studentaid

Study: Federal Loans Drive Up Private College Tuition

The availability of subsidized federal student loans play a role in increasing tuition, particularly at less-selective private nonprofit colleges with relatively affluent student bodies and for-profit colleges, a study by researchers for the Federal Reserve Bank of New York finds. The study adds to a body of studies -- frequently challenged by higher education leaders and some economists -- suggesting that federal financial aid contributes to tuition increases by easing constraints on students and families.

Gates Foundation joins calls for FAFSA simplification

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The foundation's first higher education policy proposal aims to simplify the financial aid process for students while satisfying college and state concerns about getting rid of too much information.

Transparency, not gimmicks, should guide college pricing (essay)

For today’s enrollment manager, it’s nearly impossible to go a week without someone forwarding an article about another college trying a new way to describe the difference between its listed sticker price, the actual cost of attendance and the institution’s discount rate. The current funding model for higher education is broken and we can only blame ourselves for creating a norm of bargain basement pricing for those families in the know, opaque business models and unexplained annual increases based more on competitors’ current price tag rather than our actual campus needs. We continue to play a game of chicken as we wait for a so-called peer to do what we need to do.

On my own campus, we’ve been discussing this issue for several years and have yet to figure out what, if any, changes we should make, but we do know that honesty is a safe bet.

Gimmicks like so-called tuition resets and freezes, as well as “inflation +” models, are our industry’s desperate attempts to respond to critics and to try to appease the price police, when perhaps we should be discussing why we cost so much instead. These efforts are often undertaken in response to the chorus of calls for affordability, but they seldom illustrate for whom the experience will be more affordable.

Neither these efforts nor simply sticking with the status quo are acceptable over the long term -- families deserve additional information before they pay tuition or incur debt to cover campus costs. But any change has a substantial impact and cannot create spiraling financial scenarios for our campuses, either.

There are significant risks involved in changing how we discuss pricing, cost and value. Private colleges, as tuition-dependent institutions, are hesitant to try something new, especially if all of our peers stick with the currently murky language and approaches to cost and price.

As an industry, we need to work at getting it right for our students, which includes lowering actual costs for students and maintaining sufficient revenue to deliver on our mission. Meanwhile, we are muddling through how we describe our costs, often with too many apologies, and witnessing the shuttering of campuses across the country that didn’t find the right programmatic offerings, words or approaches to make themselves institutions of choice for students.

As best I can tell, there are no clear or easy solutions, but there are a few key elements we need to stress in future rhetoric and approaches:

A clear rationale for a new model. Families would benefit from an honest conversation with college leaders about why unfunded tuition discounting cannot continue at the current rate and why discounting has a negative impact on a college’s short- and long-term finances and bond rating. Further, colleges need to clearly describe their business model to their campus constituents, students and parents of current students and delineate how the annual operation is funded. Finally, leaders need to acknowledge that percentage increases in tuition costs cannot continue in perpetuity. At some point we will price ourselves out of the market and into bankruptcy.

Genuine reductions in cost to students. In too many cases, a clear illustration of exactly what has changed and how much less a student will pay is missing entirely from the launch of a new plan. Some institutions reference averages or scenarios for the financially neediest students while ignoring the middle class. Seldom is there a clear statement that all students will pay at least $XXXX less to attend the next year. I realize this is pretty tricky -- saying that the education offered is less expensive than the previous year -- but this is exactly what’s missing and why many of the efforts so far seem to miss the mark. Without a clear explanation to students and families of the financial benefits of a new model, colleges remain vulnerable to criticism that a new model really doesn’t change the cost of attendance to the student (a criticism that is fair in many cases). Colleges need to clearly articulate whether or not students will benefit.

Substantive changes to the business model and how we operate as institutions. One of the reasons many newly introduced models for calculating costs and how they are applied are viewed as gimmicky is because there is no clear explanation of what (if anything) has changed. Will changes in pricing result in a reduction of departments or student services? Is the college dependent on increasing the size of the student body to make up for lost revenue? Has the college become more efficient? Will the college open a new line of business to generate more revenue? How things will change is the key unanswered question, and our public is smart enough to want to know what changes -- and theoretically reductions -- will occur before they commit.

Sufficient marketing of any new model. While I’ve seen some clever YouTube videos and good press releases, strong marketing of a new model seems pretty limited. Some colleges don’t want to be seen “wasting money” on marketing when trying to prove to the world that they care about reducing costs to students. Additionally, many colleges view new models as highly risky, and they don’t want the hangover of a marketing rollout if it doesn’t work. However, the lack of a confident marketing plan results in most of these efforts being viewed as isolated, gimmicky or done with an ulterior motive, like lowering the price to attract more students because there is excess capacity to educate and house them on campus. An aggressive and comprehensive public relations and marketing campaign would have great benefit to a college if it really does want to transform the model and be a market leader.

Clear connection between price and return. Although there have been recent efforts to describe the return on investment of a college degree, historically speaking, connecting price with results and service has been inadequate at best and incredibly opaque at worst. There are so many questions to consider: What goes into a “comprehensive fee”? How does what a student pays for, and gets, differ from year to year in order to justify an increase or not? Are the services students receive as first-year students more comprehensive than as seniors? Should having a full-time faculty member as an adviser add value and cost? Colleges must do a better job connecting the price of attendance with what a student receives from year to year.

Even if a college committed to addressing these missing pieces, could it transform how we calculate cost of attendance for the student and the institution? I don’t know for certain. But a college that starts out willing to change the business model, reduce the actual price (and cost) for students, clearly describe what a student gets for what he or she pays, and aggressively market a new cost/price model -- that college would get attention. And that would be one of those articles forwarded to me that I would be interested to read.

W. Kent Barnds is executive vice president and vice president of enrollment, communication and planning at Augustana College, in Rock Island, Ill.

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O'Malley Releases His Debt-Free College Plan

Martin O'Malley, the former Maryland governor who is seeking the Democratic presidential nomination, is today releasing a proposal to create debt-free college options in public higher education. O'Malley's plan would take five years to carry out, but immediately he would create new loan refinancing options and limit monthly repayments based on income. Longer term, he would reduce the need for borrowing by calling on states to freeze public tuition rates, while creating new state-federal spending programs to add funds to public college budgets. O'Malley's plan calls for bringing four-year public tuition levels down to 10 percent of median income in a state (5 percent for community colleges). He says that the rates are more than 20 percent of median income in 10 states. Other parts of the plan would increase the value of Pell Grants and support efforts to speed up time to completion.

There are no details in the plan about how it would be financed, but aides told The Washington Post it could be paid by eliminating corporate tax loopholes and increases in the capital gains tax.

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Education Department clarifies how some loan collectors pursue bankrupt borrowers

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Education Department issues new guidance on when guaranty agencies should oppose borrowers pursuing loan discharge in bankruptcy court; consumer advocates say it will provide little help.

CFPB Faults Loan Servicing for Military Borrowers

The Consumer Financial Protection Bureau on Tuesday released a report describing shortcomings the bureau has found in how student loan servicers treat military borrowers, which include improper denial of legal benefits, negative credit reporting and insufficient follow-through on legal protections for military families.

In 2012 the CFPB released an initial report on the issue. Since then, the bureau said, it has handled 1,300 complaints from military borrowers.

For example, the new report found that service members continue to report difficulties in getting interest rates for their loans capped at 6 percent, as the Servicemember Civil Relief Act requires. It also described how servicers fail to grant active-duty members of the military allowed deferments on loan payments, which can lead to surprise delinquencies, defaults and debt collection efforts.

A New Jersey legislator is proposing a lottery to clear the winners' student loan debt

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A New Jersey lawmaker is proposing a lottery that would clear student loan debt of the winners. But critics say the lottery isn't a viable solution for those hoping to pay off their debt in a reasonable amount of time.

How the Department of Education should design its ratings tools (essay)

Last week, the Department of Education walked back from its plans to develop a comprehensive college ratings system. In its place, the department plans to release “easy-to-use tools that will provide students with more data than ever before to compare college costs and outcomes.”

There are already plenty of resources and tools to help students and families research these questions, provided by government (College Navigator), nonprofit organizations (College Results Online), and media outlets (U.S. News & World Report College Rankings), and lawmakers continue to call for more consumer information about college outcomes.

But is anyone actually using these tools, and are the interfaces, graphics and user experiences designed to actually help students? And how “easy to use” will these new tools be?

To better understand what works and what doesn’t, I recently co-wrote a report with Healey Whitsett, now of the Pew Charitable Trust, that provides best practices on how to design and deliver information to help prospective college students navigate the best programs available for them. The department should turn to these principles as it develops its new tools to maximize their effectiveness.

We synthesized scores of studies on behavioral economics, information search, retention, and bottlenecks that get in the way and break down the proper processing of information – and recommended ways to design tools so students get the information they need to make more informed decisions about where to go to school, what to study, and how to pay for it. We also recommend that designers target their efforts at students from low-income families, as unfortunately, they’re the least likely spend a lot of time searching for information.

For example, designers shouldn’t try and cram too much information in one place. Cognitive research tells us this overwhelms the reader and makes it difficult to comprehend and retain the information.

In one study, researchers compared individuals' interactions with the standard mortgage disclosure form, against a redesigned, better organized prototype: borrowers using the redesigned form were 38 percentage points more likely to correctly identify the amount of the loan, and 11 percentage points more likely to correctly identify their monthly payment amount. Since students are unable to identify how much money they took out in student loans, redesigning these forms makes a lot of sense.

The literature also demonstrates the importance of personally tailored information: Consumers are much more likely to identify, remember, and use information if it is personally relevant to them. That’s why broad national rankings are probably only so useful to students and families. In this regard, the Department seems to be on the right track by making the tools “customizable” to the user.

Our research also finds that higher education stakeholders shouldn’t present students with too many options of comparison. With 7,000 colleges and universities to choose from, it’s critical that we figure out manageable ways for students to compare a limited set of schools that tailor to their interests, or they risk facing what we call the “tyranny of choice.”

A study by Judith Scott-Clayton at the Community College Resource Center at Columbia University's Teachers College showed that too many choices in community college majors or programs may overwhelm and discourage students from persisting in and succeeding at earning a credential.

Furthermore, information should be as personally tailored as possible, as individually contextualized information is much more likely to be recalled and used in decision making.

Aspiring students must also be able to compare and contrast their school and loan choices. It would be very difficult to choose which school to attend if you knew the graduation rate of one and the list of majors of the other. They must be able to compare the same variables side by side.  

Fortunately, it looks like Congressional leaders are interested in arming students with more information as well. In its white paper on proposals for reauthorizing the Higher Education Act, the Senate Health, Education, Labor and Pensions Committee called for “extensive consumer testing on what information is needed and how it should be presented” and to “[a]pply this research to any federally produced consumer tools and make the research available publicly to voluntarily inform the market.”

The House Education and Workforce Committee recently said, “Access to better information will empower students with the knowledge they need to make smart decisions in the college marketplace.”

We hope that the department will take note of this research as it designs this new tool and we also applaud department officials for committing to work with outside parties to design their own mobile apps and interfaces optimized for usability. After all, aspiring students can have all the data and information in the world, but if it’s not packaged and delivered in a way that’s useful to them, then we’re wasting our time.

Tom Allison is research and policy manager at Young Invincibles.

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Survey: 70% of Students Stressed Over Finances

A national study released today finds that 70 percent of college students are stressed over their finances. The study, conducted by Ohio State University researchers, used a sample of students at 52 institutions, including two- and four-year, public and private colleges. Nearly 60 percent of students said that they worry about paying for college, while more than half worry about paying living expenses. Despite the stress, more than three-quarters of students said that they believed college was a good investment.

 

 

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Proposed 2016 U.S. spending on education, health, labor programs

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The House and Senate both passed bills last week to set spending levels for key federal higher ed programs; a table compares them.

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