Although long overdue, there is finally a debate in Congress, the White House and the news media over how the federal government should address rapidly increasing college tuition. President Obama has repeatedly attacked rapidly rising tuition in speeches. Peter Thiel controversially called higher education the biggest bubble since real estate circa 2008. And for the first time in a long time, the wisdom of the access-to-college-at-all-costs mantra is being questioned by more than just the fringe on both sides of the aisle. Senator Richard Durbin’s (D-IL) recent proposal turned some heads, but the consensus is that his proposal has little chance of passing — and is definitely a nonstarter in an election year.
Durbin suggests changing the so-called 90-10 rule -- wherein for-profit and career colleges must earn at least 10 percent of their revenue from sources other than federal student aid to be eligible to receive any federal aid -- in two key ways.
Today’s 90-10 rule creates a powerful incentive for for-profit and career colleges to recruit aggressively anyone eligible for military benefits -- but not for the right reasons. Indeed, because military benefits count as part of the 10 percent of “non-federal money,” for every one military student a college signs up, it can acquire nine non-military students paying full tuition with federal loans.
Durbin’s proposal to include military benefits in the 90 percent has some common sense behind it; after all, these are federal funds. Although doing this would probably increase prices in the short-to-medium term as for-profit and career colleges raised tuition to be sure that 10 percent of aid was coming from non-federal sources, in the longer run properly accounting for federal costs will make the true cost of education more transparent and create more room for start-up higher education institutions that are lower in both price and cost to emerge.
Although it’s a shame on the one hand that this looks unlikely to pass, it may open an opportunity to improve the legislation both for the short and long term in some important ways.
In the short term, Durbin should modify the language of the proposed bill in a few ways. First, drop the idea of moving the policy to 85-15 in order to garner consensus and get the bill passed.
More importantly, he should change the bill to address people, not revenue. The difference is subtle, but critical. Instead of requiring 10 percent of revenue to come from non-federal dollars, require that at least 10 percent of students pay full tuition out of pocket. This is, in essence, how some of the regulations were written for the GI Bill shortly after World War II when there was considerable -- and justified -- fear that government dollars were going to flow toward unethical and poor-quality institutions. The idea behind this was simple. People with sufficient means to pay the tuition outright have the social capital to identify if the education is of high quality and if the value proposition is likely to have a positive return on investment, even if that return takes nearly a lifetime.
Many people correctly point out that 90-10 in its current form actually drives up tuition by incentivizing colleges to raise prices so that student loans and grants don’t quite cover the cost and they can receive 10 percent of revenue from non-federal aid sources.
By making 90-10 about people, not revenue, we give these schools a way out without raising prices: recruit students with the means to pay or lower prices enough so as to be priced attractively for many more individuals to be able to pay full tuition. Doing this would also make other proposals that might be logical under the current 90-10 construct — such as allowing institutions to limit the amount of federal loan dollars students can take out or to subsidize low-income students by paying the federal government back for excess federal aid received so that the college is in compliance with the 90-10 rule — largely irrelevant.
Thirdly, the 90-10 rule should apply to all colleges regardless of tax status, not just to for-profit and career schools. To our knowledge there are no nonprofit or public colleges that are close to 90-10, so it shouldn’t affect them considerably, but their inclusion gives an important nod to the role that for-profit companies can and should play in reducing costs and driving educational quality. Additionally, applying the rule uniformly addresses the perspective that heightened scrutiny reflects bias against for-profit actors in the education space and capitalism more generally.
Looking Longer Term
These quick fixes will eliminate the perverse incentives to recruit veterans regardless of program quality or fit, but they do not address the more persistent problem of massive annual tuition increases. Doing that requires a substantial realignment of federal financial aid with a longer-term view -- and it means moving beyond the clunky 90-10 rule entirely.
Given the amount of money the federal government provides to higher education, it’s perfectly reasonable for it to use those dollars to promote affordable, high-quality options.
We recommend establishing a new track for institutions to access federal loans and grants based on measures of quality and student satisfaction relative to total cost, not just tuition price. The better a school performs on this measure compared to its peers, the higher percentage of its educational operation it could finance with federal aid -- thereby eliminating the all-or-nothing access to federal dollars and encouraging students to make decisions based on quality and cost, which will drive innovation.
To create this metric -- an institution’s Quality-Value Index -- the government could add together four measures: job-or-school placement rate 90 or 120 days after graduation (assuming the student isn’t already in a job); graduates’ earnings change as a percentage based on students’ risk profile -- over some amount of time -- relative to the total revenue the institution received (regardless of source and including grants, subsidies, gifts, expenditures from endowments and so forth); alumni satisfaction; and loan repayment.
The devil is in the details, so implementation should take a few years. Nevertheless, changing the funding dynamic in this way would accomplish several things.
It would move the focus away from judging colleges and universities on inputs such as student-teacher ratios and arbitrary outputs such as degree attainment, to more tangible student-centered outcomes based around how well the experience improves students’ lives relative to the total price students and society pays.
It avoids controversial discrimination between for-profit and nonprofit providers.
And given that providers are motivated to follow dollars and innovate aggressively, innovation would focus on lowering costs, increasing speed of learning and aligning offerings with the evolving niches of employer needs -- not on aggressive recruiting.
Getting this right ultimately would accomplish goals on which everyone can agree: allowing many more students to receive a high-quality education without breaking their banks or the nation’s.
Gunnar Counselman is founder and CEO of Fidelis, a company that works with colleges and veterans organizations to help military employees make a transition to the work force. Michael B. Horn is the co-founder and executive director of the education practice of Innosight Institute, a nonprofit think tank devoted to applying the theories of disruptive innovation to problems in the social sector.
Despite its many accomplishments since its enactment in 1972, the Pell Grant program has strayed in key ways from the initial conception of the Senator for whom it is now named. Instead of disadvantaged students and their families knowing years in advance of their eligibility for aid, the process of applying for and receiving a Pell Grant (and federal student aid more generally) is excessively complicated and often serves as a barrier to access. Also, roughly one in two undergraduates now receive a Pell Grant, meaning that it is far less targeted to the neediest students.
This expansion of eligibility also means that it takes a lot more money to fund Pell Grants at any given level of maximum award. Moreover, there is reason to be concerned that the recent large increases in Pell have had the unintended effect of accelerating the trend for more than a decade in which institutions move their own aid up the income scale because Pell is viewed as taking care of the neediest students.
In short, there is little evidence that the large investments over time in the Pell Grant program have moved us much closer to meeting national goals such as narrowing gaps in the participation, completion and attainment rates of rich and poor students and those from different ethnic and racial groups. In a world of more plentiful resources, this ineffectiveness might be less of a problem, but in the current climate of soaring federal deficits, it is neither likely nor desirable for Pell Grants to continue to be shielded from a sharp-eyed review of their effectiveness.
The Forgotten Middle Class
In a companion essay,
Hamid Shirvani argues for
expanding Pell by ending
federal tuition tax credits.
One way to react is to make further modifications in the current program structure in the hope that such changes will lead to greater effectiveness. But this seems a faint hope. The hundreds of pages of program rules that have accumulated over four decades are virtually indecipherable; further patches will make them more so.
A better way to proceed, in my view, is to start from scratch, including a reaffirmation or an adjustment in principles for modern times and then designing a program that meets those principles. Luckily, contrary to student loans where hundreds of billions of dollars of outstanding loans make the process of starting from scratch much more difficult, in the case of grants, every year represents a chance to start anew.
My candidates for reform principles would include a radical simplification of the application process and a better targeting of benefits to the neediest students. I would also include as a principle that Pell Grants should be better integrated with other federal policies so that they work in concert to meet key policy goals rather than the current situation where they too often work at cross-purposes.
To achieve these purposes, I suggest the following elements of a redone Pell Grant program:
1) The FAFSA should be eliminated and replaced with a provision whereby parents and students can apply for aid by allowing their federal income tax submissions to be used to calculate their eligibility for all forms of federal student aid. Families who don’t submit income tax forms but who are eligible for welfare, Medicaid, food stamps or the Earned Income Tax Credit (EITC) would be automatically eligible for the full amount of Pell Grants and other federal student aid.
2) The rules for determining eligibility for Pell Grants would be based on the 1040A income tax provisions. These tax-based amounts could be translated into categories of eligibility rather than precise dollar amounts so that students with the least family resources would have the highest category of eligibility and thus be eligible for the maximum Pell Grant award.
3) Eligibility for Pell Grants would be more restricted than is currently the case in at least two key ways. The family income of students qualifying for Pell Grants would be limited to a certain percentage of national median income or some other indicator of family financial strength. In addition, eligibility for Pell would once again be limited to students enrolled half time or more. To address the legitimate needs of the groups of students who would no longer be eligible for Pell grants, their eligibility for tuition tax credits could be enhanced (see below).
To make the overall student aid system more effective, in addition to changes made to Pell Grants, other student support policies should be changed to allow for more effective integration with Pell Grants. Three specific examples of this are:
1) Integration with tuition tax credits. For any given student, as family income increases, eligibility for tax credits should increase up to the maximum credit as Pell Grant eligibility recedes. This integration would recognize that tuition tax credits can be a more effective way of providing aid to middle-income students and students enrolled for only one course than cramming these students into Pell Grant eligibility and thereby reducing the effective maximum award for any given level of program funding.
2) Distributing other federal student aid. The formula for distributing campus-based student aid funds to institutions and LEAP funds to states should be changed so that in the future any appropriated funds would be distributed on the basis of the number of Pell Grant recipients who graduated in the previous year from that institution or institutions within a state. Institutions and states should also be given greater autonomy to spend those funds as they see fit to enhance the chances of Pell Grant recipients graduating from college.
3) Limiting in-school interest subsidies. Eligibility for in-school interest subsidies in the federal student loan programs in the future would be limited to Pell Grant recipients.
The collective effect of these changes would be to reduce substantially the $60 billion in federal funds that are currently expended annually on federal student aid, thus contributing to the overall federal deficit reduction effort. These changes also would help to make federal student aid investment more effective in meeting the goals of increasing college participation, completion and attainment and to narrow chronic equity gaps in these indexes.
Arthur M. Hauptman is a public policy consultant specializing in higher education finance issues.
The Pell Grant Program, enacted in its earliest form in 1972, provides financial assistance to lower-income students who otherwise would not be able to afford college. Award amounts depend on the family’s expected financial contribution and remaining financial need, with a current maximum award of $5,550 per year. Our economy has reaped the benefits of a more educated population as a result.
However, Pell Grants are no longer keeping up with need, and the problem of affordability is no longer limited to lower-income students. Today, a college education is unaffordable for many students who are considered middle-class, but who do not qualify for Pell Grants.
More realistic expectations of what families can afford should be reflected in Pell Grant awards. Families with higher incomes, perhaps even $100,000, should qualify for Pell Grants. And families that currently qualify should receive larger grants.
To help fund this expansion of the Pell Grant program, tuition tax credits should be eliminated. The equivalent of the tax revenue previously lost to the credits should be spent on Pell Grants.
Focus on the Neediest
In a companion essay,
Arthur Hauptman argues
for revamping Pell to
ensure that dollars flow
to the poorest students.
In 2010 Congress created the $2,500 American Opportunity Tax Credit, which is designed to give middle-income families some relief from costs for tuition, fees and course material. Yet I question the usefulness of a tax credit that only benefits families who already have the resources to pay college-related expenses. This tax credit has been most beneficial to wealthier families with an adjusted gross income of $100,000 to $180,000; they received an average credit of $1,773 in 2009. In comparison, the average credit was $1,572 for recipients with incomes of $75,000 to $99,999; $1,164 for recipients with incomes of $50,000 to $74,999; and $866 for recipients with incomes of $25,000 to $49,999.
Somewhere in between the families benefiting from the tax credit and those eligible for the Pell grant are families who have substantial need, but receive very little or no assistance from either program.
Because tax credit-equivalent funds (approximately $5.5 billion in 2009 but estimated to increase to an average of $9 billion in 2011 and 2012) most likely will not cover the full cost of expanding the existing $30 billion program, the federal government will have to spend more on Pell.
The facts for today’s students are bleak, as are the implications for future students.
Tuition is skyrocketing. The average tuition at a public four-year university for 2011-12 is $8,244, an 8.3 percent increase from the previous year that also follows a 7.9 percent increase the year before. A longer-term perspective is even more dramatic; tuition at public four-year universities, when adjusted for inflation, is more than 3.5 times greater than it was in 1981-82. Thus, a college degree is roughly 3.5 times more expensive for this generation than the previous generation.
At the same time that tuition increases are far outpacing inflation, incomes are faltering. The median household income was $49,445 in 2010. When adjusted for inflation, this represents a 6.4 percent decline since 2007 and a 7.1 percent decline since 1999. Families with declining purchasing power find it even more difficult to keep up with rising tuition. Unsurprisingly, then, the average amount of student debt for graduates of public four-year universities is also increasing, reaching $22,000 per borrower in 2010. Unless these trends change, student and family debt will continue to increase as tuition increases.
It is impossible to identify a specific income where students become ineligible for Pell grants, since awards are calculated based on a number of factors, including family size and the cost of attendance. But it is possible to identify ranges where students will probably not be eligible for Pell grants. Well over half of dependent students with a family income of $39,999 or less receive federal grants (Pell grants are by far the most common, though a small small number of other grants are included). However, less than a quarter of dependent students with family incomes of $40,000-$59,999 receive federal grants, and almost no dependent students with family incomes of $60,000 or more receive federal grants.
Who, then, do we consider to be middle-class, and can they still afford higher education? The $40,000-$59,999 range for comparing federal grant recipients is roughly equivalent to the middle quintile of household income in 2010: $38,044 to $61,735. Some would argue that this could be viewed as the true “middle” class. Yet, the long held notion of middle class has always been associated with norms that include home ownership, retirement savings, and college educations. Many might argue that the fourth quintile, with incomes from $61,736 to $100,065, and even some households in the fifth quintile, with incomes of $100,066 or more, could also be considered middle-class.
Can these families afford higher education? The average annual cost to attend a four-year public university, including room, board and expenses, is $21,447. At the higher range of the middle quintile, $60,000 is one-third of the family’s annual income for just one child. Yet, the fact that this family would likely have an expected contribution so high as to disqualify the student from Pell grant eligibility seems totally unreasonable. These students still have great financial need!
Widespread opposition to the existing Pell grant program will make expansion politically challenging. However, as President Obama has said, "A world-class education is the single most important factor in determining not just whether our kids can compete for the best jobs but whether America can out-compete countries around the world. America's business leaders understand that when it comes to education, we need to up our game. That's why we're working together to put an outstanding education within reach for every child."
If we do nothing to help students who are falling into the middle-class abyss, and if college continues to become unaffordable to a growing number of students, we must be willing to accept the consequences of a less-educated workforce at a time when a quality education is more important than ever, not only for the betterment of the individual (intellectually and financially) but for the future of our country.
Hamid Shirvani is president of California State University at Stanislaus.
Last year, as Washington State faced a severe budget crisis, legislators embraced a novel way to fund student financial aid: a public-private partnership between the state and private corporations. Called the Opportunity Scholarship Fund, the fund attracts private donations and matches them with public money in order to support students in science, technology, and other “high demand” fields.
Washington’s legislators, like their counterparts around the nation, are shifting the purposes of college away from the civic and personal toward the economic and vocational, undermining the broader goals that have historically been part of American college education. (Even in the 1862 Morrill Act providing federal support for colleges in “agriculture and the mechanic arts,” legislators recognized that college education demands both “liberal and practical education.”)
The idea for the fund originated in a task force established in summer 2010 by Governor Christine Gregoire, a Democrat. The task force was made up of 16 members and chaired by Brad Smith, a senior vice president at Microsoft. The vast majority of task force members represented the business community. There were a smattering of higher education administrators, but no faculty or students. There was only one elected leader, the mayor of Everett, Wash. The task force’s composition alone makes clear Governor Gregoire’s approach to higher education: align it with the needs of the state’s major corporations.
Nowhere on the panel were the other interests of society represented. There were no social workers, no doctors or nurses, no ministers; there were no teachers nor civil servants; there were no artists, no writers. It should not be surprising, then, that the task force recommended a financial aid policy that not only offers corporations tax breaks but allows them to determine which college programs are worthwhile. As a Tacoma News Tribune editor wrote, there would be more aid for some students, but less for those “pursuing a degree in, say, history or business or education.”
Such an approach challenges the idea that a collegiate education is a liberal education first and a vocational education second. It ignores the civic and personal purposes of liberal education. It threatens the general education curriculum designed to prepare future leaders. It reduces students’ ability to choose majors based on their own interests, goals, and values (unless of course they are already wealthy enough to turn down financial aid).
But the scholarship fund is only one piece of Washington legislators’ larger effort to transform the broader purposes of college. Although the per-student cost of educating a college student in Washington has not changed dramatically, the share of that cost paid for by students and families has grown substantially. This shifting burden makes it harder for students to take a chance with a liberal arts major, especially if they come from disadvantaged backgrounds. It also means that students and their families are paying more for college and looking for ways to save money.
In response, legislators have been offering students ways around colleges’ general education requirements. Unlike a major, general education is the heart of the curriculum because it represents what all students must learn to graduate. It is designed to ensure that students receive the kind of broad education in the arts and sciences that will allow them to grow as human beings and be better civic leaders. The liberal arts also offer students the skills employers most desire: the ability to think, analyze, write, and find creative solutions to problems.
But legislators have no interest in these broad goals and want students to get their general education requirements out of the way fast. For example, Washington’s “Running Start” program urges students to take general education courses in high school, where it is cheaper for students and the state. A more recent program authorizes high school teachers to teach college credit courses in partnership with local colleges. Both programs send students the signal that general education courses are a hurdle to overcome and not worth students’ time and money.
Last year, Washington policy makers launched a serious attack on liberal arts education. First, they authorized the establishment of Western Governors University-Washington, an online institution with no faculty and the most minimal of liberal arts requirements. Instead, WGU promises students degrees in vocational fields as fast as they can earn them. Second, legislators urged colleges to design three-year degrees for advanced students, which would probably mean limiting their time on campus to receive a broad education. And, finally, legislators established the Opportunity Scholarship Fund.
The broader context in which the Opportunity Scholarship Fund is situated should trouble all Americans. It threatens to transform the very purpose of college education. At a time when many commentators are noting the economic value of a liberal arts education, and our foreign competitors are embracing the liberal arts college model, it seems shortsighted for us to turn our back on it. More important, by reducing students’ access to the liberal arts, they, and our society, will lose something extremely valuable.
Johann Neem is associate professor of history at Western Washington University.