A Strategy to Ensure College Affordability for Low and Middle Income Families Personal & Political Responsibility Revisited Michael Dannenberg Director of Strategic Initiatives for Policy Education Reform Now January 5, 2015 Source:
Higher education is calcifying economic inequality. College access for low-income students has improved, but there is still a large gap in degree attainment rates. Percent with BA Degree 100% 50% Percentage of High School Graduates Immediately Enrolling in College, 1972-2013 23% 49% 1972 2013 45% 64% 64% 80% Percent with BA Degree 100% 50% Bachelor Degree A2ainment for the High School Class of 2004 by 2012, by Family Income QuarEle 54% 3 x 17% 0% Low- Income Middle- Income High- Income 0% Top Income Quar5le Bo8om Income Quar5le Source: Na5onal Center for Educa5on Sta5s5cs (NCES), The Condi*on of Educa*on 2010 and The Digest of Educa*on Sta*s*cs 2014. Ma8hew M. Chingos analysis of the Educa5onal Longitudinal Study of 2002.. How can we track trends in educa5onal a8ainment by parental income?. (Washington, 2 D.C., Brookings Ins5tute, 2015).
A child born into a poor family is three times less likely to attain a bachelor s degree within eight years of high school graduation than a child born into a upper-income family. 100% Bachelor Degree A2ainment for the High School Class of 2004 by 2012, by Family Income QuarEle Percent with BA Degree 50% 54% 3 x 0% Top Income Quar5le 17% Bo8om Income Quar5le Source: Ma8hew M. Chingos analysis of the Educa5onal Longitudinal Study of 2002.. How can we track trends in educa5onal a8ainment by parental income?. (Washington, D.C., Brookings Ins5tute, 2015).
Instead of completion and inequality, the general public and policymakers are focused on college affordability and four key aspects of that problem. 1. Rising Tui5on 2. Student Loan Debt 3. Low & Slow Levels of College Comple5on 4. Simplifica5on of the Financial Aid System Source: n/a
Rising tuition is a top & legitimate issue for public concern. Sticker price is up over 4½ times the rate of inflation. Source: Bloomberg Chart of the Day, August 18, 2014. 5
Net price (i.e. after financial aid) is lower than sticker price and rising more slowly, but it still has increased markedly. Average Net Price for Undergraduates 1995-96 to 2007-08 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $- +74% Overall +71% Public 2- year +63% Public 4- year Private Nonprofit 4- year Source: NCES, Trends in Student Financing of Undergraduate Educa5on: Selected Years, 1995 96 to 2007 08. +73% +102% Private For- Profit 1995-96 1999-2000 2003-04 2007-08
There are multiple causes behind rising tuition, but the #1 cause is reduced state funding for higher education. Percentage Change 15% 10% 5% 0% - 5% - 10% Annual Percentage Change in State Appropria5ons for Higher Educa5on Per FTE Student and Tui5on and Fees at Public Four- Year Ins5tu5ons, Constant 2010 Dollars State Funding per FTE College Student Tuition and Fees - 15% 80-81 83-84 86-87 89-90 92-93 95-96 98-99 01-02 04-05 07-08 10-11 Academic Year Source: The College Board, Trends in College Pricing 2011, 18. 7
Tuition long has risen faster than inflation, but in the past wages grew even faster. No more. Now poor, working class, and even middle income families are falling behind. - 7% Lowest 20% 4% Second 20% 11% Third 20% 23% Fourth 20% Source: The College Board, Trends in College Pricing 2010 (New York: College Board, 2010), 24 49% Top 20% 73% Top 5% 80% 60% 40% 20% 0% - 20% Percent Growth Mean Family Income Constant Dollars, 1979-2009
The combination of rising tuition and flat income has led families to borrow bigger and bigger loans. Average Cumula5ve Debt of First- Time Bachelor's Degree Recipients in 2009 dollars, by Pell status $30,000 $25,000 $20,000 1992-93 1999-00 2007-08 $26,100 $23,100 $24,200 $20,500 $15,000 $10,000 $5,000 $14,700 $15,700 $0 Non- Pell Recipients Pell Recipients Source: U.S. Department of Educa5on Stats in Brief: Degrees of Debt: Student Borrowing and Loan Repayment of Bachelor s Degree Recipients 1 Year Ajer Gradua5ng: 1994, 2001, and 2009, October 2013.
After all grant and scholarship aid, low-income students still have to finance an amount equal to approximately 76% of family income to pay for one year of college. They borrow big, work more, or drop to part-time status -- reducing their likelihood of completion and ability to repay student debt. Family Income QuinEles Average % of Income Required to Pay for 1 yr of College AYer Grant Aid $0-24,500 $24,501-49,000 $49,001-80,000 $80,001-117,500 76% 46% 33% 25% $117,501+ 17% Source: Ed Reform Now analysis of NPSAS:12 using PowerStats, h8p://nces.ed.gov/datalab/. Results based on full- 5me, full- year, one- ins5tu5on dependent undergraduates at public and private nonprofit four- year ins5tu5ons.
College debt wouldn t be so bad if graduation rates weren t so low, especially for underrepresented students of color. 80 70 6 - year bachelor s comple5on rates for first- 5me, full- 5me freshmen, Fall 2007 cohort at 4- year insetueons GraduaEon Rates (%) 60 50 40 30 20 63% 41% 53% 71% Overall rate: 59% 41% 10 0 White Black La5no Asian American Indian Source: NCES (November 2014). Gradua5on Rates for Selected Cohorts, 2005-2010; and Student Financial Aid, Academic Year 2012-13; First Look (Provisional Data).
First time, full-time community college student graduation rates are particularly bad. GraduaEon Rates (%) 100 90 80 70 60 50 40 30 20 10 0 24% 3 - year comple5on rates (associate degrees and cer5ficates) for first- 5me, full- 5me freshmen, Fall 2010 cohort at public 2- year insetueons 13% 18% 28% Overall rate: 21% 18% White Black La5no Asian American Indian Source: NCES (November 2014). Gradua5on Rates for Selected Cohorts, 2005-2010; and Student Financial Aid, Academic Year 2012-13; First Look (Provisional Data). 12
Even the data on completers is troublesome. Slow time to degree increases aggregate price and opportunity costs for students and families. Average Time to Degree Full- Time Associate's Degree Recipients 3.2 years Full- Time Bachelor's Degree Recipients 5.1 yrs 0 2 4 6 Average number of years to degree Source: Analysis of Beginning Postsecondary Students Study, 2003/09.
Strategy: Recommended Solution Leverage upper- income family anxiety about college affordability to improve college access, affordability, and comple<on for the middle class and poor. Design: Source: n/a Either increase or target exis*ng aid to the bo?om 80% of families and deliver it through a flexible state grant program. Embed within policies that improve high school academic prepara*on and speed *me to postsecondary degree comple*on.
Suggested Deliverable A Cap on Student Loan Debt for Low and Middle Income Families That Earn It Scale Model College Access & Affordability Promise Ini*a*ves Models: Indiana 21 st Century Scholars Program (statewide) UNC Carolina Covenant; AccessUVa (college specific) Kalamazoo Promise; Say Yes to Educa5on (community- based) Source: n/a
Offer a New College Affordability Deal A Guaranteed Cap on Student Loan Debt to those from low- income families who meet certain condi*ons. Guaranteed Interest Free Loans to those from middle- income families who meet certain condi*ons. Low- income = less than ~$50K (the bo8om 40%) * Middle income = ~$50K to $115K (40 th to 80 th percen5le)* Family Income QuinEle Bo8om Quin5le (Poorest 20%) Second Quin5le Third Quin5le Fourth Quin5le Top Quin5le (Top 20%) Family Income $0-27,218 $27,218-48,502 $48,502-75,000 $75,000-115,866 $115,866+ *State flexibility to smooth and extend guarantees up the income scale or link guarantee to income percenele as opposed to dollar figure. Source: U.S. Census Bureau, CPS, FINC- 06. Percent Distribu5on of Families, by Selected Characteris5cs Within Income Quin5le and Top 5 Percent in 2011.
Recommended Policy Design Large grant funds to states in exchange for a small number of condi5ons demanded of students, schools, and states (message: shared responsibility ) State flexibility in use of grant funds 100% of partnership grant funds spent on educa5on Up to 20% can be spent on secondary schools or adult pathway educa5on Ideally all states par5cipate, but they re also free to opt out. Students in opt- out states retain Pell Grant, unsubsidized Stafford loan, and PLUS loan eligibility and can access a cap on student loan debt guarantee in another par5cipa5ng state. Source: n/a
Student Responsibility Students must: 1. Contribute an out- of- pocket amount based on current law s ability- to- pay formula (i.e. need analysis); 2. Complete a college and career prep course of study in high school (i.e. a college prep track); 3. A8end full- 5me and work or serve an average of 10 hours/week (inclusive of current hours worked); 4. Complete a degree within a reasonable period of 5me. (150% of regular program length 6 years for a 4 year degree). Note: Financial aid officer professional judgment exemp5ons for excep5onal circumstances (e.g. death in the family) Source: n/a
Colleges must: College Responsibility 1. Commit to offering the courses and course pathways necessary for students to complete in a reasonable period of 5me (150% of regular 5me). 2. Contribute their own funds to a no- loan policy, if they have excep5onally large endowments (>$2 billion). Source: n/a 55 wealthy schools already use their own resources to provide low- income students with a no- loan or low- loan guarantee. 3. Meet minimum quality standards on indicators, such as Pell enrollment rates, gradua5on rates, and student loan repayment rates. To ensure sound investment of taxpayer money, colleges who do not meet the minimum standards would not be eligible for new state grant funds.
State Responsibility States must: 1. Enroll all students in high school on a mandatory college & career- ready course of study. - States can use up to 20% of the federal funds for secondary school reform. 2. Provide student loan debt limit guarantees to those from low and middle- income families (e.g. cap debt at 10% of family income). 3. Stabilize tui5on by at least providing students with a mul5- year tui5on and fee schedule. 4. Ensure easy transfer of credit with ar5cula5on agreements among all public ins5tu5ons & voluntarily par5cipa5ng privates. 5. Publish return on investment data for all state ins5tu5ons of higher educa5on to empower college selec5on. Source: n/a
Offsets: The federal government spends over $22B in poorly targeted or inefficient student aid and higher education tax benefit programs ExisEng Program Current Cost Offset OpEon Approximate Savings from Recommended Change Supplemental Educa5onal Opportunity Grant (SEOG) Source: N/A $0.7 b Consolidate $0.7 b In- school interest rate subsidy $5 b Consolidate $5 b American Opportunity Tax Credit nonrefundable poreon American Opportunity Tax Credit refundable poreon $14.3 b Limit to bo2om 80% $4.8 b $6.6 b Consolidate $6.6 b 529 Plans $1.78 b Limit to bo8om 80% Data not available Educa5on IRAs / Coverdell $0.08 b Limit to bo8om 80% Data not available Student loan interest deduc5on $0.85 b Consolidate $0.85 b Facility bonds for private nonprofit educa5on facili5es $2.32 b Consolidate $2.32 b Parental personal exemp5on $3.1 b Limit to bo8om 80% (slightly less than) $1.55 b Total $38.0 b $22 billion + savings from 529 & Coverdell
NO NEW COST Can be Funded EnErely Through ExisEng non- Pell Grant Federal Aid Programs Approximately 50% of offsets from grant and loan programs other than Pell; Approximately 50% of offsets from exiseng higher ed tax deduceons and exempeons. Source: n/a
Impact of targeting & consolidating existing higher education aid to the bottom 80% 2 million students from low- income families get a cap on student loan debt worth $8,000 annually. 1.5 million students from middle class families get interest- free student loans worth app. $1,100 annually. All students get: Guaranteed Course Availability Truth- in- Tui<on Pledge College Prep Course of Study Return on Investment data More than 6,000 colleges and universi5es eligible to par5cipate. Excluded: 105 colleges with gradua5on rates below 15% Excluded: 31 colleges with endowments > $2 billion Source: n/a
Benefits 1. Targets federal aid on the neediest students; 2. Fills the unmet need gap for all low- income students; 3. Blunts the effects of debt aversion in terms of college access and under- matching; 4. Limits outside employment demands; 5. Counters state and ins5tu5on use of non- need based aid; 6. Leverages state policy in support of slower tui5on growth; 7. Leverages state policy in support of faster comple5on; 8. Incen5vizes states and ins5tu5ons to invest in produc5vity; 9. Empowers families to choose among colleges more wisely; and 10. Improves high school academic rigor and college prepara5on. Source: n/a
Problems Steps away from historic higher ed voucher system Targets aid away from upper class families (the top 20%) K- 12 schools may not be ready or want to put all students on a college prep track Students who don t complete within 6 years face a give back Harms a subset of part- 5me students who don t even with extra grant aid make the transi5on to full- 5me status Limited accountability beyond the worst of the worst colleges ACA experience suggests some states may not par5cipate Prompts private, non- profit college opposi5on Source: n/a
With Additional Resources, Almost All Political Problems can be Mitigated Addi5onal resources can obviate need to target exis5ng college aid programs away from top 20% of families that currently receive grant, loan, and especially higher ed tax benefits. Addi5onal resources can be used to extend the student loan debt cap promise to part- 5me students. Addi5onal resources can be used to bolster work study and service opportuni5es and ensure they are linked to academic programs (i.e. paid internships). Addi5onal resources can be used to lessen the give back requirement for those students who fail to complete. Source:
Principles Underlying a Cap on Student Loan Debt Already Endorsed by Groups Educa5on Trust Young Invincibles New America Founda5on Democrats for Educa5on Reform Source:
What Leading Commentators Have Said Visionary A powerful concep*on of shared responsibility. Ronald Brownstein, Na*onal Journal Addresses the root causes of the debt- for- diploma system. Tamara Draut, author, Strapped: Why America's 20- and 30- Somethings Can't Get Ahead "The words debt- free college are music to students' ears." Rory O'Sullivan, Young Invincibles A contribu*on... much needed and long overdue." Travis Reindl, formerly with the Na*onal Governors Associa*on Source:
For More Information Michael Dannenberg Director of Strategic Ini5a5ves for Policy Educa5on Reform Now Source: January 5, 2015