Making college affordable

Are there better ways to pay for higher education? The Lumina Foundation has commissioned papers on new models of financial aid by a wide array of authors.

In Redefining College Affordability, Education Optimists Sara Goldrick-Rab and Nancy Kendall propose offering two free years at a public college to every high school graduate.

• All eligible students can attend any public college or university (2-year or 4-year) for free for the first two years

• Through a redirection of current federal financial aid funding, the federal government pays tuition for all students, and provides additional performance-based top-up funding for institutions that serve low-income students.

• Participating institutions cannot charge tuition or additional fees to students

• State funding for higher education will be redirected to cover books and supplies for all students

Student living expenses would be covered by a state and local stipend, a federally funded work-study job and access to federal loans.

California Competes’ College Considerator ”tells users how likely they are to graduate and how long it will take based on a combination of their own self-described backgrounds and plans (such as working, or going part time) and the colleges’ graduation rates.”

The Considerator estimates “debt hazard” and predicts the “break-even age” – how old the graduate would be when the cumulative benefits of college surpass the costs.

Several papers looked at income-based repayment schemes:

· Can Income-Driven Repayment Policies be Efficient, Effective, and Equitable? Nicholas Hillman, University of Wisconsin-Madison, Jacob Gross, University of Louisville

· Estimating the Costs and Benefits of Income-Based Student Loan Repayment Systems: Beth Akers, Brookings Institution, Matthew Chingos, Brookings Institution

· From Income-based Repayment Plans to an Income-based Loan System: Robert G. Sheets, George Washington Institute for Public Policy, George Washington University, Stephen Crawford, George Washington Institute for Public Policy, George Washington University

· Should All Student Loan Payments Be Income-Driven? Benefits, Trade-offs, and Challenges: Lauren Asher, The Institute for College Access & Success (TICAS), Diane Cheng, The Institute for College Access & Success (TICAS), Jessica Thompson, The Institute for College Access & Success (TICAS)

In I’ll Pay for College, But It’s Not a Loan, National Journal looks at proposed legislation letting students fund their college costs by selling investors a percentage of future income for a fixed period. Because the money isn’t a loan, the petroleum engineering major who decides to become a poet couldn’t default. 

Pay It Forward is flawed — but fixable

Michigan has joined Oregon in proposing a “Pay It Forward” student lending system, writes Susan M. Dynarski. Students would pay no tuition up front and pay back a fixed percentage of their income after college. The idea is flawed but fixable, writes Dynarski.

In both the Michigan and Oregon versions of Pay It Forward, a borrower pays a fixed percentage of income for a fixed number of years. A high earner would pay much more than she borrowed; a low earner would pay much less.

The problem is that people expecting high earnings won’t participate voluntarily. Yale tried it in the 1970s and failed. Future artists were all for it, but future investment bankers opted out.

In a Hamilton Project proposal, Dynarski proposes a change in income-based repayment — or Pay It Forward — that would encourage aspiring high earners to participate.

Denominate debt in dollars, and let borrowers pay their debt. If a student borrows $25,000 and (due to pluck and luck) earns enough that she has paid back the principal plus interest after just ten years, she will stop paying into the program. If a borrower instead runs into hard times and still owes money after 25 years, the balance will be forgiven.

In this way, both Pay It Forward and my income-contingent repayment would subsidize low earners without driving away high earners, concludes Dynarski.

Rubio: Dream the affordable American Dream

Education and the American Dream was the theme of Florida Sen. Marco Rubio’s keynote speech at Making Community Colleges Work, a Next America session sponsored by National Journal at Miami Dade College.

The son of immigrants, Rubio used Pell Grants, student loans, work study and summer jobs to pay for a four-year degree and law school. He started his career as an attorney with $100,000 in student loans.

To find a good-paying job, “it is vital that you get the right degree geared toward the right industry,” Rubio said.

Nationally, majors such as business, liberal arts, and hospitality have underemployment rates at or above 50 percent. There are simply more graduates than jobs in these industries. Meanwhile, engineering, health services and education all have underemployment rates less than 25 percent. 

Students and their families need to be equipped with the information necessary to make well-informed decisions about which majors at which institutions are likely to yield the best return on investment. This is why I, along with Senator Ron Wyden, proposed the “Student Right to Know Before You Go Act,” which aims to give students reliable data on how much they can expect to make versus how much they can expect to owe.

Rubio called for making income-based repayment the universal method for student loans.  He also proposed an alternative to student loans known as Income Share Agreements.

Let’s say you are a student who needs $10,000 to pay for your last year of school. Instead of taking this money out in the form of a loan, you could apply for a “Student Investment Plan” from an approved and certified private investment group. In short, these investors would pay your $10,000 tuition in return for a percentage of your income for a set period of time after graduation – let’s say, for example, 4 percent a year for 10 years.

This group would look at factors such as your major, the institution you’re attending, your record in school – and use this to make a determination about the likelihood of you finding a good job and paying them back. . . . Your only obligation would be to pay that 4 percent of your income per year for 10 years, regardless of whether that ends up amounting to more or less than $10,000.

Income Share Agreements are a great idea, writes Richard Vedder. Investors “buy equity in students as opposed to lending to them.” The risk shifts from students to investors.

Rubio also called for better career and vocational education in high school, apprenticeships and “more pathways for working parents” at the community college level.

Reforming the “broken accreditation system” would open the door to “new, innovative and more affordable competitors,” he said. He proposed a new accrediting agency for online education. With standardized tests to demonstrate competency, students could learn online or on the job and earn a low-cost job certification or degree.

How to fix income-based repayment

The federal income-based repayment needs to change, write Jason Delisle and Alex Holt on EdCentral.

Under IBR (in its current form), the government will provide more in loan forgiveness to someone with a high income and a master’s degree than it will provide in Pell Grants to a student from a low-income family attending a four-year college. . . . those who borrow and spend more get larger government benefits than those who make more prudent choices or use their own money to finance a graduate degree.

Those large subsidies for graduate students should be redirected to struggling undergrads, they write. Once that’s done, IBR should be the universal repayment plan, not just an option for the savvy borrower.

Borrowers who take “public service” jobs receive loan forgiveness after 10 years instead of 20, no matter how much they earn, Delisle and Holt write. One out of four jobs count as “public service.”

A public service job is one with a federal, state, or local government agency, entity, or a non-profit organization with a 501(c)(3) designation, or a non-profit that provides: emergency management, military service, public safety, or law enforcement services; health services; education or library services; school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. . . . PSLF applies to almost any job so long as it is not at a for-profit business.

Income-based repayment plans won’t ruin repayment rates for career programs, writes Ben Miller, who’s been tracking gainful employment negotiations.

Keep the “public service loophole” out of gainful employment regulations, Delisle advises.

The Education Department doesn’t want the public to know how much it pays its debt collectors, adds Persis Yu.

Debt hits $29,400 for 2012 grads

Seventy-one percent of last year’s college graduates were in debt with an average of $29,400 in student loans per borrower, reports the Project on College Debt. The debt load increased by 10.5 percent from the year before, according to Student Debt and the Class of 2012.debt

Graduates will have trouble paying back their loans: 18.3 percent of young college graduates are unemployed or working fewer hours than they wish. However, low earners can qualify for income-based repayment, which links repayment to earnings, and Pay As You Earn,  which forgives unpaid debt in 20 years rather than 25.

The report’s recommendations include increasing need-based grants, improving financial aid information and limiting aid eligibility at college with low graduation rates. 

Nearly three-quarters of Americans worry about college costs, according to a Bellevue University survey.  Fifty-five percent said they’d pursue a degree if it wouldn’t put them into debt; 40 percent said obtaining more education is worth taking on more debt.

In another survey, 42 percent of young people blame colleges and universities for rising student debt and 30 percent blame the federal government.

Hamilton: Redesign Pell Grants, loans

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.

U.S. panel: Don’t use aid to limit access

Changing financial aid to promote college completion could limit access, warns Do No Harm, a report by the U.S. Advisory Committee on Student Financial Assistance. Several proposals under discussion could make it harder for low-income students to attend college, the panel advises.

The report lists 10 financial aid “fallacies.”

For example, redirecting need-based grants to higher achievers and colleges with higher graduation rates would not improve completion, the report argues. The loss in access and completion for unfunded students will offset completion gains, it predicts.

To increase completion, financial aid proposals must address barriers for low-income students, the panel recommends. These include: high net prices for low-income students; excessive borrowing; decoupling of federal, state and institutional aid; complex forms and eligibility determination; inadequate early information and intervention, and insufficient in-college support services.

To increase access and completion, the panel proposes: Using federal aid to spur state and institutional aid; doubling the maximum Pell Grant; converting higher education tax credits to Pell Grants, and redesigning income-based loan repayment.

Student loan defaults rise — again

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.

default

CED: Replace Pell with matching grants

Pell Grants should be replaced with a single federal-state matching grant, recommends the Committee for Economic Development in A New Partnership: The Road to Reshaping Federal & State Financial Aid. Cut higher ed tax credits to save $18.2 billion for student aid that expands access, the report also urges.

Income-based repayment of student loans should be the norm, CED writes.

“Replacing Pell Grants and the other federal grant programs with a need-based grant that would be partly matched by states is both novel and controversial,” notes the Chronicle of Higher Education.

At a luncheon . . . to release the report, several audience members voiced skepticism about the plan, worrying that it would penalize students in states that chose not to participate, and expressing doubt that a federal methodology for determining need would distribute aid fairly.

William R. Doyle, the Vanderbilt University professor who wrote the report, said he doubted states would refuse the aid, given the consequences for their students and colleges. He noted that states fought matching requirements in Medicaid and elementary and secondary education, but ultimately accepted the money.

“The federal government can’t be the only actor that’s concerned with access,” he argued. “They have to start expecting something back from states and institutions.”

The report is one of the studies commissioned by the Gates Foundation’s Reimagining Aid Design and Delivery project.