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. 

Why job-seekers pick for-profit colleges

Some career-focused students choose a for-profit college over a much cheaper community college, writes Sophie Quinton on National Journal.

In Virginia Beach, 27-year-old Darius Mitchell was “really tired of making $9 an hour.” After years working retail jobs, he consolidated previous student loans and took out more to enroll at ECPI University. He’ll graduate in May with an associate degree in network security and a job at Canon Information Technology Services.

At about $14,000 a year, tuition at ECPI is more than triple that of an in-state student at nearby Tidewater Community College. But low-income students are willing to cough up the money because programs are shorter, graduation rates are higher, and 85 percent of students move into jobs in their field of study — usually health care or technology — soon after graduation.

. . . Students are drawn here because, unlike at a community college, they can start classes every five weeks and attend on nights and weekends. Course material is also accelerated, so an associate’s degree can take just a year and a half to complete and a bachelor’s can take two and a half. Students don’t have to load up on courses to meet broad requirements; they only take classes relevant to the credential they want.

ECPI also offers job placement help. The career-services team helped Matthew Bailey, 43, find a job in tech support for InMotion Hosting. He’s working on a software development degree.

ECPI’s graduation rate of 40 percent for first-time college students is twice the graduation rate at the local community college, notes Quinton.  ”In 2011, ECPI awarded more computer science associate’s degrees to African-Americans like Mitchell than all the public community colleges in Virginia combined.”

CC students borrow — and default — more

Community college students are defaulting on their student loans at high rates, writes Brittany Hackett, an editor at the National Association of Student Financial Aid Administrators, on Community College Daily. Although community college tuition remains relatively low, students are more likely to borrow and to take out larger loans than in the past. Many are using student loans to pay for living expenses, not for tuition and books, say financial aid counselors.

Community colleges now have the largest two-year cohort default rates (CDR) of any higher education sector, according to the U.S. Department of Education. The two-year community college CDR was 15 percent for the FY 2011 cohort, and the three-year community college CDR was nearly 21 percent for the FY 2010 cohort.

“Swirling” students may transfer to community college with loan debt accumulated elsewhere. Some “are already underwater before they get started,” says Laurie Wolf, executive dean of student services at Des Moines Area Community College. Students borrow to earn certificates in fields such as day care that pay very low wages.

Students pay lower interest rates on student loans than on credit cards, points out Lisa Hopper, director of financial aid at National Park Community College in Hot Springs, Ark.

Students have “found out about loans as an easy source of money,  says Pat Hurley, associate dean of student financial aid services at Glendale Community College in California. She worries that students are borrowing almost entirely to pay for living expenses. 

Federal law requires that schools award students the full amount for which they are eligible, regardless of whether they need to the money for academic expenses. Many high-risk students borrow, drop out and never earn enough to pay back their loans, which can’t be discharged in bankruptcy.

Financial aid counselors need flexibility to counsel community college students on their borrowing decisions and set loan limits, recommends a National Association of Student Financial Aid Administrators (NASFAA) task force.

Gainful employment for all

Gainful employment regulations are baaaaaaaack. The Obama administration will try again to regulate career training programs — primarily at for-profit colleges — that leave students in debt they don’t earn enough to repay. 

The draft “includes standards for debt-to-earnings rates and other language that could generate significant debate,” reports the Washington Post. The Education Department estimates that 9 percent of career training programs could fail to meet the new standards.

The White House push is too narrow, argues Reihan Salam on Reuters.

The Department of Education plans to identify vocational programs that leave their average graduate paying a high share of their earnings in loan payments (8 percent or more of total earnings, 20 percent or more of discretionary earnings) as well as those with a high average loan default rate (of 30 percent or more). Programs that cross these red lines in two out of three years will lose the right to offer their students federal financial aid.

Curbing the abuses of this sector could do some good. But career training programs represent a small subset of the higher education universe. If we take a somewhat wider view, it seems pretty puzzling that, say, business or engineering majors at four-year colleges and universities aren’t being treated as enrollees in vocational programs.

Many recent college graduates are underemployed and unable to pay back student loans, Salam argues. Most thought their degree would lead to a good job.

If the regulation were applied to all of higher education, programs like a bachelor’s degree in journalism from Northwestern University, a law degree from George Washington University Law School and a bachelor’s degree in social work from Virginia Commonwealth University, would all be penalized,” complains Steve Gunderson, president of the Association of Private Sector Colleges and Universities, the for-profits’ trade association.

Why not “protect consumers from the least effective post-secondary programs” in all branches of  higher education?, asks Salam. Whether it’s overpriced paralegal training at a career college or an overpriced bachelor’s in film studies from a private nonprofit college, the borrower is likely to default.

Students borrow for living costs

“Some Americans caught in the weak job market are lining up for federal student aid, not for education that boosts their employment prospects but for the chance to take out low-cost loans,” reports Josh Mitchell of the Wall Street Journal. Some don’t care if they earn a degree, writes Mitchell.  They use the loans to pay living costs or to avoid paying back previous student loans.

Take Ray Selent, a 30-year-old former retail clerk in Fort Lauderdale, Fla. He was unemployed in 2012 when he enrolled as a part-time student at Broward County’s community college. That allowed him to borrow thousands of dollars to pay rent to his mother, cover his cellphone bill and catch the occasional movie.

“The only way I feel I can survive financially is by going back to school and putting myself in more student debt,” says Mr. Selent, who has since added $8,000 in student debt from living expenses. Returning to school also gave Mr. Selent a reprieve on the $400 a month he owed from previous student debt because the federal government doesn’t require payments while borrowers are in school.

Selent earned a bachelor’s degree in communications from a for-profit college, but it didn’t help him find a good job. Now he’s taking theater classes. He wants to be an actor. The odds he’ll earn enough to pay back his loans? Not high.

Tommie Matherne, a 32-year-old married father of five in Billings, Mont., has been going to school since 2010, when he realized the $10 an hour he was making as a mall security guard wasn’t covering his family’s expenses. He uses roughly $2,000 in student loans each year to stock his fridge and catch up on bills. His wife is a stay-at-home mother who also gets loans to take online courses.

“We’ve been taking whatever we can for student loans every year, taking whatever we have left over and using it to stock up the freezer just so we have a couple extra months where we don’t have to worry about food,” says Mr. Matherne, who owes $51,600 in federal loans.

If the Mathernes never raise their earnings, which seems like a good bet, they may be able to use Pay As You Earn to avoid repaying their loans.

Students are allowed to use a portion of federal loans to cover living expenses. In theory, that lets them work fewer hours, concentrate on their studies and complete a degree more quickly. But colleges can’t deny federal loans to students who appear to be overborrowing.

Dorie Nolt, spokeswoman for Education Secretary Arne Duncan, says the Obama administration is “exploring alternatives to see how we might ensure that students don’t borrow more than necessary.”

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.

Pew: Not going to college is costly

The cost of not going to college is rising, according to a Pew Research Center analysis. “On virtually every measure of economic well-being and career attainment—from personal earnings to job satisfaction to the share employed full time—young college graduates are outperforming their peers with less education,” the report finds. The gap is widening between four-year college graduates and high school graduates.
Rising Earnings Disparity Between Young Adults with And Without a College Degree
Millennial college graduates ages 25 to 32 who are working full time earn about $45,500, while high school-only young adults average $28,000. The $17,500 gap is a record. College-educated Millennials also are more likely to be employed full time (89% vs. 82%) and significantly less likely to be unemployed (3.8% vs. 12.2%).

Median earnings for college graduates haven’t increased much in since 1986, but less-educated workers are doing much worse than in the past.

Young people today are far more likely to be living in poverty, Pew reports. Among those ages 25 to 32, 22% with only a high school diploma are living in poverty, compared with 6% of college-educated young adults.

In contrast, only 7% of Baby Boomers who had only a high school diploma were in poverty in 1979 when they were in their late 20s and early 30s.

College Days, Reconsidered

Despite rising college costs, 72% of four-year graduates said college has paid off; 17% believe it will pay off in the future. Even among the two-thirds of college-educated Millennials with student loans, 86% say their degrees have been worth it or expect that they will be in the future.

Graduates had some regrets: Many said they wished they’d gained work experience and studied more in college.

Unfortunately, Pew combines Millennials with associate degrees, certificates or “some college” but no credential in one category. There’s a huge gap between people with a few community college courses, those who’ve earned a vocational certificate and those who’ve earned an associate degree in a vocational field. (Associate degrees in general education typically don’t raise earnings significantly unless the student transfers and completes a bachelor’s degree.)

Rowe: College won’t pay off

Dirty Jobs’ host Mike Rowe talks to Reason.TV about the “diploma dilemma” and the high cost of college. “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist,” says Rowe. “That’s nuts.”

Top 10 higher ed stories of 2013

The rise of MOOCS lead Ed Central’s Top Ten Higher Ed Stories of 2013. “The massive open online courses have huge potential to bring learning to more people, and to do it cheaper.”

Also on the list is U.S. Department of Education approval for Southern New Hampshire University’s College for America, “the first school to award federal aid based on direct assessment of students’ learning.”

President Obama sent higher education stakeholders into a tizzy with his August announcement that the administration would implement a wide-ranging plan to get college costs under control. The centerpiece of the plan would rate colleges on a variety of metrics, and with Congressional approval, tie the ratings to financial aid eligibility.

Congress lowered interest rates on federal student loans and tied the rates to the market.

“Merit aid madness” benefits the wealthiest students.

(Colleges) “increasingly using their institutional financial aid as a competitive tool to reel in the top students, as well as the most affluent, to help them climb up the U.S. News & World Report rankings and maximize their revenue.

Other top stories are questions about the fairness of income-baseded repayment, policy changes for Parent PLUS loans, the rewrite of gainful employment regulations, data transparency and a OECD report “identifying one in six Americans as lacking basic skills necessary for the workforce.”

Ed Central proposes a college scoreboard design.