President Obama will announce Monday that he plans to expand an income-based repayment program for federal student loan borrowers, The New York Timesreported.
The administration plans to broaden eligibility for its Pay As You Earn program – which caps student loan payments at 10 percent of borrowers’ discretionary income and forgives any unpaid debt after 20 years – to include an estimated 5 million additional borrowers who have older loans, according to the Times.
Obama will also formally announce that the Education Department plans to renegotiate the contract it has with federal student loan servicers to include incentives for helping borrowers avoid default. The department previously said it plans to change how it oversees those servicing companies and had said it was “re-examining” how it pays them. Monday’s executive actions come as Senate Democrats are making a push on student debt relief in advance of the fall midterm elections.
Over the weekend, Obama endorsed a bill by Senate Democrats that would allow existing borrowers to lower the interest rate on their student loans. The legislation proposes to fund such a refinancing program by enacting the so-called “Buffett Rule,” which would end some tax breaks for millionaires. Obama said that Congress had a choice to either “protect young people from crushing debt, or protect tax breaks for millionaires.”
Republicans are largely opposed to the proposal. In a statement on Sunday, Senator Lamar Alexander of Tennessee, the top Republican on the Senate education committee, rejected the plan as a “political stunt” to give former students money to pay off their loans. “College graduates don't need a $1-a-day taxpayer subsidy to help pay off a $27,000 loan,” he said. “They need a good job.”
More than half (53 percent) of grandparents are saving for their grandchildren's college costs, or plan to start saving, according to research released Thursday by Fidelity. And 90 percent reported that, if asked, they would be likely to make a financial contribution to their grandchildren's college costs. A majority of grandparents are also talking to both their children and grandchildren about college savings. The national survey was conducted of adults who are at least 45 years old and who have at least one grandchild younger than 18.
At least one House Republican is seeking to block the Obama administration’s efforts to develop a federal college ratings system.
Representative Bob Goodlatte of Virginia wrote in an email to his fellow lawmakers last week that he hopes to insert a provision into upcoming spending bills that would prohibit the Education Department from moving ahead with the ratings system. Goodlatte said he was responding to a range of concerns he received from college presidents about the ratings system. “There are real, long-term consequences that could occur if this proposal isn’t stopped, including the loss of choice, diversity, and innovation,” he said in the letter.
The Education Department is in the midst of deciding which metrics to include in its college ratings system, a draft of which officials have said will be ready “by the fall.” The administration says it wants an operational ratings system by the 2015-16 academic year and then plans to ask Congress to tie the ratings to federal student aid by 2018. A top domestic policy aide to President Obama said in an interview with The New York Times this week that the administration was undeterred by criticism of its college ratings proposal and remained strongly committed to the idea.
“For those who are making the argument that we shouldn’t do this, I think those folks could fairly have the impression that we’re not listening,” said Cecilia Muñoz, the director of the White House Domestic Policy Council. “There is an element to this conversation which is, ‘We hope to God you don’t do this.’ Our answer to that is: ‘This is happening.’ ”
The federal tax code should do more to help middle-income Americans afford college -- but that goal can be accomplished without the sort of wholesale restructuring of higher education tax benefits that many are advocating, the Center for American Progress argues in a paper to be released today. In the paper, some of the center's experts urge changes that would cap certain benefits and expand others, with the overall goal of encouraging more savings by middle income Americans. Many of the tax code benefits for higher education now greatly favor wealthy Americans, the report says.
A group of Congressional Democrats last week introduced a new legislative push to crack down on campus banking products, including student debit cards. Representative George Miller, the top Democrat on the House education committee, and Senator Tom Harkin, the chair of the Senate education committee, along with 63 other Democrats introduced a bill that would ban revenue-sharing agreements between colleges and student debit card providers. The bill would also prohibit gifts from campus card providers to college officials.
The lawmakers said the legislation was, in part, a response to a February Government Accountability Office report that outlined several concerns with campus debit cards and the relationship that card providers have with colleges. Earlier this week, an Education Department negotiated rule making panel failed to reach consensus on a department proposal to impose stricter rules on campus banking products. Department officials had proposed restrictions on the marketing of college-sponsored debit cards and had sought to ban certain fees.
A bipartisan group of Congressional lawmakers on Thursday called on their colleagues to insert a provision in the upcoming budget that would block the Obama administration’s efforts to more tightly regulate for-profit colleges.
In a letter to the top lawmakers on the House Appropriations Committee, 37 members of Congress -- 19 Republicans and 18 Democrats -- wrote that the proposed “gainful employment” rule would “increase costs and federal overreach in the higher education system, reduce data transparency, and limit postsecondary options for low-income students.” The administration has said the proposed rule is aimed at cutting off federal aid to low-performing vocational programs, mostly at for-profit colleges, that leave students saddled with high debt and do not lead to good jobs.
The deadline for public comments on the proposed rule is Tuesday. The Education Department is expected to produce a final rule by November.
The Obama administration has delayed the release of its college ratings system until later this year, according to a blog post published by the Education Department on Wednesday.
Jamienne S. Studley, a deputy under secretary of education who has been leading the development of the ratings, wrote that the administration was “on track to come out with a proposal by this fall and a final version of the new ratings system before the 2015-16 school year.”
Officials previously had said they expected to produce a draft rating system for public comment at some point this spring or in the first half of 2014.
The White House has said that after implementing the rating system in 2015, it plans to persuade Congress to link the ratings to federal student aid by 2018.
The debate on the Department of Education’s proposed “Gainful Employment” rule has fixed attention on the failure by both sides to resolve one of the nation’s most important problems: How to effectively serve the education needs of America’s new traditional students.
On one side are those who support the department’s new regulations that end student aid to career-oriented programs whose graduates fail to meet certain arbitrary debt-to-earnings ratios and loan default rates. Driven chiefly by opposition to the role of profit-seeking in higher education, this camp appears little concerned with the fate of hundreds of thousands of mostly underprivileged students who may be left without a postsecondary education as a result of the proposed rules.
The opposing camp, dominated primarily by the proprietary sector’s executives, trade groups, and free-enterprise partisans, has taken up a defensive position that too easily dismisses the fundamental need for new regulations to help align the sector’s business interests with higher education’s social goals.
While the former group is working to undermine the institutions best suited to address the needs of students poorly served by public institutions, the latter includes too many players that are far from reforming themselves so as to solve the problems that landed them in the crosshairs of their hostile detractors.
Among the most strident defenders of the proposed regulations is Robert Shireman, a former Education Department executive. In “Perils in the Provision of Trust Goods,” released this week at the Center for American Progress (see related article), Shireman argues that the essential problem with for-profit higher education institutions is that they are for-profit. Shireman contends that because for-profit education companies are unencumbered by the “nondistribution constraint,” which limits the rent-seeking incentives of administrators at nonprofit institutions, executives at proprietary schools are tempted to cut corners on quality or mislead students to increase the returns to shareholders.
Though there is much to take issue with in Shireman’s essay, I focus here on a contradiction in his argument that undermines his thesis that for-profit status is the problem in order to highlight what the private and publicly traded proprietary sector must do to silence its critics and better serve its students.
Shireman shows that being for-profit is not in itself a bar to being a socially responsible and successful education institution by pointing to the example of the for-profit University of Phoenix. He writes that in its first two decades Phoenix “built a strong reputation, and by all accounts it was well deserved.”
The reason, he adds, is that it primarily served middle managers required to be at least 23 years old with significant prior college experience (60 credits) and a minimum of two years of work experience. Consequently, he correctly notes, many had their tuition reimbursed by their employer. Shireman then goes on to claim that beginning in 2001, Phoenix started eliminating these requirements “to pursue more students using federal aid -- which led to enormous profits but declines in quality and reputation.”
Undeniably, as Phoenix lowered the number of credits required for admission, students entered less prepared, resulting in a decline in retention and graduation rates. However, until recently the university had great difficulties recalibrating its once-successful vision and business plan, resulting in a substantial blow to its reputation and a dramatic decline in its parent company’s market value -- from nearly $12 billion in 2009 to the present $3 billion. But Phoenix was not alone.
Challenged by rising competition, negative publicity, and a transformed economy -- driving many would-be students into the work force -- in the last five years eight of the next largest publicly traded higher education companies lost a collective market value of almost $14 billion. Without diminishing the negative effects of increased competition and a changing economy, the $22 billion loss in market value among companies worth over $32 billion a mere five years ago suggests something more than external challenges as the cause, especially when an additional education company managed to increase its value by almost $90 million during the same period. What, then, is this other cause?
To answer this, I turn to the experience of Paul Polman, who since his appointment as CEO five years ago has increased Unilever’s market value from $73 to $139 billion, partly as a result of the termination of the Great Recession, but more importantly as a consequence of his doing the unthinkable. After 10 years of no growth, he led the company to a new vision based on the idea that to succeed Unilever must evolve around leaders who have the skills “to focus on the long term, to be purpose-driven, to think systematically, and to work much more transparently and effectively in partnerships.”
This means that businesses, especially those with a social purpose, such as higher education, must be organized to serve society by taking responsibility for their decisions through a process requiring thinking long-term about their business model and goals.
Taking a page from the strategy Polman successfully executed, I suggest higher education companies do three things to escape the ongoing wrath of politicians and regulators.
First, end offering quarterly guidance and reduce what is reported to analysts and shareholders to metrics that monitor the creation of long-term values.
Second, make sure performance-based incentive plans are largely based on periodic success measures of long-term goals that reflect a positive social impact.
Third, because merely cutting expenses will not lead to success, apply accumulated cash mainly to the improvement of student performance -- the only currency of lasting value in education.
As some education companies already working to apply the above suggestions know, share price will be affected in the near term. However, these initiatives will diminish negative media and regulatory zeal permitting stocks to ultimately reflect the true value of those companies on a path to sustainable growth.
This strategy requires educating and working on changing the stockholder base. But given the large participation of pension funds and other long-term investors in the stock market, it should permit education companies to stop yielding the future to short-term investor interests.
As some private and publicly traded proprietary institutions have already learned, long-term thinking will make better, uncompromised decisions possible by removing the pressure to make poor choices based on short-term concerns.
Only by thinking for the long term will education companies fully attend to their real social goal: the successful education of their students. That’s what reputable traditional education institutions have done, and what many comprehensive public institutions, subject to volatile annual budgets and lacking in long-term incentives cannot.
In short, it is not that they are for-profit that makes proprietary institutions so vulnerable to questionable practices, it is that many have still not grasped that education is a social goal requiring a commitment to a long-term ramp up.
Jorge Klor de Alva is president of Nexus Research and Policy Center and a former president of the University of Phoenix.