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Fiscal Cliff Could Have Severe Effects for Certain School Districts

December 19, 2012

Rumors swirling around Washington, D.C. suggest President Obama and Speaker of the House John Boehner are close to reaching a deal to head off the expiration of current income tax rates and across-the-board spending cuts scheduled for January 2013. This is the dreaded “fiscal cliff.” But if they can’t reach a deal soon, the effects will be felt at public schools across the country – particularly at so-called “federally impacted” schools. Using data published annually by the National Association of Federally Impacted Schools (NAFIS), we calculated the anticipated effects of the across-the-board cut on those 1,238 school districts. (Click here to download our calculations.)

Before diving into those figures, let’s review how we got to the fiscal cliff. Under the Budget Control Act (BCA), which lawmakers passed in August 2011 as part of a bipartisan deal to increase the federal debt limit, a Congressional supercommittee was charged with developing policies that would reduce the budget deficit by more than $1 trillion over ten years. Predictably, they failed to reach an agreement on what those policies would be. So the BCA’s backup plan was triggered.

The first part of the backup plan reduced annual spending caps for appropriations funding for the next ten years. The caps effectively reset that portion of the federal budget about 2008 levels. And because of a timing quirk (fiscal year 2013 began in October, but the caps aren’t put in place until January 2, 2013), 2013 appropriations are to be reduced retroactively by across-the-board mid-year rescissions, known as sequestration. The Office of Management and Budget estimates that the sequesters will reduce funding by 8.2 percent per domestic discretionary program, compared to prior year funding.  (Pell Grants and school nutrition programs are exempt). For schools, this means an 8.2 percent cut to virtually every federal program (Race to the Top, Title I, special education grants) from which they receive funds. 

Another timing quirk will, however, delay the cuts until early 2014 for most schools. Big federal education programs like Title I grants to school districts for economically disadvantaged students ($14.5 billion in FY2012) and special education state grants ($11.6 billion in FY2012) are mostly funded a year ahead of time through advance appropriations, which means they were allocated their 2013 funds too early for the sequester to rescind them. So the sequester will apply mostly to funds they would use in 2014. That buys school districts extra time to plan for those cuts, or Congress additional time to cancel the cuts before they happen.

Still, some school districts will be harder hit than others because they receive a larger portion of their budgets from federal monies. Some of those districts receive most of their funding from the federal Impact Aid program, which helps districts that lose out on property taxes because of federally advantaged property or personnel within their borders (like military bases or Native American reservations).

The Impact Aid program, funded in fiscal year 2012 at $1.153 billion, will drop to about $1.065 billion post-sequester. At about 75 of the school districts, the cuts to Impact Aid will be more than $500 per pupil. A dozen school districts will receive at least $1 million less in Impact Aid than under the 2013 continuing resolution – and that leaves aside other federal dollars those districts receive, like Title I and special education money.

And the schools seeing these significant, mid-year cuts are among the neediest schools in the nation. Nearly 350 Impact Aid districts have a reported poverty rate of at least 30 percent, according to the Census Bureau. In 2010, 87 percent of the schools had at least 30 percent of their students enrolled in the free- and reduced-price lunch program, a proxy for measuring the concentration of low-income students. More than sixty percent of districts had over half of their students in the program.

The most severely affected school districts, though, are likely to be the twenty percent that received more than a quarter of their revenue from the federal government in 2009.  Eighty-six of those school districts were funded more than half by federal dollars.

The costs of an 8.2 percent cut to every federal program are far more concentrated in schools with significant amounts of federal money at stake. Meanwhile, those schools are some of the most vulnerable in the nation. We anticipate the “fiscal cliff” agreement between Congress and the President will include more spending cuts – but we hope they are targeted to protect the students who most need the extra boost. 

Click here to download these data for every Impact Aid recipient in the country. To view other federal funding, demographic, and achievement data for every school district in the U.S., visit the Federal Education Budget Project’s database.

Friday News Roundup: Week of December 10-14

December 14, 2012

Indiana higher ed commission wants tuition increase held at inflation

Louisiana’s Jindal administration to announce $129 million in cuts; colleges and health care expected to take big hits

Alabama’s two-year college system seeks $478 million in state funds for next year

Missouri lawmakers consider higher ed funding formula

Indiana higher ed commission wants tuition increase held at inflation
The Indiana Commission for Higher Education this week recommended that the state’s seven public universities hold their increases in tuition and fee costs at or below the rate of inflation over the next two years. The minimal increases in tuition would be a shift for the state university system – one school, Purdue, increased its tuition for in-state students by 4.5 percent  in each of its two most recent two-year tuition hikes. The commission’s recommendation was made in the context of its request for a 7.5 percent, or $128 million, increase in state funding for colleges, financial aid, and capital spending in the forthcoming biennial budget, which will cover fiscal years 2014 and 2015. The commission members are requesting the increase because Indiana lawmakers have cut spending in recent years. A 7.5 percent increase would restore higher education spending to fiscal year 2010 levels. More here…

Louisiana’s Jindal administration to announce $129 million in cuts; colleges and health care expected to take big hits
Because of a budget shortfall that has arisen over the past six months of the current 2013 fiscal year, Louisiana Governor Bobby Jindal is preparing to announce and implement mid-year spending cuts. According to the Louisiana Revenue Estimating Conference, the shortfall totals $129.2 million this year. Governor Jindal has the authority to make mid-year cuts without lawmakers’ input, provided he does not cross a certain threshold amount, so state legislators will not be able to target the cuts to specific programs. The state’s colleges and health care programs are the largest programs not protected by law from spending reductions, making them the ripest areas for savings and, therefore, cuts. This is the fifth consecutive year in which Jindal has instituted mid-year budget cuts. More here…

Alabama’s two-year college system seeks $478 million in state funds for next year
This week, newly-appointed Chancellor of the two-year college system in Alabama Mark Heinrich requested a 29 percent funding increase from the state for fiscal year 2014, a total of $478.3 million. The request includes $410.7 million for operations, as well as additional funding for capital expenses and maintenance costs. The system has seen significant budget cuts in recent years, so the 29 percent funding bump would restore spending levels for the system to pre-2008 levels, according to the chancellor. A large portion of the budget request would go to a workforce program that provides financial incentives to employers who hire students while they are attending community college. More here…

Missouri lawmakers consider higher ed funding formula
A plan presented this week by staff to the Missouri Legislature’s Joint Committee on Education would reformulate higher education spending and allocate a segment of it according to colleges’ and universities’ performance. The proposal is designed to provide incentives for colleges to improve their performances, much as the state does for a portion of K-12 education funding, rather than base funding exclusively on past allocations and the total available dollars, which is how money is currently allocated to postsecondary institutions. Under the new proposal, the state would fund 35 percent of schools’ operating costs. Of the remaining amount, 90 percent would be allocated automatically, and 10 percent by performance goals. Performance metrics may include student retention, graduation rates, and job placement records. The committee has an official mandate to redesign the funding formula by the end of 2013, but the proposal unveiled this week is only one option under consideration. More here…

Barclays Student Loan Report: New Income Based Repayment Enrollment to Balloon, $235 Billion Hidden Cost

December 13, 2012

Note: This post has been updated. The original version mischaracterized figures on the cost of IBR from the Barclays report.

In October the New America Foundation released Safety Net or Windfall, which explains how Obama administration changes to the Income-Based Repayment plan for federal student loans set to take effect this month dramatically expand the benefits the program offers, particularly to graduate students. Now Barclays has issued a report that measures just how big those changes will be.

The report, Student Loans: An Educated Mess, argues that the government has underestimated the cost of its student loan programs by $300 billion over the next 10 years, and the recent changes to the Income-Based Repayment program account for around $235 billion of that sum. Barclays projects that over half of all borrowers going forward will be eligible for the new IBR program, based on statistics reported by the Kansas City Federal Reserve Bank. The Department of Education believes enrollment will be just six percent.

Why such a big difference? Remember, when Congress first created IBR in 2007, the program was meant to provide a safety net to struggling borrowers. It sets a borrower’s payments at 15 percent of his monthly discretionary income, and any debt remaining after 25 years of payments in IBR would be forgiven. A borrower repaying through this “old IBR” program for a long period of time can incur substantial interest costs and pay a lot more on his loans over time, and even make higher monthly payments later, than if he repays under a non-income-based plan. Given those facts, coupled with IBR’s unwieldy enrollment process and a lack of awareness about the program, few borrowers opted in. Consequently, the Department of Education and budget agencies assume uptake will be similarly low going forward.

But those estimates ignore some big changes taking place. The Department of Education is improving the enrollment process and working hard to advertise the program. And now that a borrower’s payments are set to 10 percent of discretionary income, and loans are forgiven after 20 years, IBR will become a very attractive repayment option that has few if any downside financial risks for borrowers. In fact, new IBR is a large-scale tuition assistance program masquerading as a safety net, especially for graduate students who can take out federal loans to finance the full cost of their educations without limit.

Barclays has added more evidence to support that view. It won’t be long before the Congressional Budget Office and the U.S. Department of Education revise their cost estimates for IBR sharply higher. That should prompt lawmakers to rein in the benefits IBR provides while preserving the program’s safety-net function (see this Ed Money Watch post for how to do that). They can redirect those funds to more pressing student aid needs, like shoring up the Pell Grant program.

Friday News Roundup: Week of December 3-7

December 7, 2012

Connecticut budget cuts stall plan to hire additional college faculty

Judge deals a setback to Louisiana’s voucher program

Wyoming governor's budget plan cuts $11.4M from UW

Iowa regents freeze tuition for in-state undergrads

Connecticut budget cuts stall plan to hire additional college faculty
Connecticut’s largest college system, the Connecticut State Colleges & Universities, has suspended its plan to hire 47 new faculty members because its budget was cut last week when Governor Dan Malloy included $14.4 million in higher education cuts to the system as part of his attempt to close a state budget shortfall. The cuts come after a reorganization last year in which the colleges saved $5.5 million by merging administrative duties between the community college and state university networks, an initiative pitched by a Malloy as a way to pump new money into academic programs. However, due to the budget shortfall, the money can no longer go towards funding new faculty, but instead towards closing the budget shortfall. The University of Connecticut, which operates under a separate governing board, will also be cut by $10.3 million, but previously planned faculty hiring that was paid for by a tuition increase last year will not be affected by the emergency budget cuts. More here…

Judge deals a setback to Louisiana’s voucher program
A Louisiana judge has ruled that it is unconstitutional for Louisiana to appropriate state money to private schools through a voucher program from a fund that clearly is meant to provide funding for public schools. The ruling does not rule the voucher program unconstitutional, per se. However, should the State Supreme Court uphold the ruling, that would force the legislature to appropriate funding for the private school voucher program separately from the funding for public schools, which is a formula designed to calculate state and local funding for public school districts. Appropriations are far more politically fraught than formula funds, so such a decision would significantly complicate one of Louisiana Governor Bobby Jindal’s signature initiatives. More here…

Wyoming governor's budget plan cuts $11.4M from UW
State funding to the University of Wyoming would be cut by $11.4 million next year under Governor Matt Mead’s fiscal year 2014 budget recommendations. The 6 percent cut below fiscal year 2013 levels is less than the 8 percent cuts recommended for most other state agencies; university officials had been bracing for the larger, 8 percent cuts. The Governor also recommended introducing a recurring $2.4 million merit pay system for university employees, as well as $70 million for a new engineering building. The president of the University of Wyoming said he was grateful for the Governor’s recommendations. After being warned that large cuts may be forthcoming, the university had maintained empty faculty positions and worked to reduce other expenses, so the 6 percent cut was less than anticipated by administrative staff at the college. More here…

Iowa regents freeze tuition for in-state undergrads
The Iowa Board of Regents voted unanimously this week to freeze tuition for undergraduate resident students in the 2013-2014 school year for the first time in 30 years. The freeze is contingent on the state legislature awarding a 2.6 percent increase to the universities’ public funding over 2013 fiscal year levels. The tuition freeze is possible due to record enrollment rates at the University of Iowa and Iowa State University, as well as low inflation rates, according to the Board of Regents. Seventy-two percent of Iowa students graduate with some debt, and the average amount of debt upon graduation is $28,753 – the sixth highest amount of debt per borrower in the country, according to the Project on Student Debt. If the tuition freeze is implemented next year, tuition would remain at $6,648 at ISU and $6,678 at the University of Iowa. Out-of-state students, who already pay more than twice what in-state students pay at the college, will see tuition increase by at least $400 and possibly more than $1,000. More here…

How Much Student Loan Forgiveness Would Senator Rubio Qualify for Under New IBR Repayment Plan?

December 5, 2012

Senator Marco Rubio (R-FL) just announced that he paid off his student loans early with the proceeds from a book deal. Paying down debt ahead of schedule is generally a prudent financial move. But if the Obama administration’s new Income-Based Repayment (IBR) plan had been in place when Senator Rubio graduated from law school, his decision to pay down debt early would have been a sucker bet. Why pay early when your unpaid loans will be forgiven? That’s the financial choice countless graduate students will face in the coming years thanks to a now more-generous IBR plan that took effect on November 1, 2012, which is detailed in the New America Foundation report Safety Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans.

We estimate that if the New IBR plan were available back in 1996 when Senator Rubio started repaying his student loans, he would have $83,482 forgiven in the year 2015. We developed that figure using Senator Rubio’s actual income information, which has been released publicly since the year 2000. We estimate the Senator’s loan balance at graduation to be $170,000 based on a press article that indicates Senator Rubio had $165,000 in student loans in the year 2001, five years after he left school. We also approximated income information for the years 1996 through 1999 and after 2010 because actual information is not available. The calculation also factors in a family size of two in his first year of repayment (himself plus his wife) and increases in the years each of his four children are born.

RubioLoanForgiveness3.png

The table above details what Rubio would pay under the Old IBR plan – the one that pre-dates the Obama administration’s changes last month. Under that plan, borrowers pay 15 percent of their incomes (subject to a cap) toward their loans annually after a “cost-of-living” exemption equal to 150 percent of the federal poverty guidelines. Any debt remaining after 25 years of payments is forgiven.

Under the plan that took effect on November 1, 2012, which we call “New IBR,” borrowers pay 10 percent of their incomes after the exemption, and have any debt forgiven after only 20 years of payments. Recent student loan borrowers are eligible for New IBR. (We adjusted the cost-of-living exemption in the calculator to reflect the initial 1996 poverty guidelines and annual increases thereafter. We also set the interest rate on the Senator’s loans to reflect those under current law, as that rate reflects the repayment terms under today’s program and illustrates what a borrower today would pay.)

Our paper exploring the New IBR system found that the plan will provide significant windfall benefits to high-income, high-debt borrowers—benefits that the Old IBR did not provide. Marco Rubio’s loan and income data offer a prime example. In spite of his salary, which at its high point nearly hits $400,000 a year, he would be eligible to receive more than $80,000 in loan forgiveness, and to pay substantially less than he would under the consolidation loan repayment plan that he actually used, if he graduated today.

This is yet more proof that policymakers must amend the program to rein in its benefits and the incentives it provides to graduate and professional schools to raise tuition. Our paper outlines exactly how policymakers could accomplish that while preserving the safety-net function of IBR – and under that plan, Senator Rubio would receive no loan forgiveness, but would still pay far less than under consolidation. That’s a good deal for students.

So far, the Obama administration hasn’t said a word about the serious flaws of New IBR, and hasn’t stated whether it has any intention of addressing them. Maybe Senator Rubio can help the White House understand the issue. He could start by explaining to the President why a government check for $83,482 to forgive his student loans (or someone like him) isn’t the best use of taxpayer money.

Waiver Watch: Time for ED to Get Serious about Graduation Rates

December 4, 2012
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Last week on Ed Money Watch, Clare McCann reported on the new, comparable, statewide high school graduation rates released by the U.S. Department of Education. The bottom line: graduation rates are lower than previously reported, and achievement gaps are a huge challenge for states. But even though the news is grim, the fact that the data exist is a major achievement. The more accurate rates are the result of years of negotiations and efforts by governors, state education agencies, the U.S. Department of Education, and advocacy groups. It’s been no secret that previous graduation rate numbers were inflated, and often flat-out wrong. Unfortunately, though, just as states gain better graduation rate data, many are failing to use them to their full potential.

Originally, graduation rates were a component of high school accountability under No Child Left Behind (NCLB), but schools could often make Adequate Yearly Progress (AYP) if they showed very little improvement. That changed in 2008 with the adoption of the 4-year adjusted cohort rate. By the 2011-2012 school year, not only would accountability judgments be made with accurate data, but states would also base high schools’ AYP determinations on “continuous and substantial” progress toward graduation rate targets for all students and for student subgroups.

So far, so good. But the 2008 Department of Education couldn’t travel in time to see that in the 2011-2012 school year, many states would be transitioning away from NCLB-style accountability and AYP altogether. With the recent addition of Pennsylvania, only four states will not apply for some sort of NCLB waiver (if you count Texas and California as submitting valid requests). In the era of federal education policy via waiver, many states have refined their accountability plans by adding individual student growth, college and career readiness, and other measures to provide a better picture of school achievement than determinations based mostly on proficiency rates.

But adding multiple measures to accountability schemes – and then condensing them into one overall grade or ranking – can introduce new problems. An aggregate grade may be simple to understand, but it also provides less information to parents and policymakers than the data for each component within the grade. And under some states’ waivers, performance on one indicator – like graduation rates – could be masked by above-average performance on another, like test scores. Finally, while many argue NCLB placed too much weight on tests, diluting the significance of existing data by adding more measures to the system sends a different signal (and perhaps a negative one) to educators and parents about what matters most.

Before, low graduation rates could trigger a school not to make AYP and, therefore, to be placed in improvement status. Now, college and career readiness factors (like SAT or ACT scores and AP exam performance) are often weighted equally with graduation rates. This may create incentives for high school administrators and educators to focus on improving college and career readiness at the expense of efforts to prevent dropouts. To be sure, college and career readiness is important. But students will never be college- and career-ready if they don’t graduate from high school. Schools must pursue both goals – higher graduation rates and higher readiness rates – at the same time, and accountability systems should reflect both.

Even more alarming, many states’ waivers are a step backward from the carefully-negotiated 2008 regulations. States are still required to report the 4-year adjusted cohort rates, but many are not using the new measure as intended for accountability in their waivers. In some cases, states are backing away from commitments to hold schools accountable for subgroup performance. Worse, others have modified the 4-year adjusted cohort rate for accountability purposes by giving schools credit for students graduating in five or six years, or with a GED. With mounting criticism from advocacy groups and key policymakers, the U.S. Department of Education recently sent states a “Dear Colleague” letter to clarify that the 2008 regulations are still in effect.

However, actions speak louder than words, and the Department has not required any state to modify its waiver plan if it undermines the intent of the 2008 regulations. They should – and there is already a model for how to do it. The Department successfully negotiated with Virginia to adopt new, more rigorous goals for minority and disadvantaged students after their initial performance targets sparked a public controversy. Without getting serious about graduation rate accountability, the 2008 regulations will remain half-baked. States will know how bad the problem is, but they won’t be creating a policy environment in which schools are motivated to fix it.

Friday News Roundup: Week of November 26-30

November 30, 2012

Connecticut Governor Dan Malloy shrinks deficit with cuts to social services, colleges

Alabama prepaid tuition program will run out of money in 2015 without lawsuit settlement, report estimates

West Virginia state higher ed chief says no cuts to financial aid

Oregon Governor John Kitzhaber’s budget offers 500 more teachers, cap on PERS increases

Connecticut Governor Dan Malloy shrinks deficit with cuts to social services, colleges
In response to a $363 million deficit, Connecticut Governor Dan Malloy this week announced a $123 million round of emergency cuts. Most of that is targeted at social services programs, and $25 million will cut funding for public colleges and universities. A smaller cut of $8.4 million was also applied to preK-12 education in the state. The cuts to higher education come on top of $68 million in cuts to colleges that lawmakers have made since 2011. The earlier cuts led to tuition hikes at the University of Connecticut of 6 percent, and at community colleges and other state universities of more than 3 percent. The new, $25 million cut to funding, as well as $3 million cut from payments for faculty benefits, means that over the last two years, state funding for higher education has dropped by 14 percent overall. In total, the new cuts represent less than half of the deficit, so the governor will have to work with the legislature to make more cuts in the coming weeks. More here…

Alabama prepaid tuition program will run out of money in 2015 without lawsuit settlement, report estimates
A new report on Alabama’s prepaid college tuition program shows that, unless the state Supreme Court approves a settlement with families to provide tuition at 2010 rates instead of current levels, the program will be short of funding by 2015.The tuition program has more than $300 million in investments, but pays out $90 million annually in tuition. The state legislature has already promised additional funds from the state’s Education Trust Fund coffers in 2015, but the extra payments still won’t cover the shortfall. The program, which allows parents to buy in and later receive college tuition and fees, has seen financial trouble since a simultaneous global recession and tuition hikes. Legislators attempted to change the program to pay out at 2010 levels in that year, but the law has been traveling through the courts since then. More here…

West Virginia state higher ed chief says no cuts to financial aid
Although West Virginia Governor Earl Tomblin asked all state agencies to cut their budgets by 7.5 percent in fiscal year 2014, the state Higher Education Policy Commission announced this week its financial aid programs would not be affected. Unlike other programs, like the K-12 funding formula, higher education is not exempt from the budget cuts, but the Commission stated that it would not cut financial aid spending regardless. In preparing its budget, the Commission decided to preserve the Promise Scholarship, which benefits students with strong academic performances and receives $47.5 million in funding annually from a combination of video gambling revenue and general funds. Governor Tomblin will present the 2014 budget in February, so negotiations with state agencies will continue until that time. More here…

Oregon Governor John Kitzhaber’s budget offers 500 more teachers, cap on PERS increases
Oregon Governor John Kitzhaber this week introduced his proposed fiscal years 2013-2015 biennial budget, which cuts some state programs and reforms the public employees retirement system while increasing education spending. His cuts, while controversial, would allow the state to increase funding for K-12 schools by 8 percent, up to $6.15 billion. That money will let states hire as many as 500 new teachers, or avoid hundreds of teacher layoffs if changes to the pension system are not approved. Funding for higher education would increase by $14 million for state Opportunity Grants and by $275 million in construction bonds for community colleges and universities. Early intervention spending would increase by $4 million, and special education for early childhood programs would increase by $16 million. The budget does not include any new revenue streams. More here…

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