College Affordability

Student Loan Debt May Put Young Adults in Financially Precarious Standing

May 13, 2013
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Student loan debt has been in the news a lot these days. In the last week, a number of news outlets wrote about mounting student loan debt and the delaying of life events by their borrowers (see ABC News, the Chronicle of Higher Education, CNN Money, the NY Times [here and here], and the Wall Street Journal, to name a few). The article in the NY Times provides a great example of this, "Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts."

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

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.

Paying a High Price for Prestige at Private Colleges

May 14, 2013
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[Last week the New America Foundation's Education Policy Program released "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind," a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-income students at individual colleges. This is the third in a series of posts related to the report's findings. Read earlier parts of the series here and here.]

Some private nonprofit colleges are making extraordinary efforts to recruit, enroll, and financially assist low-income students. Unfortunately, they are few and far between. Only 53 private colleges, or 11 percent of the schools examined in Undermining Pell charged students with family incomes of $30,000 or less an average net price under $10,000 in the 2010-11 school year. In contrast, nearly two thirds of the private institutions analyzed charged the lowest income an average net price of over $15,000 a year.

Certainly, a substantial number of private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. Indeed, many of these schools provide deep discounts because they believe they must do so as a matter of survival.

However, there are plenty of private colleges that have the means to enroll a substantial share of Pell Grant recipients and charge them a low price but choose not to do so. These include some fairly prosperous colleges that use their institutional aid as a competitive weapon to attract the students they desire, rather than to meet the financial need of their students.

Undermining Pell

May 8, 2013
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Nearly fifty years ago, the federal government committed itself to removing the financial barriers that prevent low-income students from enrolling in and completing college. Colleges for years complemented the government's efforts by using their financial aid resources to open the doors to the neediest students. But those days appear to be in the past. With their relentless pursuit of prestige and revenue, the nation's public and private four-year colleges and universities are now in danger of shutting down what has long been a pathway to the middle class for low-income and working-class students.

Today the New America Foundation is releasing Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind, a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-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 amount that is equal to or even more than their families' yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or engage in activities that reduce their likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return.

Undermining Pell

  • By
  • Stephen Burd,
  • New America Foundation
May 8, 2013

Nearly fifty years ago, the federal government committed itself to removing the financial barriers that prevent low-income students from enrolling in and completing colleges. For years, colleges complemented the government's efforts by using their financial aid resources to open the doors to the neediest students. But those days appear to be in the past.

Simpson-Bowles: Reform Student Loans, Fund Pell Grants

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.

It’s Official! US Department of Education Approves First College to Ditch the Credit Hour

April 18, 2013
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For more than 100 years, the time-based credit hour has been the currency of higher education. Originally created to calculate eligibility for Andrew Carnegie’s free faculty pension system, the credit hour evolved to become much more. Entire systems have been built around and upon the time-based credit hour, including the economic lifeblood of many colleges and universities—federal financial aid. But today, the U.S. Department of Education approved Southern New Hampshire University’s (SNHU) College for America (CfA) to be the first program in the country to receive federal financial aid based on “direct assessment” of student learning, rather than the credit hour. This move from the federal government could signal a new era for higher education—one in which we value and pay for learning rather than time.

Southern New Hampshire University, a small, private liberal arts institution, is familiar with pushing the boundaries of what is possible. Over a decade ago, it added a three-year competency-based bachelor’s degree to its regular course offerings. Rather than squeeze four years of “time” into three years through summer and weekend classes, the faculty identified the core competencies students should have upon graduation and then wove those competencies into every course and assignment. By looking at the program holistically, rather than just as a combination of courses, the school was able to eliminate redundancies in the curriculum and focus on what students were expected to learn and do.

The Academic Graveyard Shift: The Costs of Declining Teaching Loads

March 29, 2013
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A new report from the American Council of Trustees and Alumni and Education Sector, “Selling Students Short: Declining Teaching Loads at Colleges and Universities,” assigns tenure-line university faculty a remarkable amount of blame for the high price of college. As the report states, bemoaning faculty labor costs is common practice among critics of the academy, who frequently assume the single largest university budget category (usually faculty compensation) holds the most fat. To his credit, author Andrew Gillen moves beyond that simplistic assumption and seeks evidence of ineffective faculty spending. In doing so, he tells a compelling and concerning narrative about university products and faculty priorities: the instructional mission of American higher education is being short-changed, particularly for students and taxpayers. Unfortunately, the report’s conclusions ultimately overreach and overshadow its main value—generating greater policy discussion around the costs and products associated with faculty work.

Gillen uses federal data to demonstrate reductions in tenured and tenure-track (TT) teaching loads across institution types, between academic years 1987-1988 and 2003-2004. He provides a cohesive synthesis of factors widely thought to contribute to this outcome, with some emphasis on Massy and Zemsky’s concept of “the academic ratchet.” The academic ratchet explains that as faculty seek reputational prestige and career mobility through increased attention to their research responsibilities, they must, and readily do, decrease attention to instruction and other responsibilities. The report neglects to mention the other half of this framework, (“the administrative lattice”), which explains how administrators enable faculty to restructure their work: they expand their ranks, also at added cost. Data show administrative growth, both in terms of expenditure and added employees, has been prodigious in recent years.

New Podcast: How to Sidestep the Double-Whammy

March 28, 2013
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As I mentioned in a blog post a couple of weeks ago, families are facing a double-whammy to college affordability: costs are up and savings are down. The good news? As Rachel Fishman with the Education Policy Program and I discuss, there are a lot of things that the federal and state governments, educational institutions, and families can do to maintain access to higher education. To have a listen, click below.

March Madness: Do Colleges Cut Down the Net on Net Price?

March 27, 2013

This post originally appeared on the New America Foundation's In the Tank blog.

College basketball fans across the country bemoaned ruined brackets as they watched Harvard unseat the University of New Mexico in the first round of the NCAA March Madness tournament.  Of all the teams in this year’s bracket, Harvard graduates the highest percentage of its student body, and we've been thinking about how the other tournament schools stack up on this front, as well as on how they treat their lower-income students. Some of the traditional basketball powerhouses aren’t too shabby. Duke University, for instance, graduates 94 percent of its student body, and also does well by its low-income students, charging them relatively little to enroll.

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