- Researchers debate changes to federal income-based repayment programs
- Obama budget calls for changes to education tax benefits
- Education Department official defends agency's loan servicing contracts
- New report calls for income-based repayment system that operates like payroll taxes
- Obama expands income-based repayment to older borrowers, pushes Democrats’ student loan refinancing bill
And So It Begins
WASHINGTON -- There was no opening bell or official declaration to mark the occasion, but on Tuesday, Congress nevertheless began to take its first steps toward the next renewal of the massive law governing federal financial aid programs.
The Higher Education Act, last rewritten in 2008, expires at the end of this calendar year. No one knows when Congress will actually finish renewing it or how the deep partisan divide that pervades Capitol Hill will complicate what is already a lengthy process. Last time around, it took five years to renew the act after it expired. When the Education Department announced plans for a sweeping regulatory agenda on Monday, some saw it as a signal that its officials didn’t expect Congress to finish its work anytime soon.
But a Senate committee and House of Representatives subcommittee kicked off the process regardless, holding the first broad hearings on higher education since the new Congress took office in January. Despite the scope of the hearings, and the divisions between the two parties that control each house of Congress, both ended up discussing how to simplify the complex federal financial aid system. And the most urgent item on Congress’s higher education -- dealing with the interest rate on federally subsidized student loans, which is scheduled to double in July -- made only a brief cameo at both hearings as panelists and lawmakers focused on broader issues.
The House hearing was billed in part as a chance for members to get up to speed on higher education issues as they prepare to rewrite the Higher Education Act, with written testimony that included an overview of the 40-year history of federal financial aid. The Senate hearing was narrower, focusing on students’ views of the financial aid system. Both quickly made their way to calls to make the financial aid application process easier to understand.
At the House hearing, Rep. John Kline, the Minnesota Republican and chairman of his chamber's Committee on Education and the Workforce, asked for specific suggestions on how to simplify the federal financial aid system, saying simplification had long been a “major goal” of his.
The suggestions, from Patricia McGuire, president of Trinity Washington University, and Dan Madzelan, a longtime senior Education Department official who retired at the end of 2011: start with the application process, the Free Application for Federal Student Aid, long criticized for its complexity and impenetrability.
At the Senate hearing, the need for standardization and simplification was also a major theme. Ranking member Sen. Lamar Alexander, a Tennessee Republican, suggested that the costs of complying with federal regulation, as well as states shifting money from higher education to pay for rising Medicaid costs, were the reason for the tuition burden on students.
“We have so many regulations precisely because we have created such a complicated system,” said Sara Goldrick-Rab, an associate professor of education policy at the University of Wisconsin at Madison, who testified at the Senate hearing. “There’s an incredible need to simplify this … and to simplify this means to go back, to revisit where we were when these programs started out.”
Simplification is a “terrific goal,” said Terry Hartle, senior vice president for government and public affairs at the American Council on Education, as he began his testimony at the House panel -- in fact, he said, simplification has been the “holy grail of each reauthorization for the past 25 years.” Still, each reauthorization has arguably made the financial aid system more complicated, not less. There are now seven options for repaying federal student loans, for example.
Maintenance of Effort?
Tuition prices, college costs and whether students get good value for their money have been a focus for the Obama administration for more than a year. Questions from members of Congress from both parties suggested that those questions will preoccupy lawmakers as well as they prepare to rewrite the Higher Education Act.
Panelists at the House hearing repeatedly pointed to state disinvestment in higher education as a major driver of college costs, an argument made early in the day in the Senate. Those offering testimony called on Congress to hold states accountable for maintaining or increasing their spending on public higher education.
“Public higher education, which educates 70 percent of students in the United States, is about to cross a historic threshold,” said Sen. Tom Harkin, an Iowa Democrat and chairman of the Committee on Health, Education, Labor and Pensions. “For the first time ever, students will pay a higher percentage of the operating costs… than state governments.”
But the system of federal financial aid is constructed in such a way that putting together strict “maintenance of effort” requirements -- requiring states to keep funding public higher education in order to receive federal dollars -- is difficult because states receive relatively little money for higher education from the federal government. As a result, previous maintenance of effort requirements have been “nibbling at the edges,” Madzelan said.
Rep. John Tierney, a Massachusetts Democrat, asked if there were any proposals for maintenance of effort “with teeth.” As part of the Gates Foundation’s Reimagining Aid Design and Delivery project, some outside groups recently called for turning some federal higher education programs into block grants to give the federal government more leverage over the states. But those suggestions -- which if enacted would be a significant change to federal policy, particularly if Pell Grant funding was involved -- didn’t come up at Tuesday’s hearing.
Another idea discussed at both hearings: improving the system by which students repay loans based on their income. At the Senate hearing, Ethan Senack, federal higher education associate at the U.S. Public Interest Research Group, called for making sure more information is available to students and “streamlining” income-based repayment.
The House hearing went further, discussing enrolling all borrowers automatically in income-based repayment. Rep. Tom Petri, a Wisconsin Republican and longtime advocate of such a system, recently introduced a bill to enroll all borrowers in the income-based program and collect loan payments through paycheck withholding -- the same system used for paying income taxes.
Petri’s proposal is the “most complete and thorough proposal we will ever have,” Hartle said, and he argued that a system of automatic income-based repayment would deal with two of the three challenges facing student loan borrowers. It would eliminate, or at least alleviate, the burden that high loan payments can put on a graduate’s earnings. And it would do away with defaults in the federal student loan system.
But automatic income-based repayment could also worsen the other problem confronting student loans: students might borrow more than they should, Hartle said.
Little on Interest Rates
While the Higher Education Act expires at the end of 2013, that date isn’t a hard deadline -- the law will remain in effect, and no one would be surprised by a delayed reauthorization. But July 1, when the interest rate on subsidized federal student loans (loans that don’t accrue interest while students are enrolled in college) will double to 6.8 percent without Congressional action, is a much more immediate issue.
In his budget request for the 2014 fiscal year, put forward last week, President Obama proposed a change to interest rates for all loans that would allow them to rise and fall along with interest rates in the overall economy. The proposal drew mixed reviews: Congressional Republicans praised it Tuesday, but student advocates -- and some of their allies among Democrats -- said the lack of a cap on the market-based interest rate could endanger students if interest rates spike.
At the Senate hearing, Harkin indicated that he wasn’t pleased with the lack of an interest rate cap in Obama’s plan. And Senator Al Franken, a Minnesota Democrat, joined with Senack of U.S. PIRG in asking Congress to act before interest rates double in July.
“The reality is that most students graduating from college these days, they’re not making enough money to pay the bills, let alone pay back these loans,” Franken said.
For the most part, the House hearing focused on the technical side of broader questions -- how to simplify the financial aid system to ensure access, helping students succeed while holding down costs (using strategies both large and small -- McGuire, the Trinity president, told lawmakers that she does not serve cookies at faculty meetings because “our students go into debt to pay for college; we cannot be eating their tuition”), and collecting student data that accurately measures college completion rates.
But there were a couple of detours into the larger philosophical questions that underlie the federal government’s involvement in higher education. When his turn to question witnesses arrived at the House hearing, Rep. Tim Walberg, a Michigan Republican, opened by asking if too many students are going to college. Walberg said he was concerned about the growing number of students who need remedial classes. “Let’s make sure students are pushed, but it takes academic qualifications, and it takes excellence,” Walberg said. “Let’s not manufacture students.”
And near the end of the hearing, Rep. Luke Messer, an Indiana Republican, asked witnesses about the role of federal financial aid in driving up college costs. “Does federal student aid influence tuition? No,” Hartle said.
“You really believe that?” Messer said in response.
By the end of the hearing, the shape of any future Higher Education Act proposals -- or even what members of Congress would like to see included in the legislation -- remained unclear, as it probably will be for some time. The witnesses, though, set forward a few guidelines, emphasizing simplification and urging Congress not to regulate colleges too much.
“First,” said McGuire, as she began to lay out the principles she’d like to see underlying the next iteration of the Higher Education Act, “do no harm.”
Zack Budryk contributed to this article.