Obama's Final Two Years

The White House adds to its lengthy list of proposals for higher education, but faces long odds in Congress for most of the agenda.

January 21, 2015

The White House has highlighted a range of higher education policy ideas in the days and weeks leading up to President Obama’s penultimate State of the Union address on Tuesday evening.

Some of the proposals — like the free community college plan — are brand-new.

But others are not. The White House, for instance, previously has asked Congress to exempt from taxation the student loan balances that the federal government forgives under its income-based repayment programs.

And still other higher education proposals, such as the college ratings system, went unmentioned in Tuesday’s speech. But they nonetheless remain a priority for the administration.

Below is a guide to the Obama administration’s higher education priorities and legislative proposals as the clock ticks on its final two years in office:

Tuition-Free Community College

The most ambitious of the proposals, which President Obama first announced earlier this month in Tennessee, is a plan to eliminate two years of tuition for some community college students nationwide.

The White House plans to pay for program, which it says will cost $60 billion over the next decade, by raising taxes on wealthy Americans and financial institutions.

Unlike the Tennessee program on which it is based, the Obama plan, is a "first-dollar" scholarship program, White House officials reiterated on Tuesday. 

“You would eliminate tuition entirely at community colleges for all students, regardless of whether or not they receive a Pell Grant now,” a senior administration official told reporters. “Students receiving federal financial aid could use those resources for books, supplies, transportation and any other cost of going to college."

In addition, the White House confirmed that the program would be open to any student regardless of when he or she finished high school.

“We aren't contemplating any type of age-eligibility requirement,” the official said.

The administration is proposing to distribute funds under the program through grants to states that are “conditioned on offering free tuition and ensuring the quality of institutions," a White House official said in an email Tuesday. If states have excess grant money after eliminating tuition, they can spend those funds on "expanding quality community college offerings, improving affordability at four-year public universities, and improving college readiness," according to a fact sheet released Tuesday. 

Some conservative higher education observers have said they are concerned about how the conditions on those block grants could give the federal government more control over locally run community colleges. 

Simplifying the FAFSA

The White House on Tuesday firmly backed simplification of the federal student aid application, known as the FAFSA. The administration said in a fact sheet that it wanted to eliminate 27 of the "most burdensome and difficulty-to-verify" questions on the form, which currently has more than 100 questions.

Obama would axe questions about untaxed veterans’ benefits and clergy pay, for instance, but continue to ask about parental income and a student's college choices.

FAFSA simplification has been a major priority of Sen. Lamar Alexander, the Republican who chairs the Senate education committee. Alexander's proposal, however, would go much further, gutting the current form completely and asking students only two questions to determine their eligibility for aid. 

Expanding and Reforming Income-Based Repayment

Obama plans to use his executive power to make all existing federal direct student loan borrowers eligible for the federal government’s most generous loan repayment plan. He had, two years in a row, asked Congress to make such a change, but the plan didn’t go anywhere.

The Education Department next month will kick off negotiations over how to carry out the proposed changes to the “Pay As You Earn” repayment plan. The program caps borrowers' monthly payments at 10 percent of their discretionary income and forgives any remaining debt after 20 years.

The White House is also calling on Congress to exempt from taxation the student loan balances that are forgiven under any of the federal government’s repayment plans. The change was previously proposed in the administration’s budget request and recently appears to have some traction in Congress.

A bipartisan group of U.S. Senators, led by Sen. Richard Burr, a Republican, and Sen. Angus King, an Independent, introduced legislation last week that would stop counting the loan forgiveness benefit under income-based repayment programs as taxable income. The bill also would streamline existing income-based repayment programs and cap some benefits for high-income, high-debt borrowers. Some of those proposed reforms overlap with what the Obama administration has previously recommended.

Alexander has said he wants to include the proposed changes to income-based repayment in the student aid simplification bill he hopes to bring to a full Senate vote this spring.

Changing Higher-Ed Tax Benefits

As it has in previous budgets, the White House is calling on Congress to make permanent the American Opportunity Tax Credit, which currently provides up to $2,500 in partially refundable tax credits for tuition. The administration also wants to change how the tuition tax credit treats Pell Grants, so that more recipients would either see a reduction in their taxes or an increased tax credit.

The Republican-led U.S. House of Representatives last year approved similar education tax changes.

A new part of the administration’s plan is to consolidate a series of education tax breaks and to expand the benefits for the American Opportunity Tax Credit. Under the plan, families would be able to claim the credit for up to five years as opposed to the current four-year maximum.

The White House also has a new proposal to reap savings by cutting some higher-education tax benefits that it believes are not well-targeted.

The administration wants to raise taxes on 529 college-savings plans. It is seeking to roll back a tax cut signed by President George W. Bush that exempts the earnings on those plans from taxation.

“Earnings on existing contributions will continue to be tax-exempt, but earnings on new contributions will be counted as taxable income,” a senior administration official told reporters Tuesday.

The 529 savings plans “overwhelmingly benefit higher-income Americans,” the official said. About 80 percent of the tax benefits of 529 plans go to families earning more than $250,000, according to the White House.

Obama is also looking to eliminate a tax provision that allows student loan borrowers to deduct from income taxes the interest they pay on their loans.

The student loan interest deduction, which Congress made permanent in 2013, is too confusing and not many taxpayers take advantage of it, the White House official said.

“We think it is better to put that money back into strengthening the Pay As You Earn program and making sure that loan forgiveness at the end of the Pay As You Earn period is tax-free,” the official said, adding that the administration's college tax package is a net tax cut.

“We will be reducing taxes for families paying college tuition by tens of billions of dollars over the next decade," the official said. 

Finalizing College Ratings

Although Obama did not mention it Tuesday night, the college ratings system remains a priority for the administration. Obama himself touted the plan as recently as two weeks ago, when he unveiled his free community college plan in Tennessee.

“We’re creating a new college ratings system that will give parents and students the kind of clear, concise information you need to shop around for a school with the best value for you,” he said, adding that the ratings would provide “the capacity to recognize schools that offer a great education at a reasonable price.”

Education Department officials are currently soliciting public feedback on their draft outline of the ratings system. The deadline for comments is Feb. 17, and officials have said they will produce ratings for the first time by the beginning of the 2015-16 school year.

Congress, meanwhile, has declined to provide the administration the $10 million it requested for the task of creating the ratings. And some lawmakers have also sought to block the department’s power to create a ratings system altogether.

Tangling With For-Profits on Gainful Employment

The administration will continue to fight with for-profit colleges in court over regulations aimed at clamping down on that industry. Government lawyers last week handed over to the Association of Private Sector Colleges and Universities thousands of pages of records relating to how the department developed its “gainful employment” regulation.

In the next few months, both the administration and the for-profit college association each will formally ask a judge to rule in their favor without having a full trial. The judge has scheduled a hearing for late May. The rule will take effect July 1, barring judicial or Congressional intervention. Republicans have previously sought to block the regulation, though a White House official last year expressed confidence about the future of the regulations.

Prodding States to Boost Oversight

Concerned that some states have been too lax in regulating colleges and universities, the Obama administration has pushed new “state authorization” rules aimed at prodding states to bolster their oversight of higher education.

One of those rules, which is already on the books, will take effect this July, after being twice delayed by the department amid concerns that it is too confusing. That rule applies only to colleges with physical locations.

Separately, the administration has pursued a state authorization requirement for online programs. But after a negotiated rulemaking panel failed to agree on the language for that rule last year, Undersecretary of Education Ted Mitchell said officials were temporarily pausing the effort.

The department has told some consumer advocates that it plans to eventually return to the rule. It is controversial because it would force distance education programs to seek approval from regulators in every state in which they enroll students. Some state regulators also haven’t been keen on the proposal.

Promoting Competency-Based Education

The Obama administration has said it wants colleges to try offering competency-based education as an innovation that can help lower costs and improve college completion. It is in the process of granting regulatory waivers so that scores of institutions can allow students to receive federal student aid as they experiment with the emerging form of higher education.

Holding Teacher Training Programs Accountable

The White House will move ahead this year with a controversial plan to cut off some federal funding for poorly performing teacher preparation programs. The plan would tie TEACH Grant funding for teacher preparation programs, in part, to the rate at which their graduates get jobs and how well they perform at the schools where they are hired.

Many higher education groups oppose the proposal, on which public comments are due by Feb. 2.

The department has said it plans to finalize the regulation by September. Although teacher preparation programs and states would have to start publishing a host of new information over the next few years, the earliest a program would lose TEACH Grant eligibility is 2020.

New Rules for Campus Credit Cards

The department plans to move ahead with efforts to tighten regulations on student debit cards, which may include a ban on certain fees. Negotiators failed to reach a consensus on the regulatory language last year.

Financial institutions have lobbied against the regulations.

A department spokeswoman last week said officials did not yet have a time frame for when they would publish the proposed regulations.

Reauthorizing the Higher Education Act

The Obama administration will likely come up with a set of proposals for rewriting the Higher Education Act, as Congress gears up this year to reauthorize the sweeping law that governs student aid and colleges and universities.

In his final months in office, Sen. Tom Harkin, the Iowa Democrat who chaired the Senate education committee, last year produced a rewrite of the law that read largely as a wish-list of Democratic priorities. The White House and Education Department now will have to work with a Republican-controlled Congress on rewriting the law. Alexander, the Republican who now heads the Senate education committee, has said he wants to begin work on reauthorizing the Higher Education Act later this year after Congress finishes work on revamping the main law governing K-12 education, No Child Left Behind. 

On one key issue, accreditation, the department has already tasked its accreditation advisory committee with developing some recommendations for changing the law. 


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