Education

Until I became immersed in research on child development, I thought learning to read was a project confined to the years of kindergarten, first and second grade. But as countless studies have shown, preparing the brain to read starts long before a child has formal reading instruction. No wonder, then, that our country is full of campaigns to encourage parents to read books with their toddlers. No wonder parents today are told to engage their kids in back-and-forth conversations about pictures on the page. 

The Federal Education Budget Project (FEBP) today announced new higher education data available on its website from the 2011 year.  The data are available for more than 7,500 institutions of higher education, as well as every state across the country, and include college prices, financial aid, demographics, and outcomes data.

We also added a new data point: graduate student enrollment at institutions of higher education for 2009 through 2011. As graduate school – with its students’ substantial debt burdens – continues to inch its way into the higher education debate, a greater understanding of graduate students’ particular circumstances will be increasingly critical. FEBP’s data on graduate student enrollment and Grad PLUS loan disbursements at the institutional and state levels can play a critical role in that.

The data provide a five-year snapshot of each institution, and allow users to examine many facets of the school’s costs and performance. For an example, we looked at Morehouse College. Our colleague Rachel Fishman wrote about the school on Higher Ed Watch last fall. Morehouse is a historically black, all-male college. And as Fishman pointed out, the data in FEBP tell a story of a school with a Parent PLUS problem.

Enrollment at Morehouse was just under 2,500 students last year, and 55 percent of students received federal aid – but even more, 76 percent, took out federal loans. Parent PLUS loans at the school totaled $21.7 million last year, more than $8 million more than parents took out only five years ago (accounting both for the now-defunct FFEL program and the new Direct Loan program). Given the high interest rate and substantial fees associated with the Parent PLUS program, Fishman argues that they make a bad strategy for affording the school. As we can see by examining the school in FEBP, its total price has increased by more than $10,000 over five years to more than $43,000 per year in 2011 – apparently supported largely by Parent PLUS loans.

 

The data also give a picture of some broader national trends. Here at Ed Money Watch, we’ve written frequently about the skyrocketing costs of the Pell Grant program since funding for the program nearly doubled in 2009. All those additional federal dollars are being distributed to students across the country, so the Pell Grant disbursements by state have increased dramatically in recent years. California postsecondary students, for example, received about $1.6 billion in 2007. Just five years later, the state received nearly $3.9 billion in Pell Grants, a 140 percent increase in federal Pell Grant dollars.

Click here to check out the data for yourself. How has your alma mater fared over the last several years? What about your home state?

The data are also downloadable as an open data file here.

Every parent of college-aged kids fears the eye-popping complexity of applying for financial aid, but that complexity can actually end the college dream – and the American dream - for some students. In this In the Tank Podcast, New America Managing Editor Fuzz Hogan talks to Education Policy Program Director Kevin Carey and Schwartz Fellow Jason DeParle about some of those stuck students, and discusses how better policy can help fix the crisis.

Congress and the president need a more rational way to set interest rates on federal student loans. The 6.8 percent rate on the most widely-available type of loan was set in 2001 and based on what student advocates and lawmakers thought sounded good then. Years later, lawmakers lowered the rate to 3.4 percent, but only for some undergraduates, and only on a portion of their loans, and only for loans made during the 2011 school year. President Obama wanted that policy extended for just one year, and Congress obliged. Rather than extend that policy further, lawmakers should consider a comprehensive and permanent interest rate fix – one that applies to all new federal student loans.

An approach outlined in the New America Foundation paper released today, Rebalancing Resources and Incentives in Federal Student Aid, would peg fixed rates on all new federal student loans to the interest rate on 10-year U.S. Treasury notes in the year the loans are issued, plus 3.0 percentage points. That formula would set rates low enough to provide a below-market rate to students, but still offset some of the cost of the loan program. Loans issued this year would carry an interest rate of 4.9 percent (as of today), which would actually cut  borrowers’ loan payments further than an extension of the 3.4 percent rate (this is tricky, but the math is here). What’s more, the policy is budget-neutral over a 10-year window. 

One consequence of setting interest rates based on, well, interest rates, is that rates can go up. Student aid advocates and policymakers worry that this could make loans unaffordable for borrowers. They suggest capping the rate. Unfortunately, a cap would be extremely costly, not to mention arbitrary. A Congressional Budget Office estimate shows that a formula to set variable interest rates on federal student loans, capped at 6.8 percent, would cost $200 billion over the next 10 years. That is not a typo – $200 billion.

Those who argue for a cap may not realize that the federal student loan program already includes a built-in interest rate cap. It’s called Income-Based Repayment (IBR). This plan acts like an interest rate cap because borrowers don’t make payments based on the nominal interest rate on the loan or even on the loan balance. Monthly payments are based on income (10 percent of Adjusted Gross Income [AGI] minus a cost-of-living exemption), and the loan term is fixed at 10 or 20 years through loan forgiveness. To be sure, a higher interest rate could cause a borrower to pay longer, but the 10-year and 20-year loan forgiveness provisions reduce that risk substantially – the loan is forgiven before the higher interest rate matters.

To illustrate this effect, we ran a number of scenarios through the New America Foundation IBR calculator. Consider someone with $45,000 in debt from undergraduate and graduate studies who works in the government/non-profit sector and earns a starting salary of $38,000 (AGI of $34,200) with a four percent annual raise. At an interest rate of 4.9 percent, she pays a total of $22,281 on her loans over 10 years, and then the remaining balance is forgiven under Public Service Loan Forgiveness. At an interest rate of 12 percent she still pays $22,281 and the remaining balance is forgiven. Even if her interest rate were 0.0 percent, her total payments would still be $22,281.

What if the same person worked in the for-profit sector and therefore qualifies for loan forgiveness after 20 years of payments instead of 10? At an interest rate of 4.9 percent, her total payments over 20 years are $58,998 and she has some remaining debt forgiven. Increase her interest rate to 12 percent and her total payments are still $58,998. IBR has capped her payments – and the interest rate on her loan – because her income isn’t high enough for the interest rate to matter.

As another example, consider a borrower with undergraduate debt of $28,000 working in the for-profit sector with a starting income of $29,000 (AGI of $26,100) and an annual increase of three percent. She would pay $27,228 on her loans over 20 years at an interest rate of 2 percent, 5 percent, or 25 percent. Her monthly payments over that time would be no higher or lower under any of those interest rates.

Under IBR, only borrowers with higher incomes would be affected by higher interest rates. But the program still provides a cap even for these borrowers, albeit a higher cap. Moreover, monthly payments are still based on income – only the length of payment is affected by the interest rate. And high-income borrowers who work for the government or non-profit organizations fare even better because they qualify for 10-year loan forgiveness.

Imagine a borrower with $40,000 in debt and a starting salary of $50,000 (AGI $45,000) who receives an annual raise of four percent. If she works for a non-profit employer, the interest rate on her loan is irrelevant. She’ll pay $35,247 before her remaining debt is forgiven after 10 years of payments whether the interest rate is 2 percent, 6 percent or 12 percent. However, if she works for a for-profit employer, her higher income means she’ll pay for longer if the interest rate is higher. But if the rate is 8 percent or higher, she won’t pay all of the extra costs. Instead, she will have much of it forgiven once she reaches 20 years of payments.

All of these examples illustrate how IBR works like an interest rate cap for borrowers with lower incomes or those who work in government/non-profit jobs. Student aid advocates and policymakers must therefore ask why an arbitrary interest rate cap is an essential part of any interest rate formula for federal student loans. Is the goal to limit payments regardless of a borrower’s income and regardless of interest rates in the market? If so, in a high-interest rate economy, a cap will provide low interest rates to individuals earning high incomes. Probably not the best use of scarce financial aid dollars.

 

Readers can download the New America Foundation IBR calculator here and view the above examples by entering in debt level, interest rate and borrower income. Readers should also try their own examples. The New America Foundation also published a paper last year on the effects of recent changes to IBR.

EXECUTIVE SUMMARY

The federal financial aid system is no longer up to today’s demands. Built in a different era, its haphazard evolution over the decades has made it inefficient, poorly targeted, and overly complicated. With the need for higher education never greater and college growing increasingly unaffordable, students deserve a streamlined aid system that is more understandable, effective, and fair.

Cal State system has $250 million funding gap

Bill giving Colorado illegal immigrants in-state tuition passes test

Michigan school funding proposal would seek more financial equality among districts

Federal funding cuts threaten Nevada Department of Education

 

Cal State system has $250 million funding gap

In October, DC Action for Children released DC Kids Count, an “e-databook” that graphically maps socioeconomic disparities across Washington D.C. neighborhoods. The maps are detailed and elegant, and demonstrate just how segregated the nation’s capital city remains in terms of race, income, educational attainment, access to healthy food and many other measures.

One of the least-discussed federal special education programs is the Individuals with Disabilities Education Act (IDEA) Part C grants for infants and toddlers. IDEA Part C is a $443 million program housed in the Department of Education. It currently offers early intervention (EI) services to 350,000 infants and children between birth and age 2.

This week's National Journal Education Experts blog asks about the big takeaways from the Bill and Melinda Gates Foundation's MET study on effective teaching. My colleagues Lisa Guernsey, director of the Early Education Initiative, and Anne Hyslop, education policy analyst, weighed in. 

In a post for the Huffington Post's Education blog, I wrote about the Early Education Initiative's event on January 14 that highlighted three promising strategies for turning around low-performing schools: FirstSchool, AppleTree's Every Child Ready and Cincinnati's