The benefits of higher education are well established: a significant boost in average earnings, a higher likelihood of employment, increased productivity, greater tax revenues, lower crime. But much debate continues on how best to encourage more students to make high-quality educational investments and how to ensure that a degree is affordable. As the Obama administration welcomes its final back-to-school season, the opportunity arises to look back and assess the impact of its higher education policies and next steps to build on that progress.
A new Council of Economic Advisers report released yesterday examines the administration’s record, finding that evidence-based policies implemented over the last seven years have already begun to pay off. Investments in greater financial aid, in particular, have had high returns. The Council of Economic Advisers estimates that the administration’s increase in the average Pell Grant award between 2008-09 and 2014-15 will lead to an additional $20 billion in aggregate earnings, a nearly two-to-one return on the investment.
But that is only one example. Without federal support, much of the potential benefit of higher education would go unrealized due to misalignments between individual and societal benefits, credit constraints, information failures, and procedural complexities. Since taking office, the Obama administration has worked to address each of these areas so that more students can attend a quality higher education institution, graduate and repay their loans on manageable terms.
From the very beginning of the college selection process, students can face obstacles; even determining which colleges will provide a good return on investment is a daunting challenge. That is why the administration unveiled a redesigned College Scorecard offering the most reliable and comprehensive data ever published on students’ outcomes at individual institutions, including data on cost, graduation rates, earnings, debt and repayment.
At the same time, even with solid information, procedural complexities may prevent some students from using the resources available to them. To help make it easier for them to apply for student aid, the administration has made the Free Application for Federal Student Aid simpler by reducing the number of questions it presents and making it easier for applicants to directly transfer data from the IRS. In addition, the FAFSA is available earlier this fall, improving the information students have about their financial aid packages when they make decisions about where to apply.
Once accepted, students must also determine how to pay for their education. Research shows that lower college costs can improve college access and success, and the administration has made it a priority since day one to help families finance investments in education. President Obama has worked aggressively to increase the maximum Pell Grant award by $1,000, and, for the first time, tied the maximum amount of the award to inflation. This investment will help an additional 250,000 students access or complete college. On average, Pell Grants reduce the cost of college by $3,700 for eight million students a year. In addition, this administration has also established the American Opportunity Tax Credit, which will cut taxes by over $1,800, on average, for nearly 10 million families in 2016, thus giving students and their families more discretionary income to invest in college.
Despite these successful investments, too many people still feel as if college is out of reach. That’s why President Obama announced his America’s College Promise proposal in January 2015 to create a new partnership with the states that would make two years of community college free for hardworking, responsible students. Since the president’s announcement, over 36 free community college initiatives have been launched in states, cities and communities nationwide. Altogether, these programs raise more than $150 million in new public and private investments, supporting at least 180,000 students.
President Obama has also signed key policies into law to maintain the accessibility and affordability of student loans. Research suggests that without access to federal student loans, financially constrained students would be less likely to attend college, more likely to work while in school, and less likely to complete a degree. In 2010, President Obama signed student loan reform into law, generating over $60 billion in savings and redirecting that money back to students and taxpayers. And in 2013, he signed into law further reforms to lower interest rates for nearly 11 million borrowers.
Additionally, the president’s Pay As You Earn and related income-driven repayment plans have allowed approximately 5.5 million student borrowers to cap their monthly student loan payments at rates as low as 10 percent of discretionary income, to ensure their debt is manageable. These plans better align the timing of loan payments with the timing of earnings benefits by allowing borrowers to make smaller payments when their earnings are low or during transitory periods of financial hardship and to adjust their payments as their earnings grow.
Finally, this administration has worked to protect students from unscrupulous institutions that do not deliver a quality education. The U.S. Department of Education’s gainful employment rules will hold career colleges accountable by removing poorly performing programs’ access to federal financial aid. Such rules build on a record of action by this administration to increase accountability in higher education. The department has also created a Student Aid Enforcement Unit to respond more quickly and efficiently to allegations of illegal actions by higher education institutions.
Though more work remains, these policies taken together represent a significant step forward in building an educational system that encourages all Americans who wish to invest in an affordable, high-quality college education to do so. Colleges and others in the higher education community can build on that progress by encouraging students to fill out the new early FAFSA so that they can learn about and access the student aid dollars that are so critical to their future.
Sandra Black is a member of the Council of Economic Advisers. Jason Furman is chairman of the Council of Economic Advisers.
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