President Obama said Friday that the popularity of 529 college savings accounts made him abandon a proposal to end the tax benefits of those accounts just days after first proposing it. "It wasn’t worth it for us to eliminate it," he said during remarks at Ivy Tech Community College in Indiana. "The savings weren’t that great.”
Families using 529 plans "were a little more on the high end" of the income scale, Obama said, noting that he has such accounts for his two daughters. "Our thinking was you could save money by eliminating the 529 and shifting it into some other loan programs that would be more broadly based," he said.
Although his plan would not have retroactively cut the tax benefits for savings that were already in a 529 account, Obama said that enough people liked the program -- or liked the idea of using the program in the future -- for him to change his mind. The plan, which would have raised about $1 billion in revenue over 10 years, also came under attack from both Congressional Republicans and Democrats, including House Democratic Leader Nancy Pelosi.
A Government Accountability Office study in 2012 found that just 3 percent of families were using 529 savings plans, and roughly half of them earned more than $150,000 a year.
Yale University will begin providing a sixth year of funding for Ph.D. students in the humanities and social sciences who need it to finish their studies. Yale is the first university to make such a guarantee. Lynn Cooley, dean of the Graduate School of Arts and Sciences, said in a statement that the new arrangement “will enable students to pursue their doctoral research and gain valuable teaching experience without shortchanging either goal.” (Note: This sentence has been updated from an earlier version, which misquoted Cooley as saying "changing" instead of "shortchanging.") Yale says the stipend will take the form of a guaranteed teaching position -- an experience it says makes students more competitive on the job market -- or other assignments tailored to students’ career goals.
Cooley also said many Yale graduate programs in the humanities and social sciences typically take six years, despite the fact that the current funding package covers only five years. She said she and her colleagues still “strongly encourage students to try to finish in five years, but we know from long experience that some programs take slightly longer, so we are delighted to be able to help students in this way.” The minimum annual stipend for Ph.D. students this at Yale this year is $28,400. Most students will be eligible for sixth-year funding, which starts in the fall.
The Obama administration's task force on campus sexual assault on Monday published new recommendations for how colleges should partner with local law enforcement agencies to combat sexual violence. The task force published a sample memorandum of understanding aimed at helping colleges and local police departments work together more effectively to prevent sexual assault.
The 2011 decision to end a short-lived program that let students earn two Pell Grants in a single academic year was blamed on a range of factors, including that the program's costs raged out of control and that it failed to encourage students to finish their degrees more quickly. A paper published this morning by the New America Foundation (and discussed in this Inside Higher Ed essay) argues that many of the reasons put forward to explain the program's demise don't stand up to scrutiny -- and that the program, if restored in modified form, could greatly benefit community college students in particular.
With President Obama’s new proposal to greatly expand federal support for community colleges getting all the attention, many on Capitol Hill want to bring back a large program tailor-made for the students who attend these institutions – one that the president himself led the charge to cut.
In late 2008, President Bush and a Democratically controlled Congress fixed one of the Pell Grant program’s biggest flaws. A student who attended full-time for two semesters would exhaust her grant such that if she wanted to attend an additional semester that year (say in the summer) she would have to do so without any federal grant aid. Yet when the calendar flipped to the next school year a few months later, she’d have access to another Pell Grant. The solution to this problem was always obvious: Let her access next year’s grant sooner.
With the 2008 reauthorization of the Higher Education Act, lawmakers finally allowed that to happen. The so-called year-round Pell Grant became available on July 1, 2009, although most grants likely were not awarded until the summer of 2010. Shortly thereafter, the Obama administration -- with the help of Congress -- shocked the higher education community and ended it to solve a budget crisis within the overall Pell Grant program.
Many believe that, despite the elegant simplicity of a year-round Pell Grant, the original version somehow got it wrong thanks to bureaucratic incompetence, abuse, or an ill-conceived design, which caused its costs to explode. Those views are hampering calls to reinstate the policy. Worse yet, the purported flaws in the policy are more myth than reality. Our new paper, “Myths and Misunderstandings: The Undeserved Legacy of Year-Round Pell Grants” (Jan. 22),argues that year-round Pell Grants did not suffer from any design flaws and that many of these explanations are erroneous. We highlight some below.
Many understand that year-round Pell Grants cost far more than budget experts and policy makers expected, implying that unexpected costs were unreasonable. It turns out that those higher costs were not due to some feature of the year-round grant. Every part of the Pell Grant program ultimately cost more in 2010 and 2011 than predicted, driven by a combination of increased benefits, eligibility changes, and the economic recession. Had policy makers never enacted the year-round grant, the cost of the Pell Grant program would still have spiked, peaking at $33.6 billion instead of $35.7 billion in the 2010-11 school year.
Still, many are under the impression that a year-round grant should not increase the cost of the overall Pell Grant program at all, so something must have been wrong. After all, students who use two years’ worth of grant aid on two years’ worth of classes theoretically would receive the same amount of Pell Grants whether they take one year or two to complete those courses.
Federal budgeting principles, however, mean that any year-round Pell Grant program must appear as an increase in spending on Pell Grants equal to the amount of year-round grants disbursed. That is because a year-round grant pulls funding forward from a future, yet-to-be drafted spending bill, and makes it appear on the current bill. Spending on the current bill is thus higher. The effect is no different in a multi-year budget window -- as long as one assumes the Pell Grant Program exists in perpetuity.
The Department of Education is another common scapegoat for the unexpectedly high cost of year-round Pell Grants. Under this reasoning, the department loosened eligibility rules beyond Congressional intent so that more students benefited and received more money. Instead, we found that the department narrowed the scope of the year-round program so much so that its rules were originally viewed within the higher education community as too restrictive.
The department’s rule was stricter than it could have been because it did not allow students to collect year-round grants only because they had exhausted their regular grants for the year, as some desired. Student aid advocates argued that students should qualify for year-round grants simply because they had used up one year’s worth but were enrolling in more classes. The department disagreed and argued that students needed to demonstrate that they were “accelerating” progress toward a degree by some other standard than simply taking more classes.
At the same time, the department’s interpretation was looser than the most restrictive option possible because it made eligibility contingent on students' first accumulating a certain number of credits in a year, not overall progress toward a degree. A student did not need to demonstrate he was going to finish a credential early, in other words. Even so, those provisions were not so loose that they would have dramatically expanded the year-round Pell Grant beyond what Congress intended, nor should they have meaningfully increased the cost beyond initial expectations.
Another erroneous argument one hears often in the policy community is that due to a design quirk, the year-round Pell Grant program provided 50 percent more benefits than intended as students inadvertently received two full Pell Grants in a single year. Costs were therefore higher than expected.
Consider, however, that the department awarded year-round grants by the same calculations used during the rest of the year. A student who earned a school year’s worth of credit and enrolled for an additional semester, such as a summer semester, would receive an additional grant worth no more than what he would receive in any other semester. As a result, the average year-round Pell Grant was $1,700, which was less than half of the average $3,833 annual grant then.
Perhaps the most disingenuous claim about the year-round Pell Grant came from the Obama administration, which argued in early 2011 that the program “has not yet shown any evidence” that it encouraged students to accelerate their studies. That’s true, but misleading. The timing between implementation and the proposed elimination of the policy was such that there could be little evidence to judge the program, positively or negatively, on that measure.
The Obama administration proposed eliminating the program in February 2011, in a budget that was likely developed in the late fall of 2010. Only one round of year-round grants had been issued by that point, mostly in the summer of 2010. That would have given the administration one year’s worth of information about how the year-round program was performing, hardly enough time to gauge whether students had accelerated their coursework. Furthermore, the information would not have provided a perfectly accurate snapshot of the year-round grant. Schools implemented the year-round Pell Grant under their own interpretation of the program that year as regulations produced by the department had yet to take effect.
The timing of the proposal also calls into question whether the Obama administration could have obtained reliable data about the year-round grants issued in the summer of 2010 in time to make its claims in a budget proposal developed in late 2010. If it had obtained such data, it did not release them or any related statistics.
Separating facts from misinformation regarding the year-round Pell Grant will help policy makers enact sensible policy changes in the future. Today’s higher education students increasingly do not fit the profile for which the Pell Grant program was originally designed. The year-round Pell Grant was a much-needed modernization of the program and it should be reinstated.
Jason Delisle is director of the Federal Education Budget Project and Ben Miller is higher education research director for New America, in Washington.
New York Governor Andrew Cuomo, a Democrat, plans to propose this week that the state cover two years of loan repayments for graduates of colleges who live in the state, earn less than $50,000 and are enrolled in the federal Pay as You Earn Program, The New York Times reported. Cuomo's office estimates that about 7,100 people would be eligible in the first year, but that the number would rise to 24,000 a year as more people, based on this new effort, enroll in the federal loan repayment program.
President Obama has jumped on the bandwagon, which started in Tennessee, of making community college tuition-free. This latest proposal is his most recent effort to increase the prominence of the federal government in higher education. While giving higher education more federal visibility may be a good thing, making community colleges tuition-free is also the latest in a series of proposals in which the administration seems to have decided that sound bites trump sound policy.
The cycle began in the administration’s early days when it declared its primary goal in higher education was to “re-establish” the U.S. as having the world’s highest attainment rate -- the proportion of working adults with a postsecondary degree of some sort.
Never mind that the U.S. has not had the highest rate in the world for at least several decades and that achieving such a distinction now is well nigh impossible given where some other countries are. And also ignore the fact that some countries which have overtaken us, such as South Korea and Japan, have done so in large part because they are educating an increasing share of a declining number of their young people – a demographic condition we should want to avoid at all costs.
In this effort to be Number One in higher education, the Obama administration is continuing a trend in K-12 education that began in the Clinton and George W. Bush administrations in which we as a nation set totally unrealistic goals to be achieved after the incumbent administration has left office. Not clear why we would want to expand this practice into higher education, but that’s what we are doing.
The administration also in its first year pushed for a remarkable expansion of Pell Grants as part of the economic stimulus package of 2009. It was certainly good to augment Pell Grants in the midst of a severe recession when so many students were having a tough time paying their college bills. But rather than doing it on a temporary basis by increasing awards for current recipients, the administration pushed for and the Congress agreed to a permanent legislative change that increased the number of recipients by 50 percent and doubled long term funding.
This is the equivalent of changing tax rates in the middle of a recession rather than providing a rebate. It certainly provided more aid for many more students – nearly one in two undergraduates now receives a Pell Grant. But the expansion in eligibility means less aid is available for the low-income students who most need it. And few seem worried that Pell Grant increases may have led many institutions that package aid to reduce the grants they provide from their own funds to Pell recipients, as is reflected in the fact that institutional aid increasingly goes to middle-income students.
The Obama administration’s recent effort to develop a rating system for postsecondary institutions is another example of politics triumphing over sound policy. The rhetoric goes to the noble notion of making institutions more productive and more affordable, but the metrics the administration has proposed using are unlikely to produce the desired result or may well have the unintended effect of producing bad results.
Much more troublesome, the administration’s ratings proposal would penalize students based on where they decide to enroll, as those going to colleges that don’t perform well would get less aid. This is illogical as well as counterproductive. Thankfully, there seems little chance that this proposal would be adopted, but one is left to wonder why it was suggested and pushed when it would do little to address the many real challenges facing American higher education, such as chronic inequity and unaffordability.
Which brings me to the most recent proposal by President Obama – to make community colleges tuition-free. At this stage, we know relatively little about what is being proposed other than that it is modeled on what was done in Tennessee where state lottery funds (not a very good federal model) were used to ensure that students with good grades would not have to pay tuition to go to community college. But since there are so few details as to how this tuition-free package would be structured, there are more questions regarding the President’s proposal than there are answers. These include:
Who will benefit and who will pay? If the administration were to follow the Tennessee plan, current Pell Grant recipients will largely not benefit as their Pell Grant award fully covers the cost of tuition at most community colleges throughout the country. So beneficiaries would disproportionately be middle-class students who mostly can afford $3,300 in annual average tuition costs of community college, just as has been the case for the Tennessee plan.
The administration to its credit seems to recognize this potential lack of progressivity, and its spokesmen have declared (to Inside Higher Ed) that the new benefits will be on top of what Pell Grant recipients currently receive. This could be an avenue for a big step forward in federal policy were we to recognize that Pell Grants are largely for living expenses for students whose families cannot afford to pay those expenses, but it means that the federal costs of implementing such a plan will be substantial, probably far more than the $60 billion in additional costs over 10 years now being suggested.
Also lost in the enthusiasm about making community colleges tuition-free is the reality that the biggest bill for most students are the costs of living while enrolled and the opportunity costs of leaving the job market to enroll in school on more than an occasional basis. Also lost in the hubbub is the question of how these benefits are going to be paid for. This key financing question seems largely unanswered in the administration’s explanation thus far.
What would happen to enrollments in other higher education institutions?Advocates for the Tennessee Promise talk about how it has already boosted enrollments in community colleges. There seems to be little consideration, though, of whether this might come at the expense of enrollments in other colleges and universities. The Obama administration clearly prefers for students to go to community colleges rather than for-profit trade schools, but it seems to have little concern that offering more aid for students enrolling in community colleges will have any adverse effect on enrollments in more traditional four-year institutions -- including historically black colleges that could ill afford the dropoff in enrollments.
But federal and state officials have an obligation to recognize that enrollments in higher education are not unlimited and that providing incentives for students to enroll in one sector means that enrollments in other sectors are likely to decline. Is the next step for the federal government to propose a program of support for those institutions that cannot afford to wait for all those new community college students to transfer in two or three years to fill their now empty seats?
Why would community colleges participate? Like many other federal and state policy initiatives, the president’s proposal reflects a tendency to think only in terms of demand and to believe that price reductions will inevitably result in enrollment increases. But the economic reality is that good policy must take into account institutional behavior as well, and it is not at all clear why community colleges would change their behavior in light of the Obama proposal. Under the Obama plan the federal and state governments would replace funds that families currently spend or loans that students currently borrow for tuition. The likely result of such a policy would be more students enrolling in already overcrowded community colleges will little or no additional funds provided to community colleges to educate them.
If one truly wants to improve community college financing, a better approach would be one in which governments recognize the additional costs entailed in enrolling additional students and try to help pay for those costs. But in the absence of such a proposal, the current Obama plan seems more of the same – more requirements but no more money. As a result, it is hard to understand the enthusiasm of the community college and other national associations for the president’s plan.
Why would states participate? It’s also not immediately clear why states would participate in the Obama plan as it is aimed primarily or entirely at changing how tuition is financed. As a result, it really would not get at the majority of the community college financing iceberg – what states and localities spend in support of every student who enrolls. So the question remains: why would states choose to participate in this plan that obligates them to meet a series of new requirements AND pay for one-quarter of tuition costs in addition to still paying what they do now for operating subsidies.
In sum, an analysis of what we know of the president’s plan is part of a troubling pattern that seems to characterize our higher education policy debates these days. Political considerations trump good policy. The interests of low-income students get second billing to middle class affordability, or no billing at all. Not enough attention is paid to how things actually would work or why institutions or states would decide to participate.
It all goes to show that, as the economist John Maynard Keynes famously said, “There is no free lunch.” One of the problems with the Obama administration’s continuing enthusiasm for higher education policy initiatives is that is doesn’t seem to recognize this basic economic reality.
Arthur M. Hauptman is a public policy consultant specializing in higher education policy and finance. This is the first in a series of articles about how federal and state higher education policies might be changed to produce greater equity, efficiency and effectiveness.