What We Need to Hear from the President

Reviewing the range of responses to President Obama's plan to reduce college costs, and the questions that are being raised on Twitter, it seems important that the Administration clarify a few things sooner rather than later.

1. This effort to reduce college costs is a first step and thus it is not intended to solve all problems.  The President should say something more specific about the ultimate goal and what it would look like in practice. Are we working towards a free community college education? Are we trying to close achievement gaps?  What is the intended outcome down the road?

2. This is not NCLB for higher education.  The President needs to assure the public that he is not calling for standardized testing, the end of professorial tenure, or a focus on specific fields or majors.  He is trying to help more Americans access the quality post secondary education they seek, not water down quality or redefine what matters.

3. This is an effort to protect public higher education, not destroy it.  This needs to be said loud and clear, and the President's commitment to community colleges in particular must be emphasized.  Too many community college leaders are distressed at the roll-out of these plans, and I did not think that was intended.

4. This is also not an attempt to end for-profit or private higher education.  The purpose is to ensure that Title IV is spent in ways that support national needs, not to define the entire range of opportunities that can exist.  It is certainly possible to support private and for-profit educational providers without insisting that the federal government should also subsidize them.

5.  The President is not insisting that everyone must go to college-- he is  trying to help make the American Dream a reality by decoupling family income from educational opportunities.

Now, if I'm correct that these are all statements the President and his Administration can agree with, let's move on to figuring out how to take aim at the underlying inefficiencies in the current financial aid system using institutional accountability.

I think it would be a mistake to subject all institutions to metrics anytime in the near future. Most colleges and universities are good actors, keeping college costs down as long as states do their part. What we need to do as a starting point is to get a handle on (a) the bad actors and (b) federal investments that are ineffective and unnecessary.

Which schools fall into those categories? Here's a start.

BAD ACTORS

1. Institutions whose primary revenue source is Title IV.  Let's say those who get at least 75% of funding from Pell and/or student loans, for example.  These schools aren't operating based on market demand but rather are propped up by federal aid.

2. Institutions with selective admissions (say less than 75% admitted) and low average graduation rates (less than 50% over 5 years).

INEFFECTIVE, UNNECESSARY INVESTMENTS

1. Institutions with large endowments per student.

2. Institutions serving very few Pell recipients (regardless of whether this is due to admissions practices, costs, or a decision to simply be small).


If we could ensure that federal student aid no longer supported these schools, we would see fewer students attend these schools, their prices would likely fall (or they would close), and/or at minimum we'd save money that could be spent elsewhere.

If that were the first stage, then the Department of Education could begin by publishing these lists of problematic schools, issuing a warning that they have three years to get off the list or lose Title IV.


The other big issue is how to get states back to the table.  There could be a separate list of states that are put on probation based on a failure to match federal investments in higher education with state investments.  All colleges and universities in those states should be put at risk of losing Title IV-- including the privates and for-profits-- and given 5 years to address the problems.

None of this is perfect, of course, but they get us thinking about a more targeted, incremental approach to reform.  What do you think? What would you include?

Building the Best Possible "Pay It Forward" Model for Higher Ed Finance

The last week was swept away by Hurricane "Pay It Forward," a new bill advanced by progressives in Oregon. Starting last Saturday I began engaging via Twitter with folks interested in debating its merits, by Sunday night I was knee-deep in a full analysis, and by Wednesday morning that analysis was published by the Century Foundation and NPR gave me an opportunity to discuss the issues On Point. In between, I was fortunate enough to be introduced to both Barbara Dudley and John Burbank, key architects of the plan. I thoroughly enjoyed getting to know both of these incredible activists, and thrilled that they share many of my concerns and end goals.

The number of legislators and members of the media who are continuing to express interest in learning more and building on this plan is amazing.  In a key respect, it's also wonderful: people really want to do something NOW to make college more affordable and reduce student debt.  It's about time!

With that in mind, I strongly suspect that some version of Pay It Forward will be enacted not only in Oregon, but in other states as well, and potentially with federal support.  Thus, setting aside for now my continuing philosophic and political problems with the plan, I'd like to make the following suggestions for making it as effective and progressive as possible.

1. Ensure that it is universal and guarantees repayment.  The only way to make it financially feasible and prevent it from furthering inequality is to reduce the fraction of free-riders.  Allowing wealthier students to pay upfront perpetuates a two-tiered system and likely increases the percent of future earnings that participants will have to pay.

2. Provide the first year of community college for free. This plan could have a really wonderful effect of helping the most financially-constrained students gain a foothold in higher education, but in order to do this the first year must require no repayment whatsoever.  Coupled with the federal Pell Grant, students could make the first year work with no debt and minimal working.  That's worth trying- if we cannot significantly boost enrollment rates with a policy like that, it will teach us something.  It facilitates the creation of advertising campaigns with a real chance of competing with for-profits' effective overtures to the same students.

3. Vary the percentage paid on future income.  Asking the same percentage of income from students with vastly different future income profiles creates a large distortion.  At bare minimum, students attending community colleges and public comprehensives should face a different percentage than those attending selective institutions.  I would go a bit further and increase the percentage paid by people whose incomes fall above the 80th percentile (or something like that) for their age range in the state.

4. Provide incentives for institutions to make better uses of resources. It is imperative that institutions commit to keeping costs down and tuition low. It is not enough to count on student reactions to hold them accountable.

5. Commit the state to increasing per-FTE appropriations over the implementation period.  Tuition must decline in order for Pay It Forward to really increase college completion rates.  States should be required to appropriate additional resources that explicitly require institutions to make better use of resources (see above).

These five changes should help improve the model, but I still view it as inferior to one that utilizes redirected Title IV federal aid and progressive taxation to support a free public option.  There are simply too many free-riders in the Pay It Forward model, affecting both its sustainability and creating some really negative consequences for those in the public sector.  Note that yes, I think higher education generates large positive externalities that compel this country to invest in public higher education.  Reasonable people may disagree- and more research is needed-- but that's at the core of my argument.  I hope when you weigh in, you make your own assumptions just as clear.

Much thanks to Matt Bruenig, Susannah Tahk, Miguel Palacios, and many others for conversations over the last week that have helped me clarify and advance my thinking.  This has been quite a start to my sabbatical!

Time to Make College Loans Dischargeable

This post has been revised following excellent additional information provided by Zakiya Smith of the Lumina Foundation and Rachel Fishman of the New America Foundation. Thanks!

Student debt is the worst possible form of debt in one critical way: it almost never leaves you.  You may be disabled, unemployed, or even dead, but you almost always still have to pay.

This "non-dischargeable"status is said to exist because there is no way to repossess the assets (your education) to pay off the creditors.  But that cannot be the only reason for this extreme rule. Instead, it's another example of putting bankers' needs above those of the average American.

Federal student loans technically can be discharged (while private loans cannot-ever) but it's a very difficult process and almost no one does it. Among those seeking a discharge, about 40% are granted, but only 0.1% of student loan debtors filing for bankruptcy have sought to discharge their loans.  Those who do file and succeed are often poor, unemployed, and having medical problems.  It used to be the case that loans were much more readily dischargeable.  All student loans could be discharged in bankruptcy until 1976. Student loans could be discharged after a waiting period (of initially five and later seven years after repayment was scheduled to begin) until 1998. Federal student loans became nondischargeable in bankruptcy in 1998. Private student loans became nondischargeable in bankruptcy in 2005.   Why not work to once again make both private and federal loans (more) dischargeable?

The pros are obvious -- students drowning in debt could declare bankruptcy and get a fresh start. Certainly their credit would be ruined for a few years, but since many aren't trying to buy homes and it's increasingly the case that it doesn't hurt job prospects, this isn't the end of the world. In addition, lenders might make credit less available, and I tend to think that will help to drive down the costs in higher education (yes, I partly agree with the Bennett Hypothesis).

The cons are less clear, if we put aside the powerful interests of the financial industry .  Would this give students incentive to go bankrupt? Recall that these are people who invested in postsecondary education and thus are actively trying to better their position in the world. They will not take bankruptcy likely, and those who treat it as anything less than a last resort will be a tiny minority (when bankruptcy was the same for student loans as all other loans, far less than 1% of federal loans were discharged this way). In fact, however, bankruptcy is critical in free market economies: it instills a sense of hope in the face of adversity.  In other words, there are both conservative and liberal rationales to support this effort.

So if we are not doing this, we have to admit that it's because we aren't brave enough to strong enough to stand up to the lenders.  An effort to make private student loans dischargeable again was introduced this year in the Fairness for Struggling Students Act and the Know Before You Owe Act and both failed.

Isn't it time for a change?  Can't we mobilize more broadly to advance this right now by pursuing reform in the Senate judiciary committee?

Putting the UW System Tuition Freeze in Context

Today's Journal Sentinel has an excellent chart illustrating how the challenge of paying for college in Wisconsin has changed over time

The only problem is that neither the chart or the accompanying article addresses the likely assumption of many readers: students who can't pay these costs, even by working, are "held harmless" through financial aid.  For that reason, many say, we should simply raise tuition further and invest that additional revenue in financial aid distributed to the neediest students.

To evaluate that claim, let's take a look at the "net price" of attending UW-Madison and UW-comprehensives-- the cost paid by the poorest students after taking into account all grant/scholarship aid provided to offset the sticket price.  

At UW-Madison, for the upcoming year 2013-2014, that amount is $13,635.00 for Pell recipients with no expected family contribution.   As you can see in the chart above, that means students from families typically earning less than $30,000 a year are expected to either work 1,866 hours a year (~35 hours/week) or borrow around $68,000 (5 years is typical time-to-degree for these students at Madison).  Is this a reasonable proposition?

In addition, consider that no more than say 3-4% of UW-Madison undergraduates come from this sort of family.  After all, more than 85% of students do not receive any Pell at all. For those students, the net price is over $21,000 in the coming year (total cost in 2013-14i s $24,000).  Redistribution is helping very, very well-- and many students with substantial need deliberately overlooked by the federal "needs analysis" are being left out in the cold. It's no wonder there's now backlash against our financial aid system-- there's universal need and a narrow means-tested system. Never works. 

Now, let's turn to the UW Comprehensives. As this recent presentation from System showed, financial aid tends to reduce the price paid by students at these schools by about $2,200 or 17%.  So instead of an average sticker price of $13,000 at places like Parkside or Stout, students tend to face around $11,000. This still means taking on up to $40-50K in debt or working long hours.  The only way in which institutions can claim to meet the need of students from families earning less than $60,000 is by assuming their willingness to borrow $20,000 or more in loans-- and frankly, that is a big assumption. When these students graduate, they will have debt amounting to a third of their family's income, and despite a focus on their "future earning power" that fact will matter more to them than anything else because the primary use of those future earnings will be to help keep the family that raised them afloat. These are not students whose families can contribute to paying off their debt upon graduation- -they are far more likely to be helping to pay off the debt their families accrued thanks to the substantial opportunity costs faced by losing their child-worker while they attended college.

Other skeptics point to the availability of the 2-year colleges throughout the state, again assuming that their costs are affordable.  While tuition is indeed lower, the costs of attendance itself are not.  Students do not live at home rent free while in college any longer-- they live at home while paying rent, and while in school lose time in which they would have been working.  In addition, they get far less grant aid because their institutional resources are lower. So once again, this unchecked assumption is wrong-- and the colleges themselves know it.  Madison College has billboards posted around Dane County pointing out that students at that college accrue less debt -- not no debt.  Since when should students have to borrow to attend a 2-year community institution?

I recognize that many in the political Right want the pending UW System tuition freeze for all the wrong reasons, seeking to starve the System into submission and eventual collapse, to force the end of the public sector.  I also recognize that the freeze will do some harm to the colleges and universities throughout the state, and that harm will be disproportionately distributed.  But what exactly happens depends in great part to the behavior of System and UW-Madison. The smart response would be to seize the opportunity to ensure that state spending is focused on instruction and distributed according to the needs of the students.  The money currently flows disproportionately to the least needy students and is budgeted defensively to support many activities aside from institution.  This must stop.

1. Downsize the administrations at most universities and most significantly at UW-Madison.

2. Ensure that UW-Madison does the lion's share of the belt-tightening while requiring that it provide wage increases to faculty and staff.  In other words, compel the institution to sacrifice on behalf of its sister institutions and ensure that instruction does not suffer. Find the units in which faculty are not teaching despite have substantial undergraduate enrollment and forbid any teaching releases not paid for with research dollars.  Increase the research "buyout" rate on all grants larger than $250,000.  Ensure that athletic programs either generate revenue for the campus-- and pass it along-- or close them. Etc.

3. Commission a task force to identify one UW comprehensive university to close and re-assign willing faculty and staff to online endeavors throughout the state.  Do this only after thorough analysis and consider of cost-effectiveness and geographic needs. 

4. Create an indirect cost incentive fund at 3-5 campuses to grow funding from research.

Again, etc.

I doubt any of this will happen because System will not act as the leader it needs to be, and because Madison will be allowed to retain greater power than any other higher education institution in the state, to the great detriment of the vast majority of students.   As a result, the freeze will be followed by a sizable tuition increase.  It shouldn't-- following the freeze, tuition should go up according to something like inflation or labor costs. Nothing more.

Actors on both sides seek to protect interests other than students.  All should be called out for it. A clear and intentional move to a goal of providing universally affordable postsecondary opportunities throughout Wisconsin is long overdue.