Higher Education

College Blackout

  • By
  • Amy Laitinen,
  • Clare McCann,
  • New America Foundation
March 11, 2014
Ever-rising college costs, more than $1 trillion in outstanding federal student loan debt, and graduates doubtful that they’ll be able to earn enough to repay their loans have driven college value to become a major concern for most prospective students. Yet students, families, and policymakers are finding their questions can’t be answered—because the higher education lobby has fought to keep it that way.

Cohort Default Rates Provide Insights into Outstanding FFEL Loans

October 23, 2013

Updated 10/24/2013 6 PM: This post was updated to include a better description of the Asset Backed Commercial Paper conduit program.

Hidden amidst the shutdown furor was the annual release by the U.S. Department of Education of new student loan default rates. The data measure how many borrowers who entered repayment in a single year defaulted on their federal student loans within two or three years. This year, the data show that 10 percent of borrowers default within two years of entering repayment and 14.7 percent do so within three years. As has historically been true, for-profit and community colleges had the highest default rates, well above those at public or private non-profit 4-year schools.

The overall trend here is not pretty. This is the sixth consecutive year in which two-year default rates increased, and they are now at the highest they’ve been since 1995. But with the growth in borrowing, this means there are significantly more people entering repayment and defaulting. More than 1.1 million more borrowers entered repayment in fiscal year 2011 compared to two years prior, and 10 percent defaulted, as compared to 8.8 percent in fiscal year 2009—an increase of more than 230,000 defaulters. Over those two years, enrollment in postsecondary education also increased, by more than 590,000 students, while the number of borrowers who entered repayment skyrocketed by 1.8 million students. See the chart below for more specific default rate figures.


Source: U.S. Department of Education

But beyond the school-based cohort default rates, the Department of Education also released some other interesting default rates: those for guaranty agencies and lenders under the Federal Family Education Loan (FFEL) Program.

FFEL is the now-defunct program replaced by the Direct Loan Program. Vestiges of the program remain, however, in the form of more than $400 billion in outstanding loans issued before the change. Under FFEL, government-backed loans were issued through a set of lenders, and 35 private non-profit organizations called guaranty agencies performed various administrative tasks, including providing federal default insurance to the lenders.

Default rates for lenders don’t carry much weight – there are no sanctions associated with high default rates. Each lender has a calculated two-year and three-year default rate, both for loans they originated and for loans they currently hold. Current lender two-year default rates range from 0 percent for over 500 lenders, including many who don’t hold any loans anymore, to a shocking 89 percent for Citibank, which still holds about 2,000 loans. Among the largest FFEL loan-holders (the 28 companies that hold 10,000 or more loans), rates average about 7 percent. Sallie Mae, the largest FFEL lender, has a default rate of 4.1 percent on the nearly 27,000 loans totaling almost $20 million it still holds from this cohort.

And the Department holds one set of loans with a very high default rate. During the financial crisis, in order to help FFEL lenders continue to make new loans, the Department of Education set up a financing vehicle called the Asset Backed Commercial Paper conduit program. The Department purchased some of the participants' FFEL loans, including all loans that were more than 210 days delinquent, as required by the contract. Those loans, now held by the Department but purchased through the conduit, carry a two-year default rate of 51.7 percent and a three-year rate of 56.6 percent. The requirement that the Department purchase those delinquent loans explains the abnormally high default rate.

The guaranty agency default rates provide another way of judging the results in the FFEL program. When a FFEL borrower defaults, the lender can file a claim to a guaranty agency to recover most of the outstanding loan balance. Then the guaranty agency—a true middleman—uses federal money to reimburse the lender, and the Department of Education reimburses those costs (this is known as “reinsurance”). But guaranty agencies with high default rates can’t receive the full amount of reinsurance reimbursement. If guaranty agency rates are below 5 percent, they get a 95 percent reimbursement; for rates between 5 percent and 9 percent, 85 percent; and for default rates that are 9 percent or higher, 75 percent.

As it turns out, at least when it comes to two-year cohort default rates, five of the reported guaranty agency default rates exceeded 9 percent for the 2011 cohort – Student Loan Guarantee Foundation of Arkansas, Texas Guaranteed Student Loan Corporation, Higher Education Assistance Authority (Alabama and Kentucky), Florida Department of Education, and Oklahoma College Access Program. Still, in every one of those states except Oklahoma, the statewide student two-year and three-year cohort default rates are even higher than the guaranty agency two-year default rate.

And although some guaranty agencies are private non-profit organizations, while others are state-based and may receive some state resources, there doesn’t seem to be much difference in their performances. The non-profits’ average default rate is 6.2 percent – effectively identical to the 6.3 percent default rate among state-based guaranty agencies.

Two-year cohort default rates don’t set a particularly high bar, as it stands, either for guaranty agencies and lenders or for students. Guaranty agencies are not held accountable for their borrowers’ defaults. Schools are – for rates at or above 25 percent three years in a row, or higher than 40 percent in one year, schools lose eligibility for Title IV federal financial aid – but not as much as they once were. The last time rates reached about 10 percent, in 1995, more than 200 schools were sanctioned by the Department of Education. Since then, the number of schools subject to sanctions has dropped precipitously – to just 8 colleges for the 2011 cohort. The 2010 cohort – the most recently available class of students – illustrates the limitations of the default rate. Consider that schools’ two-year default rates jumped from 9.1 percent to 14.7 percent when a third year was included in the window. And default rates in a cohort (unsurprisingly) continue to grow every year – even outside the 2-year or 3-year window.

Thanks to a change enacted in the 2008 Higher Education Act reauthorization, cohort default rates will get moderately stronger next year as the Department finally transitions to relying on three-year rates to determine whether a disconcertingly large share of a school’s students are unable to pay their loans. This year, over 130 schools would be in danger of facing sanctions if their default rates did not change in the third year of calculations (to date, only two official three-year default rates have been calculated). The hope is that a longer window would be harder for schools to game by utilizing temporary measures such as deferment or forbearance to avoid default up to the edge of the two-year window.

Default rates are by no means a perfect measure of a school’s value to students, but they are part of a scaffolding of restrictions on colleges – a sort of baseline quality metric to help students avoid low-value schools and to avert wasted taxpayer dollars. The numbers released by the Department offer valuable insights into students’ struggles.

What the College Board Trends Reports Won't Tell You

October 22, 2013

Today, the College Board released its annual sets of trends reports, one on college pricing and one on student aid. Dense, chart-filled works, the documents tell a story of what today’s postsecondary students are facing. But each report typically carries a message with it, one that often tries to dampen the sense of unabated cost escalation.

This year’s desired headline is 2.9 percent. That’s the change in published tuition and fees at four-year public institutions from last academic year to this one in current dollars. Though an increase, it’s described as the smallest percentage increase in the last 30 years.

But herein lies the difficulty with percentage increases and college costs. One of the benefits of decades worth of uninterrupted price increases is that eventually the same size price hike leads to a smaller percentage change. And sure enough, that 30-year-low in percentage terms is actually a $247 increase in published tuition—the 19th lowest in the past three decades (or 12th highest if you want to look at in a more pessimistic light). In fact, it's larger in real terms than any single year increase that families at public four-year colleges felt from 1971-72 to 2000-01.

In fairness, that $247 increase is the lowest that families have faced in current dollars since the 2000-2001 year. But following on the heels of over a decade of stark increases, it means the base price families are paying is $5,400 more in current dollars than it was at the turn of the century. In that regard, the $247 only feels like some relief from charitable schools only when compared to some theoretical higher price they could have been charged.

Private nonprofit 4-year colleges provide an even better illustration of the wonders of the percentage increase bait and switch. From 2011-12 to 2012-13, published prices in current dollars went up 4.0 percent. But this year, they went up only 3.8 percent. A victory for families, right? Hardly. Published prices went up exactly $1 less than they did the year before--$1,106 versus $1,105. But thanks to prior jumps, that 3.8 percent increase was the third lowest in 30 years, even if the dollar change was the sixth highest in 30 years.

Understanding the dollar versus percentage dynamic is especially important for interpreting charts like the one below. What it shows is the average annual change in tuition and fees over a ten year period, adjusted for inflation. So from 1983-84 to 1993-94, the average real increase in tuition and fees at public four-year colleges was 4.3 percent. By contrast, in the past decade, which we tend to think of as a time of excessively high cost increases, the average annual change at public four-year colleges was just 4.2 percent. If it’s about the same as historical trends, then we’re not seeing bad behavior. It’s just how things go—death, taxes, college costs, as the cliché would go.

But again, smaller absolute changes on a lower base lead to higher percentage increases than they would on a larger amount. And sure enough, this chart essentially lets colleges off the hook through their own increases. Here’s the same chart recreated below, only instead of percentage changes, it shows how much tuition and fees changed when measured relative to the base year of 1983-84. In other words, if the base year is 100 and the following year is 103, then the change is 3. And each type of college has its own base year. So a change of 6 points for a community college is still going to be less of a dollar change than 6 points for a nonprofit college.

Suddenly that last decade does not look quite so rosy. Rather, it rightly shows that the amount costs have been going up at public 4-year schools actually exceeds older decades by a good bit. The chart below makes the same point framed a different way by showing the change in the cost of tuition and fees from the start to end of each decade. These figures also are measured in comparison to the base year of 100 for 1983-84, which represents a different dollar amount for each type of school.

The last decade has not been a good time for families. Incomes are down and have not really recovered except for those at the top of the income spectrum. Meanwhile, state budget struggles, unabated spending at private nonprofit colleges, and a host of other reasons have collaborated to keep college tuition on a steady upward path. While this year's figures show that the dollar change is lower in the public sector than it has been in the past couple of years, it's still greater than it was 12 months ago and still above the rate of inflation. That's not good news. That's just less bad news than usual. And we should not be desensitized by price increases to the point where that's acceptable.

Can New Accreditation Standards Improve Teacher Preparation?

October 22, 2013

Teacher preparation programs have come under fire in recent years for poorly preparing new teachers to meet the needs of today’s students and the demands of education reforms. Most recently, the National Council on Teacher Quality released its survey of about 1,200 prep programs. (Spoiler alert: Only four programs made the top tier.)

Reporting Burden in Higher Education: The Case of the Clery Act

October 16, 2013
University of Denver Campus Safety Badge

Members of both political parties have decried two seemingly contradictory things in higher education. They want better information to inform students, families, taxpayers, and policy makers – but they also want fewer burdens on institutions, which some say increase costs, stifle innovation, and move schools’ focus away from the primary mission of educating students. While these are both laudatory goals, they appear, at face value, to call for action in opposite, conflicting directions. Students and institutions are left with the worst of both worlds—too much data, reporting, and burden and not enough usable information.

To escape this seeming contradiction between reporting burden and access to information, public discourse and debate should shift away from talking about burden in the generic, abstract sense to the specific ways in which it affects institutions and policy makers. So, let’s look at one of the most heavily cited sources of burden: consumer disclosures. In a 2013 GAO report, this category, which includes campus safety and security reports, was the most frequently cited as burdensome in interviews of experts and higher education officials.

The campus safety component of these disclosures stems from the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act, first passed in 1990 as the Student Right-to-Know and Campus Security Act. The law requires colleges to annually report campus security statistics, maintain a public log of recent crime, and provide timely warnings of ongoing threats to students.

The provision grew out of campus safety advocacy efforts led by Connie and Howard Clery, who founded Security On Campus, Inc. (now the Clery Center for Security on Campus) after the brutal and shocking 1986 rape and murder of their daughter Jeanne in her freshman dorm at Lehigh University. The subsequent investigation revealed lapses in security oversight by the university. Her murderer, Josoph M. Henry, a fellow student she did not know, was able to gain access to her dorm by passing through three automatically locking doors that had been propped open with boxes for convenience.  The Clerys also discovered that there had been 38 violent crimes on campus over the prior three years, but no laws at the time required the university to report them to students or prospective students.

After the passage of multiple state laws, the 1990 federal bill was introduced in Congress by Representative William Goodling (R-PA) in response to the Clerys’ advocacy efforts. In introducing the bill, Goodling testified: “This resolution will ensure the Department of Education gives priority status to this important responsibility [of protecting students].... Colleges are trying to hide [crime incidents] because they're in a very competitive business. There's no question they are putting students in danger if they try to cover up the crime that's going on in order to recruit students."  In 1998, Senator Arlen Specter (then R-PA) sponsored legislation tightening the reporting requirements and officially renaming it after Jeanne Clery. At the time of the bill’s passage, Specter spoke at a conference with the Clerys in which he emphasized the importance of campus safety and the lives that would be saved by the bill.

The evidence on whether the act has actually led to a decrease in campus crime in the decades since its passage is mixed. There were no reliable figures before the legislation, and the crime rate fell broadly across the U.S. over the same time period. And although a significant percentage of senior safety and security officials in one study said the law helped bring about improvements to their policies and procedures, most did not see the law as being specifically related to a decrease in crimes in and around campus.  More importantly, it does not seem like students and perspective students are actually using the specific reports and information the law requires. Previous studies and surveys show that the majority of students were not aware of the law and had not read the annual report that it requires, and only 10 percent of students said that they had factored campus crime statistics into their choice of school.

But colleges and universities that don’t meet the law’s stringent disclosure requirements do face significant penalties for violating the act. Each violation is punishable by a fine up to $35,000 per violation and possible loss of Title IV eligibility for the institution. In 1998, Eastern Michigan University was fined $350,000, at that point the largest-ever penalty for violating the law, for failing to quickly and accurately issue warnings after the murder of a student Laura Dickinson in her dorm room. Other institutions, including USC    , have been accused of reporting incidents inaccurately to lower the overall numbers of violent crimes appearing in the log and reports mandated by Congress.

The Clery Act was a strong response by lawmakers to a personal and shocking tragedy. Support for the bill was overwhelming – it passed the House without objection, and the Senate on a voice vote.  The law is not likely to disappear anytime soon – in fact, members have Congress have only piled on more and more requirements to the law. For example, the 1998 reauthorization required institutions to report off-campus crimes that occurred in close proximity to the institution. This led to concern from some institutions on where exactly to draw the line of “close proximity,” given that any tragic event near campus but outside the specified area could bring further negative attention to a school’s policies. Industry organizations also complain that the frequent changes to the law (four in 10 years following its passage) made it nearly impossible to systematically collect and accurately report the information.

Despite the burden and mixed evidence on its utility to students and their families, then, the Clery Act seems deeply entrenched as a key reporting requirement. And yet, key higher education questions for students, families, and the nation – for example, accurate graduation rates, complete student debt figures, and students’ post-education employment prospects – still can’t be answered. And yet, lawmakers have resisted asking schools to report those outcomes, hiding behind the generic guise of burden.

The difference is that campus crime advocates like the Clerys have an evocative story, a powerful movement, and personal champions on Capitol Hill behind them. That combination was enough in this case to overcome the higher education lobby’s pleas for relief from reporting burden. Meanwhile, students’ voices and their families’ interest in the unknowable information about students’ outcomes are drowned out by lobbyists. That’s why the reporting requirements under the Clery Act will be reliably maintained – and other critical questions of the value of college have been shoved to the back.

Shutdown Got Your Data? Check Out Our Federal Education Database

October 15, 2013
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The federal government has been officially shut down for over two weeks now, and the impact has been real: furloughed employees across the country, Head Start programs shut down (and some reopened), and confusion and delays in many federal programs. But for education experts and data geeks, another issue has been highly inconvenient, if less severe: the disabling of federal education data websites.

Fortunately, Higher Ed Watch’s sister initiative, the Federal Education Budget Project, maintains one of the most comprehensive federal education databases in the country for every state, school district, and institution of higher education. The data are collected from state and federal sources and updated regularly. The higher education data cover more than 7,500 institutions and all 50 states, plus Washington, D.C. and Puerto Rico, and include:

  • Tuition and fees, price, endowment, and net price for all and for low-income students;
  • Federal finance data on student loan recipients and disbursements for schools, as well as Pell Grant and other federal aid data;
  • Student demographics, including full-time, part-time, and graduate student enrollment, as well as racial subgroups;
  • Outcomes as defined by graduation rates, retention rates, student loan default rates, and repayment rates; and
  • The share of students receiving federal, state, and local financial aid, as well as the average award size.

Check it out now, and until the shutdown is over! For some background on the data and on other education policy topics, check out our Background & Analysis pages.

Shutdown Got Your Data? Check Out Our Federal Education Database

October 15, 2013
Publication Image

The federal government has been officially shut down for over two weeks now, and the impact has been real: furloughed employees across the country, Head Start programs shut down (and some reopened), and confusion and delays in many federal programs. But for education experts and data geeks, another issue has been highly inconvenient, if less severe: the disabling of federal education data websites.

Fortunately, Ed Money Watch’s parent initiative, the Federal Education Budget Project, maintains one of the most comprehensive federal education databases in the country for every state, school district, and institution of higher education. The data are collected from state and federal sources and updated regularly. The PreK-12 data for more than 13,700 school districts and every state include:

  • Federal funding information, like per pupil expenditures, Title I and IDEA allocations, and school lunch awards;
  • Pre-K information for state-funded pre-K, Head Start, and special education preschool grants;
  • Demographic information on enrollment and racial, economic, and academic subgroups; and
  • Achievement data for math and reading in 4th grade, 8th grade, and high school, both for state standardized tests and the NAEP exam.

The higher education data cover more than 7,500 institutions and all 50 states, plus Washington, D.C. and Puerto Rico, and include:

  • Tuition and fees, price, endowment, and net price for all and for low-income students;
  • Federal finance data on student loan recipients and disbursements for schools, as well as Pell Grant and other federal aid data;
  • Student demographics, including full-time, part-time, and graduate student enrollment, as well as racial subgroups;
  • Outcomes as defined by graduation rates, retention rates, student loan default rates, and repayment rates; and
  • The share of students receiving federal, state, and local financial aid, as well as the average award size.

Check it out now, and until the shutdown is over! For some background on the data and on other education policy topics, check out our Background & Analysis pages.

Zero Education Debt: The Promise of Income Share Agreements

October 8, 2013
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Last Friday, the New America Foundation’s Education Policy Program, in partnership with the Lumina Foundation, hosted a “Zero Education Debt” event. Panelists looked at the concept of Income Share Agreements (ISA), a new financial vehicle in which a student completes school with no loans and no debt, but instead agrees to pay an investor (or the government) back a set share of his income for a set number of years.

We started off the event with comments from Jamie Merisotis, president of the Lumina Foundation. Merisotis helped contextualize the topic with a much larger question: how to provide students with access to a high quality, low cost education. New America’s Alex Holt then presented a theoretical framework of Income Share Agreements and where they fit into the existing higher education financial system.

Panel One: Implementing Income Share Agreements

Our first panel focused on practitioners – people who are attempting to implement these plans. The panelists included people implementing plans both in the private market and also via the government. The discussion was lively, with John Burbank, Executive Director of the Economic Opportunity Institute, defending the proposed Oregon Pay It Forward program that he helped to develop. That plan would be a publicly funded one – the first in the U.S.

Others on the panel discussed alternate arrangements for private Income Share Agreements. We had representatives from the major existing private ISA providers: Dave Girouard of Upstart; Tonio DeSorrento, formerly of Pave; Miguel Palacios of Lumni; and Gordon Taylor of 13th Avenue Funding.

Panel Two: Are Income Share Agreements Viable?

The second panel, moderated by Zakiya Smith of the Lumina Foundation, had a more focused policy perspective. Michelle Asha Cooper of the Institute for Higher Education Policy started the session off with a healthy dose of skepticism towards these plans, pointing out that the higher education policy community tends to “become fixated on the next big thing” and offering some concerns of some unintended consequences.

Miguel Palacios, professor at Vanderbilt and cofounder of Lumni, and Alex Holt of the New America Foundation both had a more optimistic outlook towards ISAs, arguing their potential to inject consumer certainty and price signaling into the higher education market. Rohit Chopra of the Consumer Financial Protection Bureau added the unique perspective of a regulator in the space, asking some very useful questions for the audience and the panel to think over.

Given the lively debate from the panels and terrific questions from the audience, we hope this will be the first of many discussions on the topic of Income Share Agreements. Check back with the New America Foundation’s Ed Money Watch and Higher Ed Watch blogs as the debate continues.

House Republicans Fight to Keep Loophole in For-Profit Colleges’ 90/10 Rule

October 7, 2013

Update 10/15/2013 2 PM: This post was edited to reflect that the proposed reform would include Tuition Assistance in the 90 percent calculation, not the 10 percent.

Congress failed to reach an agreement on funding the government for fiscal year 2014, which began on October 1, 2013, shutting down the federal government. That high-stakes budget battle has overshadowed a different disagreement between the House and Senate that could have a big effect on education benefits for members of the military – and for-profit colleges.  

The disagreement is on the Department of Defense Appropriations Act, one of the annual bills that funds the DOD. The House passed the bill back in July and sent it to the Senate. The Senate Appropriations Committee passed the bill on August 2 – but included a change to an existing test for colleges called the 90/10 rule.

The 90/10 rule states that private for-profit colleges must get at least 10 percent of their total revenue from non-federal sources, namely tuition collected from the student or his family. Failure to do so can result in losing access to Title IV funds. The 90 percent includes federal Title IV aid – Pell Grants, federal student loans, and more. It does not include nearly $12 billion spent annually on servicemembers’ and veterans’ education benefits through the Department of Defense or the Department of Veterans Affairs (VA), nor does it include more than $25 billion annually lost to tax expenditures.

The new proposed language in the DOD fiscal year 2014 bill would change some of those exclusions. Military education assistance for spouses of servicemembers or off-duty training and education for servicemembers themselves would be included in the 90 percent calculation. Additionally, for-profit colleges couldn’t use any of that Tuition Assistance (DOD) funding to advertise, recruit, or market to students.

All in all, the provision is pretty limited. The Department of Defense spends only about $517 million per year on these benefits, a small share of the DoD budget or even of federal higher education funding. VA benefits, the much larger pot of money that includes the Post-9/11 GI Bill, among other education provisions, would not be affected by the new NDAA provision.

And because there are no publicly available data that provide the institution-level breakdown of the dollar amount of DOD and VA benefits spent, it’s impossible to know exactly how many schools might be affected. A paper published by financial aid expert Mark Kantrowitz this summer used national averages to estimate that adding in DOD and VA benefits would add about 2 percentage points to a school’s 90/10 amount (for example, a school that received 88 percent of benefits from federal Title IV sources under the current system would receive 90 percent when military benefits were added in. Click here to search for a school and see its 90/10 percentage, alongside other data).Those effects could be more or less severe, depending on the school’s reliance on military student benefits.

Kantrowitz also suggested the effects of banning the use of federal money for marketing would be far more drastic. Since the largest for-profit schools spend about 20 percent of their total revenue on advertising and recruitment, he argues it would effectively increase the threshold for schools to 80/20. Again, though, the largest for-profit schools may not be a good sample to judge the effects on all schools subject to 90/10 – for some schools, it could be far less than 20 percent, or for some schools, even more.

Last week, four Republican members of the House – John Kline, Chair of the Education and Workforce Committee; Jeff Miller, Chair of the Veterans’ Affairs Committee; Buck McKeon, chair of the Armed Services Committee; and Bill Flores, chair of the Economic Opportunity Subcommittee on the Veterans’ Affairs Committee – sent a letter to key members of the House Appropriations Committee disparaging the Senate provisions. They asked that the new restrictions be removed before the defense appropriations bill passes the House again.

Their reasoning?

The marketing provision implies schools are “preying” on unsuspecting members of the military and their families, and the 90/10 rule is both unproductive and unable to account for the fundamental differences between Title IV and military education benefits.

They aren’t the first to suggest concerns with the 90/10 rule, writ large. The rule is intended as a kind of rough, imperfect metric of quality – schools that aren’t able to garner at least 10 percent of revenue from non-federal sources have presumably been labeled by the market as not worth paying for. But it can have other, unintended effects, mainly discouraging schools from serving low-income students or compelling them to raise tuition. Since the 90/10 rule includes no measure of outcomes or of how well the school serves those students, it may just be leading to the exclusion of students who can’t contribute the school’s 10 percent of non-federal revenue. (Incidentally, better data in the form of a student unit record data system could allow for better quality measures and make the 90/10 rule irrelevant.)

But including military benefits within the 90/10 rule is a no-brainer, whether or not the rule is revised to avoid these unintended consequences or to incorporate additional quality measures. The question at hand is whether students and families are willing to shell out for a particular school at which many students receive federal aid – at least 10 percent of the school’s total fiscal intake. DOD and VA benefits, as federal benefits for students, fall squarely on the 90 percent side of the equation. Failing to include them creates a perfect loophole for exploitation of servicemembers and veterans by schools that can’t otherwise meet a basic financial test.

The Federal Education Budget Project, Ed Money Watch’s parent initiative, maintains a comprehensive database that includes data on the 90/10 rule for all institutions of higher education subject to the rule, as well as other cost, finance, demographics, and outcomes data. Click here to search for your school or here to download the institution-level research file.

Government Shutdown Strands Departments of Education, HHS with Few Staff, No Money

October 1, 2013

This post first appeared on our sister blog, Ed Money Watch.

Congress spent the final moments of fiscal year 2013 last night in the throes of a debate over funding the government. Unable to reach agreement despite days of back-and-forth between the House and Senate, however, the government officially shut down at midnight on September 30.

Federal agencies were ordered just before midnight to begin implementing plans for a federal shutdown absent funding for fiscal year 2014, which began on October 1. Skeleton crews will remain in place at the Departments of Education and Health and Human Services (HHS) for the length of the shutdown, but most employees will be furloughed.

The first few days of the shutdown likely won’t be very severe. Education programs funded with mandatory spending—including Pell Grants and federal student loans—will continue to operate as normal. And most of the big K-12 programs, namely Title I grants to low-income students and IDEA special education grants to states, have already seen a substantial portion of their funding disbursed. Those and other programs that have already been awarded will be okay in the short term.

Some other programs won’t be so lucky. About 20 Head Start programs, enrolling nearly 19,000 children, have grants that expire on October 1 and won’t receive new funding to continue operating until the shutdown is resolved. Other federal programs, including work-study aid for college students, will also be delayed.

If the shutdown wears on, though, it could start to impact school districts, institutions of higher education, and postsecondary students more severely. Some staffers for the Departments of Education and Health and Human Services will return to the agencies to ensure operations function as normally as possible. But with no funding appropriated yet for fiscal year 2014, school districts and students are sure to pay the cost.

The dispute that led to the first federal shutdown in 17 years centered around the implementation of the Affordable Care Act, the healthcare law passed in 2010 for which some provisions also went into effect on October 1. Some Republican members of the U.S. House of Representatives insisted on defunding and/or delaying for one year the law’s implementation, while Democrats in Congress, as well as President Obama, demanded a clean funding bill with no alterations to the healthcare law.

The debate over the Affordable Care Act is masking another divide in Congress that needs to be resolved before an annual appropriations bill is finalized, though: how and whether to fund domestic programs within a shrunken budget.

The 2011 Budget Control Act sets an overall limit on funding for domestic programs, and to avoid finding the required spending cuts in fiscal year 2013, Congress and the president enacted a law in late 2012 to reduce the 2014 levels further. That means this year, lawmakers will have to find another $18 billion in cuts to fiscal year 2014 appropriations to avert mandatory and automatic across-the-board sequesters applied to most federal programs.

But Senate Democrats have said they won’t support a bill within those limits, and House Republicans now have cold feet having realized they’d have to cut a big chunk of domestic funding back to fiscal year 2002 levels. So neither the House nor Senate has voted to approve its own spending bill for the Departments of Labor, HHS, and Education. Assuming lawmakers don’t manage to find the cuts themselves, many federal programs, including most education ones, will be sequestered again. The continuing resolutions debated over the past week have appropriated well above the 2014 rate, at prior-year levels. That means lawmakers have likely set up federal programs for another round of blunt cuts down the line.

All in all, the shutdown leaves policymakers in D.C. and recipients of federal dollars around the country with a great deal of uncertainty. Congress could choose to end this shutdown quickly, before many serious side-effects occur. Or the shutdown could drag on, with neither side willing to cave. There could even be a short-term temporary funding bill—as short as one week, some lawmakers have argued—that would precipitate another round of the same debates almost immediately.

Finally, in just a few weeks, on October 17, the U.S. is projected to reach the nation’s debt ceiling. A bill to raise the debt ceiling could be seen as a prime legislative vehicle to pass a 2014 spending bill – but some members of Congress are considering yet another showdown when the debt ceiling debate rolls around.

Check back with Ed Money Watch and Higher Ed Watch over the coming weeks for more details, and for information on the 2013 and 2014 appropriations process, we’ve got the details in our April 2013 issue brief, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis.

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