The federal government should create a matching grant program to reward states that maintain and increase their funding for public colleges, by linking the maximum Pell Grant awarded to students in states to per-student funding or higher education, the American Association of State Colleges and Universities argues in a new report. The paper documents the decline in states' funding per full-time equivalent college student since 2000 and the role that trend has played in driving up tuition prices (and student debt).
The report asserts that the federal government can influence state behavior, citing the maintenance of effort provisions that were inserted into the federal stimulus legislation (and other measures) that provided funds to states that kept their own spending on higher education above certain thresholds. Those efforts have not gone far enough, though, AASCU argues, by rewarding states that at least maintained their spending no matter whether their levels were high or low. "A new model is needed that acknowledges existing levels of per-student state support for public higher education and that strategically leverages federal dollars to incentivize additional state investment."
The association calls for a matching grant program of up to $15 billion a year, with grants to states based on how much money they provide per student compared to the Pell Grant maximum award. (A state's federal grant award would be cut if it reduced its spending on public university operating support.)
The proposed additional spending of billions a year may seem like an unlikely luxury in an era when members of Congress are bickering over millions, but AASCU suggests that funds for the program could be derived from "better gatekeeping of institutional eligibility to participate in federal student aid programs (particularly for for-profit colleges), and "risk sharing" for federal student loans.
Top Obama administration officials on Thursday held a meeting at the Treasury Department with more than a dozen financial institutions and loan servicing entities to discuss ways to improve the private student loan market. Education Secretary Arne Duncan, Consumer Financial Protection Bureau Director Richard Cordray and Acting Deputy Treasury Secretary Mary Miller were among the administration officials and government regulators who met with executives from the largest student lenders and servicers.
“Participants discussed strategies to assist borrowers in successfully managing their private student loans, including servicing best practices and approaches to private student loan modifications and refinancing,” according to the Treasury Department’s account of the closed-door meeting.
Miller urged the banks and loan servicing companies “to continue their efforts to expand options for repayment in the private student loan marketplace,” the department said. "Private student lenders and servicers can and should do more to offer more affordable repayment options so borrowers can avoid default," Cordray said in a statement after the meeting.
Cordray’s agency has been critical about some practices in the private student loan market. The CFPB previously raised concerns about problems with the servicing of private student loans, especially with regard to military service members. Starting in March, the bureau will begin more closely monitoring of the largest student loan servicing companies. Private lenders and loan servicers have also drawn scrutiny from consumer advocates and several members of Congress. A group of Senate Democrats is pushing legislation by Sen. Dick Durbin of Illinois that would increase regulation of private student loans and how companies service those loans.
Attending the meeting from the private student loan industry included executives from: Sallie Mae, Wells Fargo, JP Morgan Chase, RBS Citizens Financial, PNC Financial Services, CommonBond, SunTrust Banks, Discover Financial Services, American Education Services (also known as the Pennsylvania Higher Education Assistance Agency), Great Lakes Higher Education Corporation, and the Missouri Higher Education Loan Authority.
Most prepaid tuition programs were pitched to cover public four-year institutions and, in some cases, private colleges. But in Florida, the state is increasingly promoting -- and finding people receptive to -- prepaying for community college degrees, The Orlando Sentinel reported. Prepaying community college costs less than prepaying for a state university, but now most of Florida's colleges also offer four-year degrees.