House Republican leaders have tentatively agreed to a Senate deal to keep the interest rate on federally subsidized student loans at 3.4 percent for another year, the Associated Press reported Wednesday evening. The deal would extend the interest rate rather than let it double on July 1, but pay for the extension in part by cutting eligibility for students who have been enrolled for more than six years for a bachelor's degree or three years for an associate degree.
The Obama administration stepped up calls Thursday for Congress to stop student loan interest rates from doubling on July 1, even as Senate leaders said that a deal was close to prevent the increase. In remarks to college students at the White House, President Obama called on Congress to act quickly: "There’s still 10 days for Congress to do the right thing," he said. "I understand that members of both parties say they want to get this done, and there are conversations taking place, but they haven’t done it yet. And we’ve got to keep the pressure on."
Senate Republicans accused Obama of using the issue to score political points. After months of dueling proposals to prevent the increase, which would apply to federally subsidized student loans issued after July 1, leaders were said to be close to an agreement and that details could be released within days.
Obama said preventing the interest rate increase -- which would apply to about 7 million students -- was an economic issue. At the same time, the Education and Treasury Departments released a report calling higher education critical for increased earnings and social mobility and blaming state cuts for driving up tuition at colleges and universities. "Where we make our investments demonstrates our priorities," the report's authors wrote. "In order to ensure access to higher education, we must all do our part toward our shared responsibility to make these critical investments in today’s students and tomorrow’s workers."
This month, Vice President Joe Biden led a round-table discussion with a group of college and university presidents from some of our nation’s largest institutions of higher education. The outcome of that meeting was an agreement by the leaders of 10 institutions or higher education systems to include a standardized “shopping sheet” in the financial aid packets sent to incoming students, beginning in the fall of 2013. A sample of the “shopping sheet,” which is designed to provide information relating to college costs, student indebtedness, and likelihood of degree completion, can be found here.
Though I recognize the alarming increase in college costs that has occurred during the last 15 years, and I applaud any honest effort to address this problem, I fear the “shopping sheet” fails to break new ground.
Transparency is a good thing, and students/parents should know what to expect when they select a college. The problems with the “shopping sheet,” however, are threefold.
First, this seems to be an attempt to repackage something that many colleges and universities are already doing. The College Portrait’s Voluntary System of Accountability (VSA) provides a more detailed and nuanced collection of pertinent information for those considering their college options. It includes costs related to tuition and fees, a personalized estimation of financial aid and loans, as well as details and data concerning admissions, campus life, student experiences/outcomes, and much more. The VSA is easy to navigate and also allows for comparison of institutions. Hundreds of colleges and universities are already participating in the VSA, and expansion of that number would be a positive step. Given the existence of the VSA, introduction of the “shopping sheet” seems a bit redundant and doesn’t offer any solution to the cost issue.
Second, the “shopping sheet” fails to address one of the hidden issues in the college-cost discussion -- time to degree. As I have discussed in the past, graduating on time dramatically reduces the total cost of college and increases one’s lifetime earning potential. Though the “shopping sheet” provides a snapshot of institutional and average 4-year graduation rates as well as student retention rates, this information is not sufficient for understanding the total cost/value proposition of attending a college. The College of New Jersey, where I serve as president, is one of only six public colleges and universities nationally that maintain 4-year graduation rates greater than 70 percent.
The reality is that most college students now take longer than 4 years to complete their degrees, or do not graduate at all. That makes 6-year graduation rates, which are included in the VSA but omitted from the “shopping sheet,” an important statistic for consideration. Other vital outcomes, such as post-graduate employment information, graduate school admission rates, and professional license or certification exam passage rates, are published on TCNJ’s admissions web site and in other locations. These data points can be very informative during the college-selection process but are currently overlooked by both the “shopping sheet” and the VSA. Inclusion of that information would be a strong enhancement.
Third, doing this sort of reporting through the “shopping sheet” or VSA or some other government-imposed mechanism, whether state or federal, forces colleges and universities to expend resources. The information provided in these reports can be very useful, but it does not get aggregated or analyzed unless you hire staff to do that work. That’s appropriate, if the expenditures improve educational quality or help increase effectiveness. Unfortunately, though collecting data and issuing reports may illustrate the cost problem, those actions will not solve the problem.
In order to actually address the college-cost issue, institutions must operate strategically and efficiently. They must manage course offerings in ways that optimize the deployment faculty and staff, facilitate the attainment of learning outcomes, and provide students with access to the courses they need for timely degree completion. Institutions also must offer support services that undergird the academic experience, eliminate roadblocks, and enhance the prospects of students graduating on time. Therefore, neither institutions nor their students can afford unnecessary redundancy in the name of political one-upmanship.
I think we can all agree that colleges and universities should be open and honest with prospective students about the actual cost of attaining a degree, not just enrolling for a year. Providing information that allows for simple, accurate comparison of institutions is a worthwhile goal, but I believe adding a few data points to the VSA would be a better strategy than implementing the “shopping sheet.” It’s important to remember, though, that talking about and reporting on our affordability problem is not enough; we need to find ways to solve it.
R. Barbara Gitenstein is president of the College of New Jersey.
Niagara Falls, N.Y. has more than high-wire acts to attract attention. The city is offering to repay $3,500 a year in student loan debt, for two years, for people who move to certain neighborhoods in the city, The Buffalo News reported. Mayor Paul A. Dyster said the plan was key to finding young people to live in the community. "Trying to revitalize a downtown without young people is like trying to get bread to rise without yeast," he said.
The Higher Education Opportunity Act of 2008 required the Department of Education to publish "College Affordability and Transparency Lists" of colleges and universities with the highest and lowest published prices and the highest and lowest net prices of attendance. To get on the list a college needs to be in the top 5 percent or bottom 10 percent of the cost scale. The new lists are now out. On the Education Department website, Secretary of Education Arne Duncan says, "These lists are a helpful tool for students and families as they determine what college or university is the best fit for them." We wish they really were.
A casual glance at the shame list of the most expensive private colleges pulls up names like the Culinary Institute of America, the Art Institute of Chicago, Cornish College of the Arts, and Berklee College of Music. At the other end of the scale, the list of the lowest-cost programs includes quite a number of tiny Talmudic institutions and Bible colleges. These are all fine programs, but to paraphrase former President Clinton, this isn't a list that looks like where America goes to college.
The Department of Education's definition of the net price of attendance paints a false picture of what most students have to pay, and the list of colleges and universities held up for public rebuke clearly reflects the weakness of this measure. In addition, the way net cost is calculated by the Department of Education may induce some institutions to change their behavior in truly unhelpful ways as they attempt to get off the list or to make sure they don’t get on it.
Here is the federal definition of the net price of attendance: "Average net price is for full-time beginning undergraduate students who received grant or scholarship aid from federal, state or local governments, or the institution." For starters, this price of attendance includes room and board charges, which arguably should not be a cost, since the student must eat and sleep whether or not they are in college.
But the key problem with the definition is that the net cost measure for the whole institution is based only on those students who actually get aid. Here is an example of the type of problem that this measure can create.
College X has 5 students and a list price of $40,000. Suppose that one of the five students at this college gets a full $40,000 scholarship and the remaining four are full pay students whose families fork out $40,000. For this institution the Education Department would report an average net price of $0 since the only student getting aid received a completely free ride. Now consider College Y, which also has 5 students and the same list price of $40,000. College Y has a scholarship budget of $40,000, just like College X. But instead of concentrating its grants upon one student, college Y gives each student an $8,000 scholarship. The Department of Education would tell us that average net price for College Y is $32,000.
College X would show up as the world’s greatest bargain, while College Y might find itself on the shame list. This disparity of rankings happens even though both colleges have the same number of students, the same list price, and spend the same amount on scholarships. College X has found a way to game the system. By concentrating its aid, it decreases the net price for students receiving aid. But it has very few of those students.
Individuals and groups tend to respond to incentives. Colleges and universities are no different. When policy makers set up the rules of the game, colleges will respond to the incentives if they can. Since the shame list is a fixed percentage of the total number of colleges in the group, any college near the margin has a strong reason to try to game its way off the list. As our example makes clear, with the current rules one way to avoid being on the shame list is to concentrate grants and scholarships among as few students as possible.
We are sure that this is not what the Department of Education intends. But let's look at the socially perverse ways that colleges could game the system to get off the shame list. One way to concentrate aid is to avoid recruiting students who are likely to qualify for federal student aid. This is diametrically opposed to the thrust of federal financial aid policy ever since the passage of the Higher Education Act of 1965. Federal financial aid has been aimed at students with demonstrated financial need in order to improve access to higher education.
Additionally, if an institution does have a student who qualifies for federal need-based financial aid, the incentives are to pile on institutional grants. As a result, this poor student would get a better deal, but slightly less-poor students will be left out, and the middle-class students, unless they are targets for merit-based grants, will get a worse deal. In fact, middle-class students become somewhat poisonous in this system because they are a numerous group and because they require smaller dollops of aid than poorer students. Having a lot of middle-class students who receive small grants is a guaranteed way to see your net price go up in the federal calculation.
We’re sure the federal government does not want colleges to concentrate their grants and scholarships on a smaller number of students, but that is the new incentive for institutions that might be able to reallocate their grant monies.
The reasonable alternative way to measure the net cost of attendance is to compute what the average student actually pays, not what the average student who gets aid winds up paying. This method adds the full-pay students to the calculation. Many colleges, however, will favor the current federal definition of net price because the federal formula produces a lower number for net price than a formula that includes all students. But the colleges' preference for a lower number should not stand in the way of producing a measure that is more game-proof.
This way of calculating net price has the advantage that the number it gives you for net price is independent of how grant aid is distributed among the students who receive aid. If our hypothetical five-student college has $40,000 in aid to distribute, this measure will be unchanged whether that college gives all the money to one student or an equal amount to each. Using this measure of net price, if the institution wants to reduce its average net price then it will either have to find a way to reduce its list price or it will have to increase its scholarship budget. We think this is what policymakers want.
Our example is not a crazy hypothetical. For the colleges on the current shame list the percentage of their students getting aid is a very high 82.5 percent. But spreading this aid so widely as a tool to craft the freshman class now comes with consequences. It gets you smacked with a higher calculated net cost of attendance than if you had recruited differently.
We have recalculated net price to include all students and produced a very different "expensive 5 percent." On the alternative list, institutions such as Northwestern, Brown, Georgetown, and Villanova Universities and Boston College now appear. This list looks more like America’s major private colleges and universities. And on this list, aid is more concentrated. In the alternative top 5 percent, the percentage of students receiving aid is only 55 percent. The rest are full-pay students.
For individual colleges the effect is substantial. To take one example, Oberlin College is on the Education Department's shame list, holding down the 31st spot. Oberlin gives aid to 85 percent of its students. If we calculate net price for all students, Oberlin falls out of the shameful 5 percent.
Yet no matter the methodology, we do not think ranking colleges by net price is particularly useful. A single number for each institution tells a family almost nothing. The whole shame list ranking is a political exercise of dubious social value. The Education Department website does send students to each institution's net price calculator, but these calculators tend not to be standardized and they are often quite complex.
There is mileage, however, in reporting the size of the average grant aid package students receive at each college, broken down by rough categories of family income. A family should be able to find their income level and see that on average a student at university X that comes from a family like theirs received $5,682 dollars of federal, state, and institutional grant aid (not loans). Then the family could decide for itself whether or not a particular college offered value for money. There is no shame in having an expensive program and no particular virtue in being cheap.
We wish we could share Secretary Duncan’s optimism about the current lists, but we cannot. These lists will not help students and families find the college that best fits them. The process of matching students to colleges is complex, and the information contained in the net price rankings actually is misleading. Lastly, as institutions respond to the incentives inherent in the current methodology for calculating net price, institutional aid may be distributed in increasingly unfair and socially inefficient ways.
Robert B. Archibald and David H. Feldman are professors of economics at the College of William and Mary and are the co-authors of Why Does College Cost So Much?(Oxford University Press).
A panel of finance experts met Thursday at an event sponsored by the American Enterprise Institute – called “Which way out? Confronting the problems of student loans” – to discuss increasing federal, institutional and student responsibility to combat massive student loan debt and high rates of default.
The panel comprised Richard George, chairman, president and CEO of the Great Lakes Higher Education Corporation, Art Hauptman, an independent public policy consultant specializing in higher education finance, and Edward Pinto and Alex Pollock, two AEI scholars focusing on housing and financial policies. Richard Vedder, an economics professor at Ohio University, moderated the event, and Bill Bennett, who was secretary of education under President Reagan, delivered an opening presentation.
The refrain of the discussion – that higher education institutions need to have “skin in the game” by paying a penalty when their students default on loans – is a familiar one in discussions of how to keep colleges from reaping all of the benefits and none of the costs of high tuition rates.
George also proposed that “vulnerable cohorts,” students more likely to drop out of college and default on their student loans, should not be allowed to borrow until they have demonstrated academic persistence toward finishing a degree; until that point, colleges should carry the cost burden for students. He said if colleges participated in this campaign that their “skin in the game” would carry less risk, as students more likely to default on their loans would have been weeded out before being allowed to borrow.
Bennett said it’s time to subject higher education to the same level of scrutiny given to K-12 education: “It’s time to look at the whole enterprise of higher education,” he said. “I expect resistance to that, but the questions are there, and more are coming.”