Ed Money Watch

This week, the U.S. Department of Education released the first comparable, statewide high school on-time graduation rates. The results from the 2010-2011 school year show more students failed to complete high school in four years than was previously thought, especially when examined by subgroup.

The Bush administration’s Department of Education mandated the new measure – the adjusted four-year cohort graduate rate – in 2008, so states reported data from their first cohort this year. This year’s rates, therefore, refer to students who were 9^th graders in 2008 and earned a high school diploma within four years, with adjustments for students who transferred in and transferred out to other high schools. Idaho, Kentucky, and Puerto Rico did not report 2011 graduation rates; they were granted extensions because their data systems are not yet sophisticated enough to accurately calculate the new graduation rate. Previously, states defined their own version of the graduation rate calculation, and many students slipped through the cracks, inflating the graduation rates.

As the data from the Department show, the now-comparable graduation rate calculation often yields far more concerning results than did previous reports. Overall, the District of Columbia had the lowest all-student graduation rate under the new formula at 59 percent, and no state topped an 88 percent graduation rate (Iowa). Alabama’s state-determined graduation rate in 2010 was 87.7 percent; its adjusted rate in 2011 was 72 percent, a nearly 16 percentage point drop for students. New Jersey’s rate fell by almost 12 points from nearly 95 percent in 2010 (using the state-defined rate) to 83 percent under the new calculation.  

In addition to providing comparable data, the 2008 regulation continued what No Child Left Behind (arguably) did best: disaggregating student performance data by subgroup. The new data also provide the first comparable graduation rates for racial and ethnic groups, as well as for special populations like English language learners and economically disadvantaged students. As with standardized test data, the new graduation rate reporting has also revealed large achievement gaps within states.

The disparities among ethnic groups are striking. In Ohio, for example, 80 percent of students overall graduated on time, compared to only 59 percent of African-American students – a 22 percentage point difference. And even in states with large Hispanic populations, like Colorado, those students had a graduation rate 14 points below the overall graduation rate of 60 percent for all students.

Moreover, other sub-populations had abysmally low graduation rates. Only a quarter of Arizona’s English language learners and only 29 percent of Louisiana’s special education students graduated on time. Low-income students were documented as graduating at lower rates in nearly every state in the country, with the exception of South Dakota. In Connecticut, the difference in graduation rates for low-income students was more than 20 percentage points.

Under the No Child Left Behind waivers issued by the U.S. Department of Education this year, states designed new accountability plans – and in some cases, that means a renewed focus on graduation rate definitions, as some states modify their graduation rate accountability requirements. But whether states choose to use a different graduation rate in their NCLB waivers or not, they will still be required to report the new adjusted cohort rate, both overall and disaggregated by subgroups, at the state, school district, and high school levels. Check back with Ed Money Watch next week for more detail on this topic.

The new graduation rate data aren’t perfect – multiple states didn’t even report this year, and we don’t have any prior-year data to evaluate trends yet – but they reflect a much more accurate take of how high school students fare. The figures states reported should serve as a warning to education stakeholders that states are not serving many of their students, and particularly some of the highest-needs students, well enough.

Release the kraken data! The U.S. Department of Education has finally revealed some of the results from its research on the effectiveness of the School Improvement Grant (SIG) program, or rather, the one-time, $3 billion infusion to the SIG program included in the 2009 American Recovery and Reinvestment Act (ARRA). The controversial program, which was re-tooled by the Obama administration, has supported intensive turnaround efforts – up to $2 million per school – in over 1,300 of the nation’s chronically low-performing schools.

The sliver of data released this week includes 2009-10 and 2010-11 test data from about 730 of the 831 highest priority SIG schools, those categorized into Tier I or Tier II.[1] Here are the highlights (H/T to RiShawn Biddle and PoliticsK-12):

• Two-thirds of schools showed gains in math, and two-thirds in reading in the first year of the SIG program (2010-11)
• 25 percent of schools saw double-digit gains in math, and 15 percent in reading
• 40 percent of schools saw single-digit gains in math, and 49 percent in reading
• 28 percent of schools saw a single-digit decrease in math, and 29 percent in reading
• 6 percent of schools saw a double-digit decrease in math, and 8 percent in reading
• 26 percent of schools had posted math improvements the year prior to entering SIG, but declined once they received SIG funding; this happened for 28 percent of schools in reading
• 28 percent of schools had posted math declines the year prior to entering SIG, but improved once they received SIG funding; this happened for 25 percent of schools in reading
• A larger proportion of elementary schools posted gains in the first year of the SIG program, compared to middle and high schools, and they were less likely to see declines
• Rural schools appear to fair as well as schools in suburban and urban areas

But can we say that “there’s dramatic change happening in these schools” as Secretary Duncan claimed? Not so fast. Clearly, the Department didn’t read Matt DiCarlo’s excellent run-down of when you can – and cannot – make policy claims based on test data.

First, the Department doesn’t clarify whether any of these increases or decreases in test scores are statistically significant. Given inherent measurement error in any assessment and the fact that it is unclear if the Department is using proficiency rates (less accurate) or actual test scores (more accurate) to calculate these gains and losses, statistical significance cannot be assumed.

Second, the Department doesn’t clarify whether they are using cross-sectional or longitudinal data. In other words, were the gains or declines based on individual student growth (i.e. a student taking the 3rd grade test in math improved when taking the 4th grade math test) or were they based on comparing this year’s crop of 3rd graders in math to last year’s 3rd graders? My money is on the latter, which limits how we can interpret the data as the results aren’t fully comparable from the pre-SIG year to year one of the turnaround program.

Third, the Department doesn’t explain whether or how the researchers took into account other non-school factors that could affect student achievement. Without at least addressing these issues, it is impossible to know whether changes in student performance were even attributable to changes in school leadership or culture (i.e. the SIG program) rather than conditions in the economy or students’ home lives. And the Department doesn’t explain how they controlled for other policies at the school-level that could influence test scores. As chronically low-performing schools, the SIG interventions are unlikely to be the only improvement strategy or program at work in these schools.

These are huge caveats to the SIG data, but that’s not to say that ED’s findings aren’t important. They are. But more details are sorely needed to really make an accurate assessment of the program.

To begin with, the Department of the Education must disaggregate the data into the four turnaround models. More significantly, changes in student proficiency rates on standardized tests are only one possible outcome of the SIG program – and perhaps not the most important outcome to track. The Department plans to release student and teacher attendance data, enrollment in advanced courses, and other “leading indicators” for the SIG schools next year, but what about data relating to school leadership, school culture, and parent involvement?

While more difficult to quantify, these areas are also essential components of school turnarounds. Secretary Duncan alluded to it in releasing these early results: “What’s clear already is that almost without exception, schools moving in the right direction have two things in common; a dynamic principal with a clear vision for establishing a culture of high expectations, and talented teachers who share that vision, with a relentless commitment to improving instruction.” However, the data attached to Duncan’s statement failed to mention the effect sof leadership or teaching in SIG schools.

Predictably, analysts – notably Bellwether’s Andy Smarick – have already interpreted the early results as a failure of the entire SIG effort. But without more convincing and complete data, it really is too early to make definitive judgments about the program. This nuanced, wait-and-see approach may not be as satisfying, but in an effort as important as improving our nation’s worst schools, it is the right approach to take.

Back in 2010, the National Commission on Fiscal Responsibility and Reform (aka the Simpson-Bowles commission) recommended as part of its deficit and debt reduction proposal that policymakers end the interest-free benefit on Subsidized Stafford student loans. These loans are a subset of student loans awarded to borrowers who meet an income and cost-of-attendance formula test. The proposal was met with howls from student and borrower advocates who rushed to point out that students would leave school with more debt if policymakers eliminated the interest benefit, which stops the interest clock while borrowers are enrolled in school and, in some cases, for up to three years after.

Nevertheless, upon the request of the Obama Administration, Congress ended the benefit for graduate students in 2011, and moved the money to Pell Grants. That left the benefit intact for undergraduates, but probably not for much longer. It costs a whopping $4 billion a year, while the Pell Grant needs an extra $5.8 billion next year and $8.9 billion the following year to stave off a cut in benefits.

If lawmakers end the Subsidized Stafford interest benefit for undergraduates to provide more funding for Pell Grants—and they should—expect student and borrower advocates to again argue that the changes will increase student debt burdens. Except this time, the critics will have to include a big caveat that will undermine their case.

Subsidized Stafford loans now provide regressive benefits. That is, they target benefits to borrowers earning higher incomes in repayment. That is due to the new Income-Based Repayment (IBR) plan for federal student loans that took effect this month.  

The new plan (“New IBR”) sets a borrower’s payments at 10 percent of discretionary income and forgives any debt after 20 years. Those benefits effectively make Subsidized Stafford loan benefits redundant for borrowers who earn a lower or middle income in repayment.[1] Borrowers earning higher incomes, on the other hand, will still earn benefits from Subsidized Stafford loans in the form of reduced total payments.

Here is another way to understand this point. Borrowers will leave school with higher loan balances if policymakers eliminate the interest-free benefit on Subsidized Stafford loans. However, borrowers’ monthly and total payments under IBR are based on their incomes, not loan balances, and because the repayment term is set at 20 years (loan forgiveness) regardless of loan balance, New IBR ensures that the only borrowers who make higher payments as a result of having a higher loan balance are those with higher incomes.  

At what income level does this matter? There isn’t a magic number, but undergraduates are limited in how much federal loans they can take out. That allows us to run scenarios through the New America Foundation IBR calculator and see what borrowers will pay on their loans based on set income profiles, with and without the interest-free benefit on Subsidized Stafford loans.[2] The results are displayed in the table below.

In this analysis, we first assume the borrower’s debt is the maximum amount that a dependent undergraduate can borrow if he is 1) eligible for the full amount of Subsidized Stafford loans, plus the remaining amount of Unsubsidized Stafford loans, plus accrued interest while in school or 2) if he is eligible only for Unsubsidized Stafford loans plus accrued interest. The resulting loan balance at graduation after five years of borrowing under the first option is therefore $33,448, of which $23,000 is in Subsidized Stafford loans; and under the second, is $39,296, all in Unsubsidized Stafford loans.

Next we developed five borrower profiles, each with a different starting income and income growth rate. Borrower 1 has a starting income of $22,000 that increases by three percent every year, up to $38,577 in year 20. Borrower 2 has a starting income of $40,000 that increases by three percent every year, ending at $71,400 twenty years later. Borrower 3 has a starting income of $25,000 that increases by nine percent annually, reaching $128,542 in year 20. Borrower 4 has a starting income of $50,000 that increases by three percent every year, ending at $87,675 in year 20. Borrower 5 has a starting income of $40,000 and increases six percent each year, reaching $121,024 after twenty years.

As the table shows, under New IBR, the only borrowers who benefit from the additional benefits of Subsidized Stafford loans are those who earn a middle income right out of school, or those who eventually make a high income. Even then, the borrowers reap the benefit of a Subsidized Stafford in their last payments, not in their first years out of school. Their payments under IBR are based only on their incomes, not their loan balance, loan type or interest rate.

This brings up another key point. Not only are the added benefits of a Subsidized Stafford loan regressive, but borrowers earn the benefits in the form of a shorter repayment term—their final year(s) of repayment. Therefore, they collect a benefit when they theoretically are most able to repay.[3]

In short, with the availability of New IBR, Subsidized Stafford loans provide no additional aid to borrowers who need it most, while reducing payments for borrowers who are not struggling to repay. That should help persuade lawmakers and the student aid advocacy community that it would be prudent policy to end the Subsidized Stafford benefit and use the money instead to aid lower income college students through the Pell Grant program. The New IBR plan is now by far the most beneficial repayment plan available to low-income borrowers, so much so that it renders other, more poorly targeted benefits obsolete.

President Obama should include that policy proposal in his forthcoming budget request to Congress, citing the benefits of his administration’s New IBR as the justification for ending Subsidized Stafford loans.

There’s another lesson in here, too. Federal student aid is an incoherent mix of complex benefits and rules that overlap and cancel each other out in ways that virtually no one understands. For that we may thank the lawmakers (and the advocates who encourage them) who have added to, tweaked, and changed eligibility rules for these programs time and time again without even a hint of a broad plan. It’s time for a wholesale redesign of federal student aid.  

In 2009, President Obama and a Democratic Congress passed the American Recovery and Reinvestment Act (ARRA), an economic stimulus package that included large, one-time cash infusions for some of the federal government’s largest education programs.  But since then, Congress and the president reset funding for key PreK-12 programs back to their prior funding levels and haven’t increased it since. Meanwhile, they’ve ensured that the Pell Grant program for undergraduate students from low-income families maintained the one-time funding gains and then some. Will a second-term Obama administration continue this Pell-at-the-expense-of-everything-else policy?  First, let’s review how policymakers got here.

Under the stimulus bill, Title I funding for disadvantaged PreK-12 students grew by $10 billion.  Special education state grants under Part B of the Individuals with Disabilities Education Act (IDEA) nearly doubled, with an extra $11.3 billion, in addition to the program’s regular 2009 appropriation of $11.5 billion. And the Pell Grant program for low-income college students got a $15.6 billion add-on to its 2009 appropriation of $17.3 billion.

Since then, lawmakers have boosted the U.S. Department of Education’s budget overall by a healthy sum (especially when compared with other agencies), up from $59.2 billion in fiscal year 2008 to $68.1 billion in 2012. Amidst that healthy increase, however, lawmakers kept Title I funding and IDEA funding essentially flat.

What explains the overall funding increase? A big part of it went to Pell Grants. But there is more to the explanation. After the stimulus money had run out for other education programs, lawmakers approved four additional years of emergency supplemental funding for Pell Grants, which coincided with a separate increase to an entitlement funding stream for the program that started in 2008. The result may be the largest funding increase for any federal education program in history—while other programs remained flat.

Here’s the kicker: That emergency supplemental funding lawmakers approved for Pell Grants will run out this year. So the program needs another infusion of funding of about $5.8 billion, according to the Congressional Budget Office, just to keep it going in its current form. The following year that figure jumps to $8.7 billion. Over the next 10 years, the total gap is $76.5 billion.

Over the coming weeks and months, it’s time for lawmakers to starting thinking about smart ways to reform the Pell Grant program and put it on a sustainable funding path—but also to ensure that the program serves low-income college students well. PreK-12 programs have a lot riding on that outcome.