Ed Money Watch

A Blog from New America's Federal Education Budget Project

Subsidized Stafford Loans Come at a Cost – Even at a Higher Interest Rate

  • By
  • Clare McCann
May 21, 2013

The student loan interest rate debate will come to a head early this summer as the 3.4 percent interest rate on Subsidized Stafford student loans nears its July 1 expiration. When that deadline hits, the rate will revert to 6.8 percent, the rate currently charged on Unsubsidized Stafford loans. Last week, we published a piece detailing the half-dozen reform proposals currently floating around Capitol Hill and produced some takeaways on each. But there are still other misconceptions to clear up.

One of the current interest rate plans, Senator Elizabeth Warren’s (D-MA) proposal to reset Subsidized Stafford interest rates for just one year at the Federal Reserve bank lending rate of 0.75 percent, is perhaps the most controversial. Federal Education Budget Project Director Jason Delisle last week published an op-ed on Yahoo! Finance detailing one of the underlying problems with the plan: that the government already loses money on Subsidized Stafford loans. Delisle wrote:

What about Senator Warren’s claim that the government makes money off loans to low-income students?… She points to figures that the non-partisan Congressional Budget Office says “do not provide a comprehensive measure of what federal credit programs actually cost the government and, by extension, taxpayers.” In fact, when the budget office “accounts more fully… for the cost of the risk the government takes on when issuing loans,” it reports that Subsidized Stafford loans – those made to low-income students – cost taxpayers $12 for every $100 lent out, or $3.5 billion per year. If the loans cost $3.5 billion a year when the government charges a 6.8 percent interest rate, cutting the rate to 0.75 percent would more than triple that cost.

Warren’s claim that the government is profiting on student loans – and therefore that it should drop the interest rate it charges on federal loans for low-income students dramatically – is a rhetorical one. Delisle spoke to Dylan Matthews of The Washington Post’s Wonkblog to clear up the issue. Matthews writes:

Just like any institution, the CBO determines the cost of loans by “discounting all of the expected future cash flows associated with the loan or loan guarantee—including the amounts disbursed, principal repaid, interest received, fees charged and net losses that accrue from defaults—to a present value at the date the loan is disbursed.” To do that, it needs to settle on a “discount rate,” which is usually the expected rate of return on the loan in question. Banks and other private institutions generally estimate that by finding loans with similar risks and maturities to the one being evaluated, and then using those similar loans’ rates of returns.

The CBO does not do that. It discounts all government loans using the returns on Treasuries of similar maturity. So a 30-year student loan would be compared to a 30-year Treasury bond. But Treasuries are the safest bonds in the world... To capture the true risk of these loans, you’d need to discount using the rate of return for another loan with similar risk. Comparing them to Treasuries make them seem safe no matter what the actual risk.

The claims that student loans turn a profit for the government are based on unrealistic, rigged budgeting mechanisms. And looking at a fair accounting method, the one recommended by the CBO, it’s pretty clear that Subsidized Stafford loans are actually costing the government (and taxpayers) $12 for every $100 lent.  This may seem a wonky, insider issue, but with Congress under rigid fiscal constraints right now and members arguing that the U.S. needs to reign in the deficit, costs matter.

For more on how the government is losing money on these loans, check out this background page from the Federal Education Budget Project. You can also see the Wonkblog article here, and Delisle’s op-ed about Senator Warren’s proposal here.

A Divide In the Student Loan Interest Rate Debate

  • By
  • Jason Delisle
  • Clare McCann
May 16, 2013

A clear divide has emerged in the debate over the interest rates on federal student loans. In one camp are House and Senate Republicans, along with President Obama; in the other are the congressional Democrats. But before explaining what makes those camps different, a quick refresher on the interest rate issue is in order.

Undergraduates are currently charged two different fixed interest rates: 3.4 percent on Subsidized Stafford loans and 6.8 percent on Unsubsidized Stafford loans. Loans issued on or after July 1, 2013, though, will carry the 6.8 percent rate. (That policy has its roots in a 2006 Democratic congressional campaign and you can read the history here.) The rates are different for graduate students and parents of undergraduates, and were never subject to the expiring policy. The two-rate policy on undergraduate loans was originally set to expire last year, but President Obama called for extending it for one year. Congress went along with that at a $6 billion cost.

Unfortunately, the interest rates on federal student loans are just numbers Congress made up (seriously). And in debating the expiring two-rate policy last year, lawmakers never tried to come up with a more rational approach. Instead, they just extended the made-up numbers. We criticized that approach and offered an alternative last year.

What a difference a year makes.

A real debate about student loan policy is now underway in Congress. House Republicans (Kline), Senate Republicans (Coburn), and President Obama have all put forth proposals to peg student loan interest rates to the rates on U.S. Treasury notes. While their proposals are all slightly different, these lawmakers have put forth proposal that would be permanent, fiscally sustainable, keep rates well below market rates for all borrowers, and ensure that those interest rates reflect economic conditions.

So here is where the divide in the debate emerges. Other lawmakers – House and Senate Democrats mainly – have proposed either gimmicky solutions, wildly expensive ideas, or a two-year extension of the made-up rates. A side-by-side table is available here

  • Rep. Courtney suggests a two-year extension of current policy.
  • Senator Warren would set the rate at 0.75 percent, but only for undergraduates and only for Subsidized Stafford loans, and only for one year. The cost would be close to $12 billion, by our estimates.  Senator Warren claims her proposal has something to do with an emergency lending program at the Federal Reserve, which is really just a rhetorical gimmick that has no practical effect.
  • Senator Reed introduced a bill that requires the Department of Education to set the rates at the “cost” of the program, and let borrowers with outstanding loans refinance to those rates. That would drop rates to about 2% by our estimates (official cost estimates understate the cost of the program, so the rates would be artificially low).  Even though the program would operate at “cost,” the reduced interest payments compared to current law would actually show up in the budget as increasing the deficit (i.e. as a cost) of about $175 billion over the next 10 years according to numbers released by the Congressional Budget Office yesterday. That is before factoring in the refinancing component, which could easily top $50 billion in costs.

We’ve received a lot of inquiries about the merits of all of these proposals. Obviously, the shortcomings of the congressional Democrats’ proposals need no further explanation. The president’s and the House and Senate Republicans’ proposals, on the other hand, are all a huge improvement over current policy – and a huge improvement over what lawmakers were discussing last year. None would be a step backwards.

That said, the House proposal gives borrowers the most options and protections – floating interest rates with the option to take a fixed rate and an interest rate cap – but those options and protections mean the proposal has a lot of moving pieces that will require a lot of explaining. It will also confuse borrowers, some of whom will inevitably make a bad choice on when to lock in their interest rate. The president’s proposal needlessly charges undergraduates two different interest rates just to score political points. The Senate Republican bill, on the other hand, has no complicated options and no moving pieces, or gimmicks to score political points.

Those should be guiding principles as Congress and the president work to finalize a bill by July 1.

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Progress Seen in Increasing Data and Transparency in Higher Education

  • By
  • Clare McCann
May 15, 2013

For more on this issue, check out this post from Amy Laitinen on our sister blog, Higher Ed Watch.

Establishing a commission to study an issue is, in the words of President Obama, “Washington-speak for ‘we’ll get back to you later.’” This week, House Education and Workforce Committee member Rep. Luke Messer (R-IN) proposed yet another to study how to collect higher education data and which data points to include. The bill falls well short of resolving the concerns of students, families, businesses, and policymakers who don’t know what they’re getting for all the time and dollars spent on postsecondary education.

While the House bill, the Improving Postsecondary Education Data for Students Act, is still debating the question of whether we even need better data other members of Congress have rightly moved on. Sen. Ron Wyden (D-OR) authored the Student Right to Know Before You Go Act along with Sen. Marco Rubio (R-FL) and Sen. Mark Warner (D-VA). The bill, also supported in the House by Education and Workforce Committee member Rep. Duncan Hunter (R-CA) and Rep. Robert Andrews (D-NJ), would collect student-level higher education data in state data systems from colleges and universities, making it available to students, policymakers, and other stakeholders.

The data would include remedial education rates, graduation rates, transfer rates, post-graduation employment, and student debt levels. And for the first time, it would move beyond the “first-time, full-time” reporting model currently in place – an embarrassingly incomplete glimpse of the higher education landscape, given that only a quarter of full-time undergraduate students lived on campus in 2008 and more than half of students were over the age of 23.

Some critics have expressed concern about students’ privacy if we collect outcomes at the individual level. Those complaints grew out of a fearmongering campaign back in 2007 during the Higher Education Act reauthorization that ultimately led to a ban on a student unit record system. But the data under the Wyden-Rubio bill would be anonymous, so student privacy would be protected.

Amy Laitinen, deputy director of higher education for the New America Foundation’s Education Policy Program, has a rundown of the support proffered in recent years for improved higher education data over at our sister blog, Higher Ed Watch. House Majority Leader Eric Cantor (R-VA) announced late last year that better data would be at the top of the House Republicans’ agenda. He joins the Chair of the House Subcommittee on Higher Education and Workforce Training Virginia Foxx (R-NC),  the congressionally created Committee on Measures of Student Success, the White House, the Chamber of Commerce, Young Invincibles and other advocacy and research groups, the National Governors Association, and many more education leaders in a chorus of voices calling for data and transparency in higher education.

The Student Right to Know Before You Go Act is a critical piece of legislation. It will help answer the questions of whether students are graduating from certain colleges and universities, whether they’re shouldering excessive debt or earning enough to pay back their loans, and how “nontraditional students” – the new majority – are faring in institutions around the country. In the words of Senator Wyden, the new legislation will move the debate from access to higher education to “access plus.” Stakeholders will be able to demonstrate the value institutions can (or cannot) provide their students. That’s the kind of information students and families need to ensure they sign up for a good investment – not another brushoff from Congress.

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

  • By
  • Alex Holt
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.

Waiver Watch: Are District Waivers Rotten to the CORE?

  • By
  • Anne Hyslop
May 7, 2013
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The California Office to Reform Education (CORE) is now one step closer to becoming the first group of school districts to receive a waiver from No Child Left Behind (NCLB). Last week, the nine CORE districts received feedback from the Department of Education after their official peer review. Moving the application to peer review sent a clear signal that the Department was considering the request seriously; remember, California’s state-level request was denied prior to the review stage.

CORE chose not to release specific comments from the peer review until their districts have addressed any concerns in a revised proposal. According to Education Week’s Politics K-12 blog, a spokeswoman for CORE explained: "As you can imagine, the parties who are opposing district-level waivers are looking for any opportunity to criticize, and we worry that if we don't release the peer review and our responsive update at the same time we will face a 'death by a thousand paper cuts' situation."

But CORE did release a summary of the reviewers’ concerns. Reviewers clearly had questions about how additional districts could join CORE and begin implementing the waiver with, or without, further involvement from the Department. And they also requested more details across all three flexibility principles: standards and assessments, accountability and school improvement, and instruction and leadership.

As I wrote in an earlier post, I have several questions about the viability of district-level flexibility when waivers (and NCLB, for that matter) were designed to work through state-level policy. And my objections seem rather tame compared to those coming from some civil rights organizations, state leaders, lawmakers, and policy wonks. Given the number of organizations and leaders speaking out against district waivers, why does Department continue to press on? Despite my own hesitancy to embrace its plan, here is the best case I can muster in support of the CORE proposal.

Size matters. CORE’s waiver is under consideration, in part, because these districts represent over a million students, in one of the nation’s largest states. In fact, CORE serves more students than 24 of the 34 approved waiver states. Frankly, if nine small districts in Montana had applied, we likely wouldn’t be having this conversation. Further, CORE’s districts are well ahead of their state, enacting reforms the Department would like to see across California, including longitudinal data systems, Common Core implementation, and teacher evaluation. Rewarding these districts would send a strong signal to the state of California about its own policy choices.

Promoting Innovation. Despite cries for “multiple measures” and less emphasis on testing, most states didn’t use their waivers to experiment much with accountability. Instead, states continued to rely on math and reading proficiency levels to identify priority and focus schools. CORE took the opposite approach. The districts proposed to use tests from schools’ highest grade level only for accountability, While peer reviewers nixed this idea, CORE’s plan still broadens the scope of accountability by including social/emotional and school climate domains alongside academics. In addition to proficiency, growth, and graduation rates, CORE’s accountability system will include: chronic absenteeism, suspensions and expulsions, non-cognitive skills, student and parent perception surveys, special education identification, and redesignation for English language learners. These measures will provide a more holistic picture of students’ performance for educators, parents, and policymakers. If the Department is seeking to reward innovation via waivers, the CORE request is more inventive than any I’ve seen.

The problem with being creative, however, is that CORE can offer few details about how it will work. And based on reports of the reviewers’ comments, I suspect they want these details too. How will CORE measure non-cognitive skills? Who will design the surveys? What annual performance targets will be set in each domain, and will each carry the same weight? How will these targets be used to identify priority, focus, and reward schools? According to CORE’s request, these questions may not be answered until the 2015-16 school year. Given this timeline, does CORE merit flexibility now?

All Improvement is Local. CORE’s proposal hinges on unprecedented cooperation between districts. While other waivers rely on capacity provided by states, CORE does not have that luxury. Instead, CORE districts must agree to develop and share Common Core-aligned performance tasks and assessments, report common measures to a CORE data system, hold each other’s schools accountable for meeting performance targets, and use individual schools’ expertise as a primary tool for turnaround, pairing high-achieving schools with low-performing ones for coaching.

In some ways this could be a strength. School and district staff may have more credibility and expertise than state officials, far removed from the local context, in leading turnaround efforts and developing instructional resources or professional development. Additionally, given the size of CORE, they have greater capacity than many state education agencies. However, districts don’t have a stellar record of holding all schools and students to rigorous standards and providing meaningful accountability, and they certainly don’t have as many policy tools to wield as a state education agency.

The bottom line is that both districts and states have a role to play in implementing NCLB flexibility and improving the quality of teaching and learning. Many states have recognized this in their waivers by relying more heavily on districts’ strengths and capabilities to improve schools and support teachers. The question is whether CORE’s plan can work without a strong state role at all. I’m still not sold.

Department of Education Light on Details for Sequestration of TEACH Grants

  • By
  • Clare McCann
  • Jason Delisle
May 6, 2013

Last week, the New America Foundation’s Education Policy Program published an issue brief on the recently completed (and two months late) fiscal year 2013 budget, with an early analysis of how the 2014 budget process is likely to affect education programs. One careful reader noticed that the explanation about sequestration failed to mention two lesser-known education programs: the TEACH Grants and Iraq-Afghanistan Service Grant programs.

The former provides tuition aid to prospective teachers, but it converts to a loan if the student fails to complete four years of teaching to high-needs students after graduation. The latter provides tuition aid to the children of military parents who died during military service after September 11. Both programs are affected by across-the-board spending cuts implemented last year.

Although sequestration was meant to apply uniformly to most education programs, slicing evenly program by program, there were some exceptions. Pell Grants, as we’ve reported, were exempt, and student loans were subject only to a fee increase to reduce costs. And it appears that cuts will be larger for TEACH Grant and the Iraq-Afghanistan Service Grant than for other programs.

How much larger will the cuts be?

Recall that in accordance with the Budget Control Act of 2011, the failure of an appointed “supercommittee” to find $1.5 trillion in deficit reduction over 10 years triggered the execution of across-the-board spending cuts in mid-fiscal year 2013. The final size of the cuts was 5.0 percent cut for education programs funded through appropriations, and 5.1 percent for those funded on the so-called mandatory side of the budget. (Both TEACH Grants and Iraq-Afghanistan Service Grants are considered mandatory funding.)

For the Iraq-Afghanistan Service Grant program, though, the reduction will be 10.0 percent. For the TEACH Grant, it will be 7.1 percent. Therefore, the maximum Iraq-Afghanistan Service Grant will drop from $5,645 (the program is meant to match the size of the maximum Pell Grant) to $5,081 next year. The maximum annual TEACH Grant drops from $4,000 to $3,716. Those reductions affect the first disbursement that occurs after March 1, 2013, which in most cases means the 2013-14 school year, and the reductions are effectively permanent, so they’ll remain at that lower level thereafter.

Why did sequestration impose larger reduction for these programs than for others? And why 10.0 percent for one and 7.1 percent for the other? The reasons remain unclear, and the U.S. Department of Education has not offered much explanation. Some media reports have suggested that the White House is working to limit the impact of sequestration by moving money around and restoring some funding under its budget authority – but thus far, there’s no word from the White House that such flexibility options were the case for these Department of Education programs. We’ll keep an eye out for a good explanation over the coming weeks and months.

And the confusion isn’t limited to these programs. The president’s fiscal year 2014 budget request, which usually includes spending levels for the prior two years, didn’t even incorporate final, post-sequester fiscal year 2013 spending into its budget tables, for the Department of Education or other agencies. So one thing is clear: The government still isn’t able to provide much evidence around sequestration’s implementation. In spite of anecdotal stories about children losing access to Head Start and special education and Title I services being cut across the country, there’s not yet a comprehensive understanding of how sequestration is affecting education programs.

For more on last year’s budget, check out our issue brief, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis.

Why 2014 Could Hurt As Much As Sequestration for Education Programs

  • By
  • Clare McCann
April 30, 2013

Today, the New America Foundation’s Federal Education Budget Project released Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis, an issue brief that explores the 2013 and 2014 budgeting processes and their implications for federal education programs. The brief outlines the key benchmarks Congress and the president reached, and provides a simple, comprehensive resource to understand the broader budget picture.

As the brief notes, the fiscal year 2013 budget is now complete, and the 2014 appropriations process is officially underway. But the complex circumstances of 2013 – including a temporary funding measure that Congress passed to hold funding steady at last year’s level (continuing resolution), and then an across-the-board 5.0 percent spending cut (sequestration) applied to most federal education programs – have made it challenging to track the vital figures in appropriations spending. That’s why many education stakeholders might be surprised to discover this: Next year’s budget could bring even more pain than sequestration has.

Sequestration was a product of the Budget Control Act of 2011 (BCA), a broader deficit reduction bill passed as a compromise to raise the federal debt ceiling. According to the law, when a congressionally appointed “supercommittee” of legislators couldn’t agree on $1.5 trillion in deficit reduction over 10 years, the BCA ensured most of that would happen anyway – through sequestration in 2013, and through lower spending caps from 2014 through 2021.

Sequestration was applied indiscriminately to virtually every program funded by the federal government – a poorly targeted, mid-year cut. However, the spending caps laid out by the BCA will force federal appropriations spending even lower next year than sequestration forced it this year. Instead of $984 billion in total appropriations spending, the post-sequestration total for 2013, the law caps appropriations at $966 billion next year.

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Importantly, the spending cap for next year is only an aggregate one. Whereas the sequester in 2013 applied evenly to every program, the 2014 cap instead means that Congress will have to make difficult choices as it drafts spending bills. Lawmakers are supposed to appropriate not more than what the cap allows (though they may pass a law to override that limit) but within the broad category of discretionary spending, the law does not limit funding for any one program (think Head Start, Title I, and Pell Grants).

Some policymakers have opted not to make those hard decisions, at least so far. Both President Obama’s 2014 budget request and the budget resolution passed by the Democratic Senate for 2014 ignore the overall spending cap, and instead revert to the BCA spending caps set out before the supercommittee’s failure ($1.058 trillion in 2014). The House, meanwhile, stuck with the post-sequester cap in its own budget resolution.

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Any joint budget resolution between the House and Senate is still a mystery; in fact, for the past several years, Congress has elected to stick with the BCA limits rather than pass a joint resolution at all. But if lawmakers vote to exceed the cap, they’ll also have to vote to override the BCA, because the BCA takes precedence over a non-binding budget resolution. If, on the other hand, lawmakers stick within the BCA limits, federal education programs will be fighting for a share of an even smaller pie than was provided in 2013.

Click here to read the full brief

Reforming the Teacher Profession: From Consequences to Collaboration

  • By
  • Kristin Blagg
April 25, 2013
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Much of the discussion around the President’s 2014 education budget has centered on proposed initiatives for universal pre-K and a $1 billion Race to the Top competition for college affordability and completion.

Compared to these bold new proposals, K-12 education seems to have drawn the short straw. The U.S. Department of Education could see some new or expanded programming for K-12  – additional money for the Promise Neighborhoods program, a new competitive grant competition for high school redesign, and an expanded School Turnaround Grants program – but nothing like what it has outlined for very young and adult learners.

The lack of banner initiatives for K-12 belies the attention that the Department has paid to the issue of teacher professionalism and evaluation over the past year. In fact, the dearth of new proposals may actually underscore the importance of changes to a reintroduced $5 billion proposal to transform the teaching profession – a proposal that was fleshed out today as the Blueprint for RESPECT (Recognizing Education Success, Professional Excellence, and Collaborative Teaching).

We would be remiss not to mention that issues of teacher evaluation and accountability have stirred a lot of public attention this year. September’s Chicago teacher strike and a recent federal lawsuit by Florida teachers on use of student scores for untested subjects have made teacher evaluation and dismissal practices a subject of national debate. Bill Gates’ Washington Post op-ed earlier this month advocated for the use of multiple measures for evaluation (including student surveys and observations by veteran teachers), as well as policies that increase collaboration rather than competition amongst teachers. Accountability measures are here to stay, but  Gates argues that the focus should shift towards how to use them in a way that increases the number of effective teachers.

In last year’s budget, the administration proposed using $5 billion from the failed American Jobs Act for a competitive grant program to “reshape the teaching profession.” The initiative as originally conceived was accountability-heavy; it suggested that state or district reforms could include making teacher training programs “more selective and accountable” and “ensuring that compensation is tied to performance.” Other possibilities included reforming tenure to “raise the bar, protect good teachers, and promote accountability” and strengthening teacher autonomy “in exchange for greater accountability.”

While not enacted, the American Jobs Act proposal did launch the RESPECT project, the Department’s attempt to engage in a national conversation on the teaching profession. This project facilitated conversations on the teaching profession across the nation and provided districts and teachers with a way of submitting feedback to the Department. Over the last two years, the Department has held 360 roundtables with 5,700 educators and solicited feedback from national teacher organizations, like the National Education Association.

Given the administration’s focus on effective teaching and school leadership, we weren’t surprised when this part of the American Jobs Act initiative returned in the 2014 budget request as $5 billion in mandatory funding to underwrite the RESPECT Project. But we were surprised by some changes to the proposal. Perhaps as a result of the conversations started by its namesake, the language used in the current budget proposal is strikingly transformed from the 2013 request.

After a year of conversations with teachers, the Department is now thinking – or at least speaking – differently. See for yourself below: “accountability” and “tenure” have been replaced, literally, by “shared leadership and responsibility for student outcomes.” Compensation system reforms are now designed to “attract and retain top talent.” Reforms could include creating “conditions in schools that support effective teaching, including by providing teachers greater autonomy… and time for collaboration.”

Budget Justification 2013 and 2014

The system reforms envisioned in the two versions of the proposal are largely the same, but the 2014 RESPECT version is couched in the language of talent development and teacher support, rather than accountability and consequences. Those in the Department may have recognized that implementing evaluation systems doesn’t have to mean identifying winners and losers in teaching careers. Rather, these new systems can spur the development of a profession that relies on collaboration, data, and talent development to increase student achievement.

The strong shift in budget justification language, in addition to the release of the Blueprint today, signal a credible change in the way that the Department is addressing the issue of teacher quality and retention. Regardless of whether the RESPECT project is funded, it will be fascinating to see how this new direction influences other competitive grant programs, like the Teacher Incentive Fund, and whether it can ultimately facilitate changes to strengthen the teacher profession.

Simpson-Bowles: Reform Student Loans, Fund Pell Grants

  • By
  • Alex Holt
April 23, 2013

Alan Simpson and Erskine Bowles, of the famed Simpson-Bowles commission (officially the National Commission on Fiscal Responsibility and Reform) that the Obama administration tapped to generate ideas to reduce federal budget deficits, are out with a new wide-ranging proposal. Titled A Bipartisan Path Forward to Securing America’s Future, the report was published by the Moment of Truth Project, which is itself affiliated with the Committee for a Responsible Federal Budget, an organization previously housed at New America.

The report includes higher education reforms that they say will create $35 billion in savings through 2023. These reforms mirror some of the ideas outlined earlier this year in the Education Policy Program’s report, Rebalancing Resources and Incentives in Federal Student Aid. Unlike the latest Moment of Truth Project report, though, the New America Foundation report argues that the savings these proposals generate should be reinvested fully in more effective and higher-quality postsecondary education aid. (The Path Forward proposal reinvests most, but not all of the savings into higher education aid.)

One way that Path Forward finds big savings is through eliminating the in-school interest rate subsidy, which defers accrued interest on the borrowers loans until after graduation. This is basically identical to New America’s proposal to eliminate Subsidized Stafford loans.

According to the Moment of Truth Project report, the subsidy is poorly targeted and that money can be better spent by funding the Pell Grant program. The authors argue that income-based repayment is a far better benefit to struggling borrowers, something we made the case for in Rebalancing Resources and Incentives. The deficit reduction report writes:

Another $15 to $20 billion could be generated through a number of more targeted changes such as adopting the President's proposal to reform Perkins loans, lowering Guaranty Agency Compensation Rehabilitation loans, repealing Grad PLUS loans, equalizing loans for dependent and independent students, creating a two-tiered income-based repayment system, and reducing or discontinuing funding for underperforming for-profit schools.

The authors go on to note that such reforms would fix the Pell Grant funding cliff, something we also accomplished in the Education Policy Program report. The authors further note that "by providing mandatory funding to cover much of the projected shortfall in the Pell Grant program, this option would limit the pressure on the Appropriations Committee" to make deep cuts in discretionary programs or to decrease the benefits Pell provides. In 2014, Congress was pleasantly surprised by a Congressional Budget Office estimate that showed a surplus had accumulated in the program over the past several years, permitting lawmakers to flat-fund the program at 2013 pre-sequester levels. Still, costs of the Pell program are expected to increase rapidly over the next several years, demanding a long-term solution.

The report also endorses a proposal first offered by the Education Policy Program’s Jason Delisle. Recently highlighted both in President Obama's fiscal year 2014 budget proposal and in a bill proposed by Republican Senators Coburn, Burr, and Alexander, the plan would interest rates on federal student loans to the rate of 10-year Treasury notes, plus a mark-up. As the commission notes, this addresses the interest rate problem more gradually than a bump from 3.4 percent to 6.8 percent – and it would permanently resolve the annual debate over setting the rates by creating a long-term policy subject to the market, not lawmakers’ whims and political interests.

In the Education Policy Program paper Rebalancing Resources and Incentives in Federal Student Aid, we recommend nearly all of these fixes as part of a larger reform to make federal student aid more equitable and rational. And we did this in a budget-neutral way – that is, we used savings found in some programs to increase funding for other programs, or to create completely new ones. While the new Simpson-Bowles report would use some of the savings to fund the looming Pell Grant program shortfall, the authors would also redirect a portion of the savings to deficit reduction.

Our proposal included a broad array of reform proposals, covering loans, grants, tax expenditures, transparency, and other federal aid issues, and it is meant to be seen as an entire package, not a menu of options, because each component of aid affects the others. We stand by that belief, but we are pleased to see other groups arrive at the same conclusions that we did in reforming the federal student aid system: Policymakers can better spend the significant resources they have already committed to federal student aid programs to benefit students, taxpayers, and other education stakeholders.

College-Ready Wars: Assessing Threats to the Common Core

  • By
  • Anne Hyslop
April 19, 2013
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Although the deadline for all students to achieve proficiency in math and reading has been lifted in most states by No Child Left Behind (NCLB) waivers, 2014 test anxiety is high as ever. That’s because the 2014-15 school year is the first time 45 states and Washington, D.C. will be fully implementing the Common Core State Standards – including new tests that will be used as part of high-stakes accountability systems for schools and, in many cases, teachers and students. But when the time comes, will states stay the course? Practical concerns along with escalating political arguments already threaten the emerging system of common standards and assessments.

As I wrote previously, Alabama became the first state to exit the Common Core test consortia, opting instead to administer ACT-based assessments. By 2014, Alabama will likely not be alone in its choice. ACT is a well-established player that has spent decades building an organization with a reputation for providing valid, reliable assessments. Conversely, the state consortia are upstarts, attempting to build next-generation assessments and a precarious, multi-state structure to support and sustain the effort simultaneously. Naturally, states are left with many unanswered questions. How much will the new tests costs, and what are the technical requirements? Will the tests accurately reflect a student’s readiness? And will the assessments even be completed on time? In his smart take on the issue, Bellwether Education Partner’s Andy Smarick writes, the ACT “is the ‘Plan B’ that many states – concerned about the reliability and cost of the consortia-developed tests – have been looking for. It enables a state to remain committed to tough standards and rigorous assessments without putting all of their eggs in the basket of a fragile multi-state entity.”

But this kind of pragmatic concern isn’t the only threat to the common standards. While the Common Core is a state-led initiative (I repeat, the Common Core is a state-led initiative), the effort has been supported by private and corporate philanthropy and by the federal government. Specifically, the requirement to adopt the common standards to compete for Race to the Top funding is at the heart of increasingly polarized and politicized arguments against the Common Core. In their words, “Obamacore” amounts to a “nationalized curriculum” and “leftist indoctrination” that has been “forced on state governments” and “imposed on the children of this nation.”

Reasonable individuals easily dismiss most of these arguments. But reasonable arguments are often overshadowed, especially when national politicians and parties start getting involved. Just last week, the Republican National Committee adopted an anti-Common Core resolution, echoing these same divisive arguments.  And President Obama frequently touts that his administration “convinced almost every state to develop smarter curricula and higher standards, all for about 1 percent of what we spend on education each year” – adding credibility to their claims.

The problem may be about to get worse. As noted in our Key Questions on the Obama Administration’s 2014 Education Budget Request, federal funding for the assessment consortia is set to expire before the tests are fully launched. To provide continued support, President Obama’s latest budget includes a $9 million competitive grant initiative that could finance some of their ongoing work. The other $380 million of the “Assessing Achievement” program would provide states with formula grants for their current assessment programs, although leftover funds could go toward Common Core implementation.

However, a significant change would occur in fiscal year 2015: Assessing Achievement formula funding would be available “only to States that have adopted college- and career-ready standards that are common to a significant number of States” (emphasis added). While Race to the Top included a similar requirement, that program was a competition, where states could opt-out. NCLB waivers also require states to adopt college- and career-ready standards, but they do not have to be common ones. The Assessing Achievement program would mark the first time federal formula funding – typically available to all states – required adoption of common standards. If enacted, this requirement will undoubtedly add fuel to the “Obamacore” fire. On the heels of the president’s budget request, Sen. Chuck Grassley (R-Ia) is calling for the federal government to eliminate all Department of Education funding that supports or prioritizes the Common Core – and he doesn’t even mention the Assessing Achievement program.

What can we make of these threats to the Common Core? To date, most of its political detractors have been contained outside of the mainstream and have had little success gaining traction or passing legislation to reverse Common Core adoption. Will the RNC resolution, Grassley’s letter, or potential changes in federal funding have a greater impact?

On the other hand, the pragmatic concerns about how the new standards and assessments will be implemented are just that – pragmatic. Few could fault Alabama’s decision to choose the ACT over PARCC and SmarterBalanced. All three of the developing testing systems could prove to be a great improvement over current assessments, measuring competencies better aligned to postsecondary work and providing more useful information to students, their teachers, parents, and policymakers.

The important difference between the practical and political critiques is that states deciding to use the ACT system are not necessarily backing away from their commitment to the Common Core altogether. Yes, the assessment consortia should do as much as possible to allay the concerns of wavering states. And yes, policymakers and stakeholders should closely monitor all of the emerging for-profit and non-profit ventures to ensure their assessments, curricula, textbooks, and other resources accurately reflect the new standards. But in the end, any damage done to the Common Core from these pragmatic objections to the consortia is far less severe than what would happen in the unlikely, but not out of the question, case that “Obamacore” goes mainstream. Common Core supporters would do well to distinguish between the two. 

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