.
A better college cost calculator would help students from lower- and middle-income families to make informed college choices, writes Wellesley’s Phillip Levine. His Quick College Cost Estimator uses six basic financial inputs.
Student loan default rates continue to rise, reports the U.S. Department of Education. After two years, 10 percent of former students are in default; that rises to 14.7 percent after three years.
“The growing number of students who have defaulted on their federal student loans is troubling,” U.S. Secretary of Education Arne Duncan said. The department will expand outreach to explain loan repayment options.
Community colleges have the highest two-year default rate — 15 percent — of any higher education sector. After three years, the community college default rate tops 20 percent, nearly as high as the rate for two-year for-profit programs.
The official default rate understates borrowers’ pain, says Rory O’Sullivan,policy and research director at Young Invincibles, a Washington nonprofit group. The rate, which includes graduates and dropouts, shows the share of borrowers who haven’t made required payments for at least 270 days. It doesn’t include borrowers who are putting off payments through “forbearance” and those on federal income-based repayment programs. “It’s financial disaster for borrowers,” said O’Sullivan. “Defaults can dramatically affect their credit rating and make it harder to borrow in the future.”
Nearly a half-million student borrowers are in default within two years and 600,000 within three years, notes the National Association of Student Financial Aid Administrators.
Eight institutions with high default rates could lose eligibility in federal student aid programs.
The $1.2 trillion college debt crisis is crippling students, parents and the economy, writes Christopher Denhart on the College Affordability blog.
Two-thirds of college graduates have some debt, Denhart writes. The average borrower will graduate $26,600 in the red, according to the The Institute for College Access and Success (TICAS) Project on Student Debt. One in 10 graduates owe more than $40,000.
Student debt now totals $1.2 trillion, 6 percent of the overall national debt.
. . . national debt carries many consequences including slowing economic growth (translating into fewer jobs being created) and rising interest rates. Capital will not be as easy to access.
The majority of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, by the Department of Education. Translation: the creditor in this scenario is the U.S. tax payer, who if students default on these loans will be subject to carry the burden of these loans.
Community college students are borrowing too, writes Denhart. Thirty-eight percent of community college graduates in 2008 had student loans. The average debt load at a public two-year institution is $7,000.
One community college, Henry Ford Community College in Dearborn, Mich., is offering a one-time student debt amnesty program that will allow students who owed a balance prior to or including the winter 2012 semester to afford to return to the college. The program “offers the opportunity for students to pay 50% of what is owed on their account to settle their debt with the College.” Will this become a norm within the two-year degree space as more and more debt is accumulated?
“With more and more emphasis being placed on college education for all, raising costs of an already expensive degree, and underemployment of college graduates running rampant, student loan debt is a problem that will cripple economic possibilities and success to come,” Denhart concludes.
Accreditors appear to be the most lenient on two-year colleges in the North Central and Middle States, according to Education Sector. The analysis looked at two-year colleges with “a much higher default rate than we would expect based on their graduation rate,” suggesting low graduation standards and unprepared students.
Accreditation was toughest in the Western region.
Public community colleges “dominate the list of schools that are possibly too lenient in their graduation requirements,” writes Andrew Gillen, though “a disproportionate share of for-profits did not have enough data to be included.”
If President Obama really wants to “shake up” higher education, he should start by scaling back student loans, writes economist Richard Vedder on Washington Monthly‘s College Guide. That means dropping loans to affluent parents and the federal tuition tax credit, limiting student borrowing and, ultimately, getting the federal government out of the student-loan business.
Colleges that benefit from student loans and grants should share some costs of high default rates, Vedder argues. That would discourage colleges from enrolling students with little chance of success. (Politically, this is a big loser.)
Next, consumers need better information, he writes.
Lots of students enter college based on bad advice, often from guidance counselors and school marketing efforts. Politicians make things worse with a “college for all” mantra, implying life will be a failure without a college degree to provide the ticket to the moderately affluent middle class.
To counteract the propaganda, a bill proposed by U.S. Senators Ron Wyden, an Oregon Democrat, and Marco Rubio, the Florida Republican, would mandate the disclosure of information regarding post-graduation earnings of students by college and major. Polls show that college students’ single biggest goal is achieving financial success.
Colleges are expensive screening devices, writes Vedder. There should be other ways to demonstrate potential workplace competence.”Why doesn’t someone (College Board? Educational Testing Service? Google Inc.?) develop a national college equivalency examination that tests for the critical learning skills, literacy and basic knowledge that all college graduates are expected to have?”
A credible exam would reduce the worry about low-quality online courses and make it easier for students to assemble courses from multiple providers.
Finally, Vedder calls for eliminating barriers to entry to higher education.
The single largest obstacle is the dysfunctional accrediting system, which is rife with conflicts of interest and gives consumers little information. . . . Arguably, we should eliminate accreditation as such, with the government simply defunding programs that fail to meet minimum standards (such as institutions with student-loan-default rates greater than graduation rates).
Lowering the demand for college slots and increasing the supply of higher ed providers would bring costs down.
Colleges and universities should be judged by student progression and completion, employment outcomes, repayment and default rates on student loans, institutional cost per degree and student learning, concludes a report by HCM Strategists for the Voluntary Institutional Metrics Project.
Eighteen institutions — community colleges, online institutions, for-profit and non-profit colleges and one research university — have worked for more than two years to develop the performance measures with funding from the Gates Foundation.
Many in higher education believe “if colleges don’t figure out how to measure the quality and value of their product, lawmakers will do it for them, writes Paul Fain on Inside Higher Ed.
Participating colleges had hoped to release institutional “dashboards” based on the new metrics, but there were too many problems measuring employment and learning outcomes.
Many data-driven efforts are aimed at students and their families, notes Fain. VIMP is designed for legislators. “Policy makers often seek data on too many variables, resulting in data overload and lack of focus,” the report said.
The new performance measures try to take into account different colleges’ circumstances. Colleges that serve many low-income students won’t have the same graduation or loan repayment rates as elite colleges that enroll predominantly well-off and well-prepared students. VIMP rates each institution against its predicted performance range.
To measure efficiency, the dashboards include a cost-per-degree metric. Unlike other data sets, this one included operating costs but stripped out capital expenses, which can cloud the picture of what colleges spend to educate students.
College completion measures include part-time as well as full-time students and account for transfers, total credits attempted and time to a credential. However, collecting all that information is burdensome, the report admits.
(The employment measure) connects higher education data with unemployment insurance information, analyzing wages and employment status one and five years after graduation. Whether students were attending graduate school after completing is also factored in.
However, only a few states and colleges currently connect those sources of data, according to the report. And there is no standardized approach to for reporting employment outcomes.
Measuring student learning proven to be most difficult challenge. The project tried “to develop metrics for both core skills and major-specific — or upper-division course equivalent — learning,” but couldn’t find appropriate tests to do so.
The 18 participants include the community college systems of Indiana, Kentucky and Louisiana and community colleges in Texas, Maryland, Arizona and Kansas.
Default rates are higher than graduation rates at 514 colleges and universities nationwide, according to an analysis by Education Sector and USA Today. Nearly half of the “red flag” institutions are operated by for-profit colleges and about one-third are community colleges.
”These colleges should set off a red flag in the minds of prospective student borrowers — and their parents,” says Andrew Gillen, research director for Education Sector, a non-profit, non-partisan think-tank on education policy that gathered the federal data. “Many students at these colleges will no doubt take out loans, graduate and get good jobs. But the high default rates and lower graduation rates suggest that many will not.”
In Debt and In the Dark, a new Ed Sector report, identified colleges where the percentage of borrowers who started repaying loans in 2009 and had defaulted by 2012 was higher than the schools’ graduation rates. At 256 of these, at least 30 percent of students take out loans.
Some 117 for-profit institutions — most offering four-year degrees — made the list. ITT Educational Services, which has 145 technical institutes nationwide, operated 45 of them. In addition, the analysis found 88 community colleges where default rates were higher than graduation rates, though most students don’t borrow and those who do take out small loans.
At New River Community and Technical College in Beckley, W.Va., administrators attribute the 5% graduation rate and 25.7% default rate to several factors, including high unemployment and the residual effect of a period of years when loan amounts were inflated because an incorrect formula for awarding aid was used. That attracted a number of students who had “no intention of completing their education,” says Barbara Elliott, director of public relations. Even for those who did earn a degree, “the payments were so high that they may have had trouble making them.”
The Education Sector report argues that default data would be more useful if it provided information about defaulters, such as whether they also received federal aid for low-income students and which fields they were studying. That would help students determine the likelihood they would default if they borrowed, Gillen says.
Default data should provide more information, including whether which types of students are prone to default and their field of study, argues In Debt and In the Dark. “Given the importance of defaults, and the recent jump in their numbers, it makes sense for the government to provide more detailed information on defaults, not just as an accountability lever but as a basic consumer right,” writes Gillen.