(Still) Don’t Dismiss Performance Funding Research

I like the idea of funding public colleges and universities based in part on their former students’ outcomes—and I’m far from the only one. Something in the ballpark of three dozen states have adopted some sort of a performance-based funding (PBF) system, with more states currently discussing the program. Given that many states currently fund colleges based on a combination of enrollment levels and historical allocations that can be woefully out-of-date, tying some funding to outcomes has an intuitive appeal.

However, as a researcher of accountability policies in higher education, I am concerned that some colleges may be responding to PBF in unintended ways. At this point, as I briefly summarized in a recent piece at The Conversation, there is evidence that PBF may adversely affect access to college for moderately prepared students as well as the types of postsecondary credentials awarded. My newest contribution was a recently published article in the Journal of Education Finance that found both two-year and four-year colleges subject to PBF saw less Pell revenue than other colleges not subject to PBF.

Since that article finished the peer review and copy editing processes and was posted online two weeks ago, I’ve been expecting a response from one of the largest organizations advocating for PBF. HCM Strategists, a DC-based advocacy group that is quite effective in lobbying and policy development, has traditionally been a strong supporter of PBF. (Disclaimer: I’ve gotten funding from them for a project on a different topic in the past.) In 2013, an HCM director responded to a high-quality paper by David Tandberg and Nick Hillman (that was later published in JEF) by writing an Inside Higher Ed piece called “Don’t Dismiss Performance Funding.” In this piece, they call the research “flawed” and “simplistic,” neither of which are particularly true. I wrote a blog post called “Don’t Dismiss Performance Funding Research,” in which I wasn’t too pleased with their response.

Today, HCM director Martha Snyder has a much more nuanced IHE essay on my and Luke’s work entitled “Jumping to Conclusions,” saying that our work should not be used “to draw any meaningful conclusions” on PBF. Snyder discusses what she perceives as some of the limitations of our work. The most notable one is that multiple types of PBF policies are lumped together in the analyses. That is necessary due to data limitations—there is no comprehensive archive of the nuances of PBF plans prior to the early 2010s. However, general trends in PBF policies across states are partially captured by the year fixed effects in the regression (standard practice in panel analyses), which also help to account for these factors.

Snyder also suggests that some states have been encouraging students to enroll in community colleges, which is definitely the case (although somewhat less so prior to 2012-13, the last year of our analysis due to the pace at which new data become available). If this were true, it would explain decreases in per-FTE Pell revenue at four-year colleges, but also increase Pell revenues at two-year colleges. Instead, we saw nearly identical negative point estimates, which raise further cause for concern. (Could this affect for-profit enrollment? I can’t really tell with federal data, but a state-level analysis here would be great.)

I appreciate HCM’s work in helping states implement more modern funding programs, but it is imperative that influential policy organizations work with the research community before drawing any meaningful conclusions about the potential unintended consequences of PBF—especially as the stakes become higher for students and colleges alike. The small, but growing, body of literature on colleges’ responses to PBF suggests that collaboration among interested parties would be far more productive than attempting to dismiss findings from peer-reviewed research that suggest caution may be in order. I’m happy to do what I can to summarize the literature on unintended consequences while working to move forward policy discussions on future versions of PBF.

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Will Colleges Send Out Financial Aid Packages Earlier Next Year?

I’m looking forward to college students being able to submit the Free Application for Federal Student Aid (FAFSA) three months earlier next year. Instead of being able to submit starting January 1 for the 2017-18 academic year, students will be able to submit beginning October 1—giving students an additional three months to complete the form thanks to using ‘prior prior year’ (PPY) income and asset data. This means that students can get an estimate of their eligibility for federal grants and loans as soon as late fall, which has the potential to help inform the college choice process.

But there is no guarantee that students will get their final financial aid package from the college any earlier as a result of prior prior year. Recognizing this, Undersecretary of Education Ted Mitchell recently sent a letter to college presidents asking colleges to send out their aid packages earlier in order for students to fully benefit from PPY. Will colleges follow suit? I expect that some will, but the colleges with the greatest ability to offer institutional grant aid probably won’t. Below, I explain why.

The types of colleges that can easily respond to PPY by getting aid packages out earlier are those institutions with rolling admissions deadlines. (Essentially, it’s first-come, first-served among students who meet whatever admissions criteria are present—less-selective four-year and virtually all two-year colleges operate in this manner.) Some of these colleges already offer their own grant aid upon admission, but these colleges tend to have less grant aid to offer on account of relatively low sticker prices and fewer institutional resources. Additionally, these colleges often take applications well into the spring and summer—after students can already file the FAFSA under current rules.

It is less likely that the relatively small number of highly-selective colleges that get a disproportionate amount of media coverage will respond to PPY by getting financial aid offers out any earlier. For example, the Ivy League institutions didn’t even release their admissions notifications for students applying through the regular route until the last day of March, which gives students plenty of time to complete the FAFSA under current rules. Moving up the notification date to January is definitely feasible under PPY, but it requires students to apply earlier—and thus take tests like the ACT or SAT earlier. All students are supposed to commit to one college by May 1, giving students one month under current rules to compare aid packages and make a decision. Colleges may oppose extending this decision period as students have more time to compare offers and potentially request more money from colleges.

I suspect the Department of Education sent their letter to colleges in an effort to get the admissions notification dates at selective colleges moved up, but this goes against the incentives in place at some colleges to reduce the comparison shopping period. Prior prior year still allows students to get their federal aid eligibility earlier, which is a good thing. But for quite a few students, they won’t get their complete financial aid package any earlier.

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Fewer Poor Students Are Being Enrolled in State Universities–Here’s Why

This post initially appeared at The Conversation, and is co-authored with my Seton Hall colleague Luke Stedrak.

States have traditionally provided funding for public colleges and universities based on a combination of the number of students enrolled and how much money they were allocated previously.

But, in the face of increasingly tight budgets and pressures to demonstrate their effectiveness to legislators, more and more states are tying at least some higher education funding to student outcomes.

As of 2015, 32 states have implemented a funding system that is based in part on students’ performance in at least some of their colleges. In such states, a portion of state funding is based on metrics such as the number of completed courses or the number of graduates.

Research shows that performance-based funding (PBF) has not moved the needle on degree completions in any substantial way. Our research focuses on the unintended consequences of such funding policies – whether colleges have responded to funding incentives in ways that could hurt disadvantaged students.

We find evidence that these systems may be reducing access for low-income students at public colleges.

Just a popular political strategy?

What is performance-based funding (PBF)? And does it improve college completion rates?

Performance funding, the idea of tying funding to outcomes instead of enrollment, was first adopted in Tennessee in 1979. It spread across the country in waves in the 1990s and 2000s, with some states dropping and adding programs as state budget conditions and political winds changed. In this decade, several states have implemented systems tying most or all of state funding to outcomes.

By basing funding on outcomes such as course completions and the number of degrees awarded, PBF has become a politically popular strategy to improve student outcomes. It has received strong support from the Bill and Melinda Gates and Lumina Foundations – two big players in the higher education landscape.

However, the best available evidence suggests that PBF systems generally do not move the needle on degree completions in any substantial way.

For example, a study of Washington state’s PBF program by Nick Hillman of Wisconsin, David Tandberg of Florida State and Alisa Hicklin Fryar of University of Oklahoma showed no effects on associate degree completion at two-year colleges. The study found positive effects on certificates in technical fields that took less time to complete, but those were the ones that were not as valuable in the labor market.

When Tandberg and Hillman conducted a nationwide study, they found no effect overall of PBF programs on degree completions at two-year and four-year colleges.

However, the small number of PBF programs that had been in effect for at least seven years (giving colleges plenty of time to change their practices in response) did appear to increase the number of bachelor’s degrees awarded by a few percentage points.

More selective and lower standards

While there is no significant evidence of impact, there have been many unintended consequences of this policy.

There is a growing body of evidence, for example, that shows that colleges may be trying to change both their student body and their academic standards in order to meet the state’s performance goals as well as their own priorities.

A research team at Teachers College who interviewed administrators in three states with “high-stakes” PBF systems (Indiana, Ohio and Tennessee) found that colleges facing PBF were both becoming more selective in accepting students and lowering academic standards among current students in an effort to have more students graduate.

A new study by Mark Umbricht and Frank Fernandez at Penn State and Justin Ortagus at University of Florida used data on incoming students to show that Indiana colleges increased selectivity in response to PBF.

They estimated that Indiana colleges lowered admissions rates by nearly 10 percent and increased ACT scores by nearly a full point compared to similar colleges in other states.

In our research, published recently in the Journal of Education Finance, we examined whether public two-year and four-year colleges nationwide changed how they either received or spent money in response to performance funding systems.

We found that colleges generally did not change spending on instruction or research, but they did see significantly less revenue from federal Pell Grants that are primarily given to students with family incomes below US$60,000 per year, suggesting fewer low-income students enrolled. We estimated a statistically significant decline in Pell revenue of about 2 percent at both two-year and four-year colleges.

We also found that four-year colleges offered more institutional grant aid, potentially in the form of merit-based scholarships to attract higher-income students with a greater likelihood of success.

Implications for policy

Although research suggests that performance funding systems have not been particularly effective in increasing the number of degrees that public colleges grant, the fact is that PBF is being adopted in more states. For example, five more states have adopted PBF since 2014, with additional states debating whether to adopt plans of their own.

We believe, this is unlikely to go away anytime soon.

And many states’ existing funding systems are highly inequitable. They favor research universities over less-selective colleges, even though less-selective colleges enroll the lion’s share of low-income students.

States should consider placing provisions in both their enrollment-based and performance-based funding systems to encourage colleges to continuing to enroll an economically diverse student body.

Several states, such as Arkansas, Ohio and Florida, provide additional incentives for graduating Pell Grant recipients. But states need to ensure that these additional funds are sufficient to encourage colleges to enroll academically qualified students from low-income families as well.

To do this, states would need to take three concrete steps. First, states should provide incentives for colleges to not raise admissions standards beyond what is needed to succeed in coursework. Second, they could also provide additional funds for graduating students who require a modest amount of remedial coursework (courses to build skills of less-prepared students), before taking college-level classes.

And finally, it is important that state policymakers and college leaders have honest conversations about the goals of PBF systems and what colleges need to improve their performance. This could help reduce the unintended outcomes.

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Understanding Financial Responsibility Scores for Private Colleges

This post originally appeared on the Brookings Institution’s Brown Center Chalkboard blog.

The stories of financially struggling private colleges, both nonprofit and for-profit, have been told in many news articles. Small private nonprofit colleges are increasing tuition discount rates in an effort to attract a shrinking pool of traditional-age students in many parts of the country, while credit rating agency Moody’s expects the number of private nonprofit college closings to triple to about 15 per year by next year. Meanwhile, the for-profit sector has seen large enrollment decreases in the last few years amid the collapse of Corinthian Colleges and the University of Phoenix’s 50 percent drop in enrollment since 2010.

In an effort to identify financially struggling colleges and protect federal investments in student financial aid, Congress requires the U.S. Department of Education to calculate financial responsibility composite scores that are designed to measure a college’s overall financial strength based on metrics of liquidity, ability to borrow additional funds if needed, and net income. Private nonprofit and for-profit colleges are required to submit financial data each year, while public colleges are excluded under the assumption that state funding makes them unlikely to become insolvent.

Though not commonly known, these financial responsibility scores have important consequences for private colleges.  Scores can range between -1.0 and 3.0, with colleges scoring at or above 1.5 being considered financially responsible and are allowed to access federal funds. Colleges scoring between 1.0 and 1.4 can access financial aid dollars, but are subject to additional Department of Education oversight of their financial aid programs. Finally, colleges scoring 0.9 or below are not considered financially responsible and must submit a letter of credit of at least 10 percent of federal student aid from the previous year and be subject to additional oversight to get access to funds. The Department of Education can also determine that a college does not meet “initial eligibility requirements due to a failing composite score” and assign it a failing grade without releasing a score to the public. In this case, a college will be immediately subject to heightened cash monitoring rules that delay the federal government’s disbursement of financial aid dollars to colleges. However, private nonprofit colleges dispute the validity of the formula, claiming it is inaccurate and does not meet current accounting standards.

I first examined the distribution of financial responsibility scores among the 3,435 institutions (1,683 private nonprofit and 1,752 for-profit) with scores in the 2013-14 academic year, using data released to the public earlier this month. As illustrated in the figure below, only a small percentage of colleges that were assigned a score did not pass the test. In 2013-14, 203 colleges (73 nonprofit and 130 for-profit) received a failing score and an additional 136 (51 nonprofit and 85 for-profit) were in the oversight zone. Most of the colleges with failing scores are obscure institutions, such as the Champion Institute of Cosmetology in California and The Chicago School for Piano Technology. However, a few of these institutions, such as for-profit colleges Charleston School of Law, ITT Technical Institute, and Vatterott Colleges as well as nonprofit colleges Erskine College in South Carolina, Everglades University in Florida (a former for-profit) and Finlandia University in Michigan are at least somewhat better-known.

finscore_fig1

I then examined trends in financial responsibility scores since when scores were first released to the public in the 2006-07 academic year. The first finding to note in the below table is that the number of nonprofit colleges that did not pass the financial responsibility test nearly doubled between 2007-08 and 2008-09, including more than one in six institutions. Much of this increase appears to be due to the collapse in endowment values, as even a decline in a rather small endowment would affect a college’s score through reducing net income. During the same period, there was only a slight increase in the number of for-profit colleges facing additional oversight.

finscore_fig2

The second interesting trend is that in spite of concerns about the viability of small colleges with high tuition prices since the Great Recession, the number of colleges that either received a failing score or faced additional oversight has slowly declined since 2010-11. Only 12 percent of for-profits and seven percent of nonprofits failed in 2013-14, reflecting a general stabilizing trend for struggling private institutions.  Although there are certainly valid concerns about how these scores are calculated, most colleges with failing scores and some others facing additional oversight are likely on shaky financial footing. Many of these colleges with failing scores—particularly for several years in a row—will be forced to consider merging with another institution or closing their doors entirely in the near future. Other colleges closer to the passing threshold may be facing tight budgets for years to come, but their short-term viability is generally secure.

It is unlikely that a substantial number of students and families know that financial responsibility scores even exist, let alone use them in their college choice decisions. However, these scores do provide some potential insights into the financial stability of a college and could potentially be included in the new College Scorecard tool. Students who are considering attending a college that repeatedly receives a failing score should ask tough questions of college officials about whether they will be financially solvent several years from now. Policymakers should use these scores as a way to identify financially struggling institutions and provide support for ones with solid academic outcomes, while also asking tough questions about the viability of cash-strapped colleges that academically underperform similar colleges.

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The 2016 Net Price Madness Bracket

Every year, I take the 68 teams in the NCAA Division I men’s basketball tournament and fill out a bracket based on colleges with the lowest net price of attendance (defined as the total cost of attendance less all grant aid received). My 2015, 2014 and 2013 brackets are preserved for posterity—and aren’t terribly successful on the hardwood. My 2015 winner (Wichita State) won two games in the tournament, while prior winners Louisiana-Lafayette and North Carolina A&T emerged victorious for having the lowest net price but failed to win a single game.

I created two brackets this year using 2013-14 data (the most recent available through the U.S. Department of Education): one for the net price of attendance for all students and one focusing on students with family incomes below $30,000 per year. The final four teams in each bracket are the following:

All student receiving aid

East: Wichita State ($9,843)

West: Cal State-Bakersfield ($5,690)

South: West Virginia ($9,380)

Midwest: Fresno State ($5,599)

netprice_all_2016

Low-income students only

East: Vanderbilt ($6,905)

West: Yale ($3,918)

South: North Carolina ($4,431)

Midwest: Fresno State ($3,835)

netprice_low_2016

A big congratulations to Fresno State and the state of California for winning this year’s edition of Net Price Madness across both categories.

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What the Leading Republican Presidential Candidates Are Saying About College Affordability

With cumulative student loan debt exceeding $1.2 trillion and the average net price of college attendance continuing to rise, college affordability has become an important issue in the 2016 presidential election. Most of the attention on this topic has been in the Democratic primary, in which Vermont Senator Bernie Sanders and former Secretary of State Hillary Clinton both have ambitious plans to make public colleges either tuition-free (Sanders) or debt-free (Clinton) that have played a prominent role in their campaigns.

College affordability has played a much smaller role in the Republican primary to this point, with topics such as foreign policy and immigration getting far more attention from the candidates. Yet the rising price of college is likely to be an important issue in the general election, particularly among younger adults who tend to lean toward supporting Democratic candidates. Here, I examine the leading Republican candidates’ positions on how to make higher education more affordable for students and their families.

Donald Trump

The billionaire businessman and political novice has gained attention recently for his foray into for-profit higher education through the Trump Entrepreneur Initiative, which was previously known as Trump University before New York’s attorney general sued to stop Trump from using the term “university.” Trump is also facing lawsuits from former students who claimed that they got no value from their investment of up to $35,000 in real estate seminars.

In multiple interviews, Trump has stated his intention to either close or substantially downsize the U.S. Department of Education, although much of his rationale appears to be due to opposition to the Common Core standards at the K-12 level. In his only statement regarding higher education affordability, Trump has criticized the Department of Education for making a profit on the federal student loan program. Trump shares this view with many Democratic legislators, even though government agencies have different opinions about the profitability of student loans.

Sen. Marco Rubio

The first-term Florida senator has significant experience with higher education, having been an adjunct professor of political science at Florida International University between 2008 and 2015. In the Senate, Rubio has co-sponsored bipartisan legislation that would make income-based repayment the default option for federal student loans and would require colleges to report additional data on student outcomes. He has also co-sponsored a bipartisan bill that would open the federal financial aid program to alternative education providers that can meet certain outcome standards and gain accreditation, although he has also faced criticism for his defense of for-profit colleges whose access to federal funds has been threatened.

Rubio has also supported ideas that are likely to appeal to Republican primary voters but may not be as popular with independent-minded voters in a general election. Like Trump, Rubio has also called for the elimination of the Department of Education. Rubio has noted that some programs currently administered by the federal government should continue (such as the federal student loan program), but they could be absorbed by the Department of the Treasury or other agencies. He has sponsored legislation in the Senate to allow students to use private income share agreements, which function similarly to private loans with income-based repayment, to finance their education. This idea has been criticized as a form of indentured servitude, even though federal loans function in similar ways.

Sen. Ted Cruz

The first-term Texas senator has said relatively little about college affordability, other than noting that he just recently paid off his $100,000 in student loan debt. Like the other GOP candidates, he has called for the vast majority of the Department of Education to be eliminated. Cruz would appoint an Education Secretary whose sole goal would be to determine which programs should remain and give most funding to the states via block grants. In 2012, Cruz indicated that he would keep federal student aid funds in the federal budget, but transfer funding and authority to the states.

As Democrats will certainly keep at least 40 seats in the U.S. Senate (the minimum needed to sustain a filibuster to block legislation) and may gain a majority in this fall’s election, it doesn’t appear that the Department of Education will go away anytime soon. But if any of these three Republican candidates are elected, their actions on affordability—and the implications for both students and taxpayers—are likely to be quite different than what a Clinton or Sanders administration will be proposing.

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Comments on New America’s Financial Aid Reform Plan

In the last few years, there have been a dizzying number of proposals put forth to reform the complex and confusing system of student financial aid in the United States. From a series of 16 proposals released in the 2012-13 academic year through the Gates Foundation’s Reimagining Aid Design and Delivery project to Sara Goldrick-Rab and Nancy Kendall’s proposal for a free two-year public college option to a host of financial aid reforms proposed by the 2016 presidential candidates, there is no shortage of ideas to reform financial aid. (And I’ve got plenty of ideas of my own.)

The newest thoughtful proposal to add to the mix comes from New America’s education team, many of whom have significant experience in state and/or federal higher education policy. In this proposal, “Starting from Scratch: A New Federal and State Partnership in Higher Education,” the New America team proposes completely throwing out the current federal financial aid system and replacing it with a federal/state partnership with maintenance of effort requirements for states and accountability requirements for colleges while requiring colleges and states to cover students’ unmet financial need. Below, I summarize some of the key pieces of the proposal that I like, some that I dislike, and some that require a lot of additional thought.

Things I like

(1) Unlike some of the other financial aid proposals out there, the New America proposal has provisions to go beyond public colleges and universities to cover at least a segment of private nonprofit and for-profit colleges. This is an important recognition, as all colleges that currently receive federal financial aid are public in one sense of the word. A financial aid system that only supports students attending public colleges could result in a stampede to public institutions, which could be a problem in states with historically small public sectors (such as in the Northeast).

(2) Plowing funds currently spent on tax credits and deductions into student financial aid isn’t a new idea (and New America raised it in 2013), but it makes perfect sense. Research has shown that tax credits and deductions have no effect on college enrollment or completion, likely because the money gets to students well after enrollment (assuming they remember to claim the funds on their tax return).

(3) I’m glad to see the New America team questioning the current definitions of both the cost of attendance (COA) and the expected family contribution (EFC). As I’ve shown in research with Sara Goldrick-Rab and Braden Hosch, the non-tuition portions of the COA are determined by colleges and vary drastically within the same geographic area. The EFC has been criticized as being an outdated formula that doesn’t adequately reflect a family’s ability to pay. I’d like to see New America dig in deeper on both of these areas.

Things I don’t like

(1) I’m generally uncomfortable with the idea of ‘maintenance of effort’ proposals that require states to keep a certain level of funding per full-time equivalent (FTE), as the New America plan does. As I’ve written about before, states tend to think about funding in terms of overall funding amounts (not on a per-FTE basis) because they don’t directly control enrollment levels. If this program shifts a larger percentage of enrollment to public colleges, required state funding levels for higher education will rise at the same time states are already legally or constitutionally required to fund other priorities. I also think that maintenance of effort requirements will result in states lobbying Congress to defeat this proposal (and I also think that states would opt out despite the authors’ insistence that it wouldn’t happen).

(2) I don’t like states choosing which colleges could receive financial aid under the partnership model. I would rather see all colleges that meet quality and accountability thresholds receive funding regardless of their state affiliation or tax status. It may very well be the case that fewer for-profits or private nonprofits meet the threshold, but as long as the threshold is justified, I’m fine with that. But excluding all non-public institutions immediately (and at the whim of state policymakers) doesn’t make sense to me.

(3) I’m concerned about getting rid of federal loans to cover the EFC, while simultaneously placing additional regulations on private loans. This could result in students not being able to get access to credit at reasonable interest rates, as private lenders may choose to not offer loans when students can discharge them via bankruptcy. I would much rather see an income share agreement or income-based repayment model encouraged for private loans in this case, as this gives both students and lenders some level of protection.

Unclear

(1) The New America proposal calls for states to have a larger role in holding colleges accountable for their outcomes. This makes sense for colleges that just operate in one state, but is far trickier for colleges that operate in multiple states. If this were to happen, groups like the National Council for State Authorization Reciprocity Agreements (NC-SARA) would become even more important.

(2) I’m concerned that colleges would try to game the funding system on account of the requirement that 25% of students qualify for Pell Grants under the current EFC formula. If a college already has 30% of students receiving Pell Grants and has funding tied to meeting outcomes, it suddenly has an incentive to recruit a few more higher-income students with a higher likelihood of graduation. Research that I’ve done with my Seton Hall colleague Luke Stedrak (look for it soon in the Journal of Education Finance) shows that colleges in states subject to performance-based funding received less Pell funding that colleges not subject to performance funding after controlling for a host of other characteristics. It might be worth tweaking the system to reduce the possibility of gaming.

I’d love to hear your thoughts on New America’s discussion-worthy proposal. Drop me a note or leave a comment below!

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Should Students Get Admission Preferences for Community Service?

A January report called “Making Caring Common” sponsored by the Harvard Graduate School of Education and endorsed by dozens of researchers and enrollment management professionals made headlines for calling on students seeking to attend elite colleges to focus less on college preparatory tests and more on community service while in high school. (The report also called on expanding the definition of what a “good” college is, but that’s a topic for another day.)

Last weekend’s New York Times included an interesting proposal from attorney Steve Cohen in response to this report. He wrote the following:

“The best way for colleges to tell kids they truly value a concern about others and a real commitment to community service is to announce that they’ll give an admissions bump of one standard deviation to anyone who spends two years after high school doing full-time AmeriCorps-type community or military service.”

Essentially, Cohen is calling for an expansion of the ‘gap year’ between high school and college. While this sort of plan has some benefits (such as giving students a chance to mature before beginning their studies and providing potential opportunities to learn more about the world), I am skeptical that a two-year community service program would actually benefit students from lower-income families:

(1) Voluntary gap years are basically just for students from wealthy families. Although research from Sara Goldrick-Rab and Seong Wan Han shows that gap years are far more common for financially-needy students, these gap years are typically so students can transition to adulthood and pay for their education. Community service jobs are unlikely to pay the bills; AmeriCorps, for example, pays their full-time employees about $1,070 per month—far less than a full-time job flipping burgers or making biscuits. Students from wealthier families can rely on their parents to subsidize them while waiting to get into an elite college, while lower-income families may expect their college-age students to help pay the bills.

(2) Delaying enrollment for two years can hurt students when they get to college. A majority of first-time students who enroll in community college already take at least one remedial course while they are in college (remediation data at four-year colleges are tricky because some states and colleges technically do not offer remedial courses). Even among students who took college preparatory coursework, delaying enrollment by two years provides ample opportunity for many of the key math and writing skills to become rusty. This can result either in higher rates of remediation (and delaying the path to a degree) or struggling in the first year of courses (which can result in the loss of financial aid). For example, research by Robert Bozick and Stefanie DeLuca finds that delayed enrollees are less likely to earn a college degree than on-time enrollees, even after controlling for academic preparation and family income.

For these reasons, I highly doubt that giving admissions preferences to students who delay college to do community service will help non-wealthy students. However, I am intrigued by the preference for students with military experience, particularly as most elite colleges enroll few veterans. Research by Amy Lutz shows that young adults from the wealthiest family income quartile are less likely to serve in the military than those from lower-income or middle-income families. Military service also offers a better compensation package than community service, although at greater risk to the individual. These people who are willing to put their lives on the line certainly deserve special consideration in admissions, while young adults who can afford to do community service for two years likely do not.

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How Colleges’ Net Prices Fluctuate Over Time

This piece first appeared at the Brookings Institution’s Brown Center Chalkboard blog.

As student loan debt has exceeded $1.2 trillion and many colleges continue to raise tuition prices faster than inflation, students, their families, and policymakers have further scrutinized how much money students pay to attend college. A key metric of affordability is the net price of attendance, defined as the total cost of attendance (tuition and fees, books and supplies, and a living allowance) less all grants and scholarships received by students with federal financial aid. The net price is a key accountability metric used in tools such as the federal government’s College Scorecard and the annual Washington Monthly college rankings that I compile. In this post, I am focusing on newly released net price data from the U.S. Department of Education through the 2013-14 academic year.

I first examined trends in net prices since the 2009-10 academic year for the 2,621 public two-year, public four-year, and private nonprofit four-year colleges that operate on the traditional academic year calendar. I do this for all students receiving federal financial aid (roughly 70% of all college students nationwide), as well as students with family incomes below $30,000 per year—roughly the lowest income quintile of students. Note that students from different backgrounds qualify for different levels of financial aid from both the federal government and the college they attend (and hence face different net prices). Table 1 shows the annual percentage changes in the median net price by sector over each of the five most recent years, as well as the median net price in 2013-14.

netprice_jan16_table1

The net price trends in the most recent year of data (2012-13 to 2013-14) look pretty good for students and their families. The median net price for all students with financial aid increased by just 0.1% at two-year public colleges, 1.4% at four-year public colleges, and 1.7% at four-year private nonprofit colleges—roughly in line with inflation. The lowest-income students saw lower net prices in 2013-14 at two-year public colleges (-1.4%) and four-year private nonprofit colleges (-0.5%) and a small 0.4% increase at four-year public colleges.

Even with one year of good news, net prices are up about 15% at four-year colleges and 10% at two-year colleges since the beginning of the Great Recession in 2009, with a slightly larger percentage increase for lower-income students. Much of this increase in net prices, particularly for lowest-income students, occurred during the 2011-12 academic year.

Although some may blame the lingering effects of the recession or reduced state funding for the increase, in my view the likely culprit appears to be changes made to the federal Pell Grant program. In 2011-12, the income cutoff for an automatic zero EFC (Expected Family Contribution, and hence automatically qualifying for the maximum Pell Grant) was cut from $31,000 to $23,000. This resulted in a 25% decline in the number of automatic zero EFC students and contributed to the average Pell award falling by $278—the first decline in average Pell awards since 2005.

I next examined potential reasons for colleges’ changes in net prices. As colleges are facing incentives to lower their net price, they can do so in three main ways. Lowering tuition prices or increasing institutional grant aid would both benefit students, but they are difficult for cash-strapped colleges to achieve.

If colleges want to lower their net price without sacrificing tuition or housing revenue, the easiest way to do so is to reduce living allowances for off-campus students. Colleges have wide latitude in setting these living allowances, and research that I’ve conducted with Sara Goldrick-Rab at Wisconsin and Braden Hosch at Stony Brook shows a wide range in living allowances within the same county. Here, I looked at whether colleges’ patterns of changing tuition and fees or their off-campus living allowance seemed to be related to their change in net price.

Table 2 shows the change between the 2012-13 and 2013-14 academic years in the total cost of attendance (COA), tuition and fees, and off-campus living allowances (for colleges with off-campus students), broken down by changes in the net price. Colleges with the largest increases in net price (greater than $2,000) increased their COA for off-campus students by $1,398, while colleges with smaller increases (between $0 and $1,999) increased their COA by $829. Both groups of colleges typically increased both tuition and fees and living allowances, which together resulted in the increase in COA.

netprice_jan16_table2

However, colleges with a reported decrease in net price between 2012-13 and 2013-14 had a different pattern of changes. They still increased tuition and fees, but they reduced off-campus living allowances in order to keep the cost of attendance lower. For example, the 131 colleges with a decrease in net price of at least $2,000 had average tuition increases of $310 while living allowances were reduced by $610. Some of these reductions in allowances may be perfectly reasonable (for example, if rent prices around a college fall), but others may deserve additional scrutiny.

The net price data provide useful insights regarding trends in college affordability, but students and their families should not necessarily expect the posted net price to reflect how much money they will need to pay for tuition, fees, and other necessary living expenses during the academic year. These metrics tend to be more accurate for on-campus students (as a college controls room and board prices), but everyone should also look at colleges’ net price calculators for more individualized price estimates as the net price for off-campus students in particular may not reflect their actual expenses.

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Comments on the Bush Higher Education Proposal

The three Democratic candidates for president all released their plans for higher education fairly early in the campaign cycle, with Sen. Clinton, Gov. O’Malley, and Sen. Sanders’s plans all including some variation of tuition-free or debt-free public college. These plans are all likely dead on arrival in Congress due to their price tags ($350 billion for the Clinton plan) and the high probability that Republicans hold the House of Representatives through 2020, but the candidates deserve credit for making higher education a key part of their domestic policy platforms.

On the Republican side, higher education has been much less important during the campaign, with only Sen. Rubio having a framework (with a good number of components that may enjoy bipartisan support) in place for higher education before now. But Gov. Bush’s newly released proposal for education reform (as summarized in this piece written by Jason Delisle and Andrew Kelly, two informal advisors to the Bush campaign and people I greatly respect) reflects the most detailed proposal from any of the Republican candidates. (Gov. Bush’s summary on Medium is available here.) And like Rubio’s plan, there are components that will likely get bipartisan support in Congress—while other parts are likely to face opposition from within his own party. Below are the key planks of Bush’s higher education platform, along with my comments on whether they are likely to be effective and feasible.

Proposal 1: Replace the current financial aid system with education savings accounts and a line of credit. If one thing unites all presidential candidates, it’s that the Free Application for Federal Student Aid needs to be either incredibly simple or eliminated. The Bush proposal would replace the FAFSA for most students with an education savings account based on the tax code. All students would get a $50,000 line of credit (roughly the same as what independent students can borrow for a bachelor’s degree today), and low-income students would get an additional account with need-based aid based on their family’s income in high school. Adults would also qualify for grant aid, likely by filling out some new version of the FAFSA. Tax credits would also disappear in the Bush proposal, which will probably upset some people although they have not been proven to induce students to enroll in or graduate from college.

This proposal represents a modest—but likely helpful—improvement over the current system for undergraduate students. This would give students at least some additional flexibility in using their financial aid, with the potential for students to accelerate their progress by taking summer courses that would not be aid-eligible under current rules. Getting students information about their likely aid eligibility in eighth grade is a plus, as shown in my research. But I’d like to see students get money deposited in their account at a slightly earlier age to make the commitment seem more tangible.

It appears that the $50,000 line of credit will be the new lifetime limit for federal student loans. For undergraduate students, this makes a lot of sense. The typical student with debt has between $30,000 and $35,000 in debt for a bachelor’s degree, so $50,000 seems like a reasonable upper bound for most students. However, it doesn’t look like graduate students would qualify for additional credit—which could curtail enrollment in master’s degree programs or doctoral programs in less-lucrative fields. This could create an opportunity for the expanded use of income share agreements with the private sector.

Proposal 2: Impose “risk sharing” on federal student loan dollars by holding colleges responsible for a portion of loans that are not repaid. The general principal of risk sharing makes sense—if a college’s former students can’t pay the bills, then the college should be responsible for partially reimbursing taxpayers. And the idea has at least some bipartisan support, as evidenced by 2015 legislation introduced by Senators Hatch (R) and Shaheen (D). But putting together a risk sharing proposal that doesn’t punish colleges for serving at-risk students while protecting taxpayer funds is far more difficult than it would first appear. I’ve tangled with some of these issues in my prior work (see my proposed framework for a risk sharing system), and the Bush team will have to do the same if their candidate pulls off an improbable comeback.

Proposal 3: Allow new providers to receive federal financial aid dollars. Right now, students can take their federal financial aid dollars to any of the approximately 7,500 colleges and universities nationwide that are eligible for and participate in programs under Title IV of the Higher Education Act. Conservatives have frequently called for other non-college providers (such as boot camps, apprenticeship programs, and single-course providers) to be eligible for federal financial aid to promote competition and potentially place downward pressure on the price tag of traditional programs. However, making this sort of change would likely require a significant overhaul of the current accreditation system, which has been deemed a cartel by some Republicans.

Bush’s proposal echoes these calls, but also proposes that prior learning assessments qualify for federal financial aid. This would allow students to use Pell Grant or student loan dollars to pay for taking tests such as the College Level Examination Program (CLEP) that can result in college credit if a student can demonstrate subject mastery. It could also potentially be used to help pay for portfolio assessments of previous academic or work experience, which can cost hundreds of dollars at some colleges. Even if the entire accreditation system isn’t blown to smithereens, a relatively modest change of allowing vetted prior learning assessment providers to accept federal aid would benefit students.

Proposal 4: Get outcome data into the hands of students and families. Florida has one of the most comprehensive education data systems in the country, allowing students and their families to access detailed data on earnings by field of study. The Bush proposal calls for each state to develop a similar system in order to provide outcome data to the public. However, given the way the pendulum has swung regarding student privacy (a substantial part of both the GOP and Democratic primary bases), it will be difficult to include incentives or sanctions that would encourage states to develop these databases. But even if such a proposal were to be adopted, it’s far from clear whether 50 separate databases would make more sense from a logistical or privacy perspective than a federal College Scorecard with program-level data.

Proposal 5: Reform the student loan repayment system. Both Republicans and Democrats seem to be moving toward a consensus that income-based repayment models (where loan payments are tied to a former student’s income and debt burden) are superior to the traditional 10-year fixed payment plan. Bush’s plan would make income-based repayment the only option for new borrowers, with payments equal to 1% of income per each $10,000 borrowed for up to 25 years, with the maximum lifetime payment being $17,500 per $10,000 borrowed. His proposal would also encourage current borrowers to shift into income-based repayment, which is currently a headache for many students. Although people will likely disagree with the exact terms Bush’s proposal sets forth, the general principles match up with conservative proposals as well as President Obama’s REPAYE program.

Although Gov. Bush is badly lagging in the polls, his campaign’s higher education proposals are serious, generally well-considered (although lacking for most details), and represent an important starting point for federal higher education policy discussions. Given that large infusions of federal funds into higher education are unlikely regardless of who becomes the next President, some pieces in the Bush plan (such as increased flexibility in how students use Pell Grants) are worth considering as low-cost plans that have the potential to positively impact students. Other ideas (such as risk sharing) sound promising in principle, but have the potential to do harm if they are improperly implemented. But even if the Bush campaign doesn’t make it past the first few primary states, many of the ideas included in the plan should be strongly considered by other candidates.

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