How Should States Structure “Free” College?

It is safe to say that the idea of free public college has gone dormant at the national level with the election of Donald Trump and a Republican Congress. But a number of states are considering adopting free college plans in light of the Tennessee Promise’s success from both political and enrollment perspectives.1 According to the Education Commission of the States, legislation was introduced in 23 states to adopt some type of free college plans between 2014 and November 2016. These bills died in most states, but five states in addition to Tennessee (Delaware, Kentucky, Minnesota, Oregon, and Rhode Island) enacted free college plans during this period.

On the same day that Republicans officially took control of the U.S. Senate, New York’s Democratic governor Andrew Cuomo announced a proposal to make SUNY and CUNY institutions tuition-free for students with family incomes below $125,000.2  This proposal, which Cuomo introduced alongside Vermont senator Bernie Sanders, would make public colleges tuition-free as a last-dollar scholarship. This appears to be similar to the Tennessee Promise, in which additional state funds are applied only after federal, state, and private grants are used.

While President Obama’s free community college proposal would have been a first-dollar scholarship (supplementing instead of supplanting other aid), Cuomo’s plan would keep the price tag down to about $163 million per year—an important consideration given the state’s other pressing priorities. Because New York is a low-tuition, high-aid state, the neediest students already have their tuition covered by grants and would thus receive no additional funds.

Therefore, the benefits of the program would go to two groups of students. The first group is fairly obvious: middle-income and upper-middle-income families. In New York, $125,000 falls at roughly the 80th percentile of family income—an income level where families may not be able to pay tuition without borrowing, but college enrollment rates are quite high. The second group consists of lower-income students who are induced to enroll by the clear message of free tuition, even though they would have received free tuition without the program. Tennessee’s enrollment boost suggests this group is far from trivial in size.

Students attending New York public colleges currently have fairly modest debt burdens. College Scorecard data show that the median student attending public 2-year colleges graduates with about $10,000 in debt, while students at 4-year colleges graduate with about $20,000 in debt. Will the New York program (if adopted) make a sizable dent on students’ debt burdens? My expectation is that the reduction in debt will not be as much as expected. This is because tuition and fees are less than half of the total cost of attendance at four-year colleges and an even smaller fraction at community colleges. Students will still need to borrow for books and living expenses, which are not covered in Cuomo’s proposal.

This gets back to a seemingly-eternal question in the education policy realm. Given limited resources, is it better to give more money to the neediest students to help them cover living expenses or is it better to give some money to middle-income families in a state with high tax burdens?3 Most politicians seem to prefer the latter, as the message of “free” college and giving money to more students seems to be a political winner. But the former could appeal to politicians who strongly prioritize equity.

But from a researcher’s perspective, which one is better for students as a whole is less clear. (It could even be the case that giving the money to colleges to improve the educational experience while charging higher tuition could be better for students in the long run.) One great thing about America is that there are 50 laboratories of democracy. I hope that states take different pathways in student financial aid and funding colleges to see what works best.

 

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1 It is too early to truly tell whether the program increased educational attainment levels or labor market outcomes, or whether the program has been cost-effective given additional state funding for higher education.

2 I have to gripe about the language in the press release regarding “crushing” student loan debt, particularly given how students can use income-driven repayment plans to reduce the risk of federal loans. But I’m spitting into the wind on this one, given how journalists and politicians routinely use this language that could scare students away from attending college.

3 Some may disagree with the idea that resources are limited, but former White House staffer Zakiya Smith summed it up nicely by stating that there are plenty of other good uses for available funds in any budget.

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The 2016 “Not Top Ten” List in Higher Education

Yesterday, I unveiled my fourth annual list of the top ten events in American higher education in 2016. Now it’s time for the annual list of the “not top ten” events—which are a mix of puzzling decisions and epic fails that leave most of us wondering what people were thinking. The University of Akron gets a pass this year after topping last year’s list with a $556.40 olive jar for their president’s bedroom, but the 2014 “winner” makes a repeat appearance on this year’s list. Enjoy the list—and send along any feedback that you have!

(10) Media outlets unintentionally showed the gap between the haves and have-nots in higher education. I don’t fully blame the media for paying a lot of attention to elite American colleges, but it’s always worth reminding people that the typical college is fairly broad-access and is operating on a relatively limited budget. Both The Chronicle of Higher Education (first) and Inside Higher Ed (second) illustrated the sharp divides in higher education this year through the stories they placed next to each other.

The Chronicle of Higher Education

nottop_2016_fig1

Inside Higher Ed

nottop_2016_fig2(9) North Carolina’s Forest Trail Sports University exists to serve mediocre student-athletes. In general, I consider myself a supporter of the idea of intercollegiate athletics—although I’m certainly concerned about the implications for many colleges’ budgets. But it’s important to structure college athletics in a way that gives most athletes a quality education, particularly since few colleges athletes will actually go pro in their sport. But the newly created Forest Trail Sports University (with a focus on mediocre athletes) seeks to combine a Waldorf University online education with year-round athletic practices that are not allowed by the NCAA. Although Forest Trail’s website appears not to be active at this point, a Google News search revealed that the institution did play (and lose) at least one basketball game this year.

 (8) Pennsylvania finally has a budget, but funding in Illinois is shaky at best. It was only nine months late, but Pennsylvania finally agreed on a budget in late March for the fiscal year beginning in July 2015. “Agreed” may be an overstatement, as Democratic governor Tom Wolf declined to veto a bill that passed the Republican legislature after a long standoff between the executive and legislative branches. But this delay meant that colleges ended up increasing tuition after a freeze was promised in exchanged for increased funding. Meanwhile, Illinois has been without a regular budget for nearly a year and a half at this point as Democratic legislators and Republican governor Bruce Rauner have been unable to teach an agreement. The state has provided some stopgap funding, but enrollment at regional universities has declined and universities have seen their credit ratings downgraded.

(7) Kean University spent $30,000 on a plywood replica of a $219,000 conference table. In 2014, the New Jersey public university was roundly criticized for ordering a $219,000 conference table from China. Somehow, this story ended up getting even worse for Kean, as it turns out the table had not gone through the requisite public bidding process—and that the university had spent $25,000 on a plywood replica of the table. High-end plywood runs about $50 for a 4-foot by 8-foot sheet, so it’s safe to say that most of the money went to pay for architects instead of the actual table. Hopefully, the plywood version of the 22-foot table is getting used somewhere on campus.

(6) Long Island University’s administration locked out faculty and lost the PR battle. Faculty labor disputes are tricky for college administrators to handle. On one hand, price-sensitive private nonprofit colleges have to be very careful giving faculty increases in salary and benefits because students and families end up paying the bill. On the other hand, faculty salary increases often struggle to keep up with inflation. But in any case, Long Island University’s decision to lock out its Brooklyn faculty right before the semester started ended up being a terrible public relations decision. Hundreds of students walked out of classes to protest the lockout, and the university was forced to end the lockout a week later. It’s probably a good idea for colleges to wait for faculty to strike instead of taking the step of locking out faculty.

(5) Both Clinton and Trump had issues with for-profit educational endeavors. Higher education became a focal issue of the 2016 election, but in ways completely unrelated to policy proposals. The Clinton campaign had to answer questions about Bill Clinton’s $17.5 million in earnings over five years as honorary chancellor of Laureate International Universities—owner of Walden University in the United States. Meanwhile, the Trump campaign was dogged by questions about Trump University (which never received federal financial aid), and at points in the campaign, Trump University got more search traffic on Google than most better-known American universities, as the image below shows. The President-elect eventually settled lawsuits against the institution for $25 million in mid-November.

trumpu(4) Media outlets and politicians scare students from taking on reasonable amounts of debt for college. As student debt has increased to approximately $1.25 trillion, a chorus of voices have called student debt a ‘crisis.’ From a Consumer Reports cover story to an editorial in my state’s largest paper (to which I wrote a response) and statements by both Hillary Clinton and Donald Trump, prospective students are hearing that borrowing for college is bad. These statements rarely even mention income-driven repayment plans, which take away much of the risk for students (and the risk to taxpayers for undergraduate debt is relatively modest compared to graduate student debt). Debt and no degree is not a great outcome, but being unwilling to borrow and dropping out of college as a result can potentially be even worse.

(3) The University of Louisville is in the midst of a bizarre governance dispute. The university has had a rough few years, highlighted by the NCAA charging the top-notch men’s basketball program with major rules violations over a university employee providing recruits with prostitutes. Louisville’s situation became even stranger in June when newly elected Republican governor Matt Bevin decided to dissolve the university’s 20-member board and fire the university’s president, replacing the board with a 13-member board which contained ten of his appointments. Andy Beshear, the state’s Democratic attorney general, sued to block the changes and defeated Bevin in court in September. Louisville’s accreditor then placed the university on probation last week due to governance concerns.

(2) After a top-notch investigation, New Jersey changed its state student loan program to forgive loans in cases of death or disability. Federal student loan programs receive a lot of attention, but state-run programs generally fly under the radar. Of the $351 million in state student loans in the 2014-15 academic year, $166 million were issued as a part of New Jersey’s program. Annie Waldman of ProPublica shed some light on the program’s more onerous conditions (including the lack of forgiveness upon death) in a New York Times feature in July, which prompted the legislature to act. By December, Governor Christie signed a law that would forgive loans upon death or permanent disability—at the price tag of about $1.5 million per year.

(1) Mount St. Mary’s University (MD) president resigned after his infamous “drown the bunnies” comment and other dubious decisions. It should go without saying that it is inappropriate for a college president to tell faculty that sometimes “you just have to drown the bunnies…put a Glock to their heads.” This quote, by president Simon Newman, was in response to faculty concerns about a plan to cull students early in the semester (before they counted in retention and graduation rates) using the results of an incoming student survey. Needless to say, when the campus newspaper ran the story, the campus erupted in chaos. The president responded by trying to fire the paper’s advisor, which garnered even more negative attention. After the university’s accreditor raised concerns, Newman resigned within days.

(Dis)honorable mentions: Spending grant money on embroidered Snuggies, advocacy groups trying to attack research they don’t like, watchlists of professors based on their perceived ideology, some Baylor trustees trying to bring back disgraced former football coach Art Briles, Malcolm Gladwell’s campus food fight fracas, car accidents at Texas A&M due to playing Pokemon Go and sexting (not at the same time, thankfully!)

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The 2016 Higher Education Top Ten List

As 2016 rapidly draws to a close (and I scramble to finish a few final projects before my students’ papers are due), it’s time to look back at the year that was in American higher education. Today I present the ten events of the year that I consider to be the most important or influential, with my slightly irreverent list of “not top ten” events coming out tomorrow. As always, I’d love to hear your thoughts about the list and what I missed!

(10) Magic Johnson has committed to help more than double South Carolina State University’s endowment with a single capital campaign. 2016 has seen some donors give incredibly large gifts to higher education institutions, such as Nike co-founder Phil Knight’s $400 million donation to Stanford and $500 million commitment to his alma mater University of Oregon over the next decade. Yet former basketball star Johnson’s announcement that he would lead a $2.5 million capital campaign to support business students at the financially struggling public HBCU (which got much of a loan from the state forgiven this year in an effort to help SCSU remain accredited) would represent a 250% increase in SCSU’s 2015 endowment of roughly $1 million.

Meanwhile, much more attention has been given to federal efforts to encourage colleges with large endowments to spend more money on student financial aid. The most recent effort, from New York Rep. Tom Reed (a Republican member of President-elect Trump’s transition team), would require the approximately 90 colleges with endowments larger than $1 billion to use at least 25% of their investment income to support lower-income and middle-income students or face a 30% tax. South Carolina State is only about 398 more Magic Johnsons away from feeling the heat from Congress, so I think they’re safe for now.

(9) Grand Canyon University’s effort to become a nonprofit university was denied. The last five years have been pretty tough for much of the for-profit college sector, with Corinthian Colleges closing last year and ITT Technical Institute shutting its doors this year (more on that later). But, as shown by the stock price trend, Grand Canyon University (stock symbol LOPE after its Division I athletic program) has been doing quite well. Grand Canyon operated as a nonprofit university from its founding in 1949 until 2004, when it was bought by a for-profit entity and rapidly expanded. GCU is unusual among for-profits in that it has a Christian mission, has heavily invested in its campus, and has a high enough housing demand that it has had to turn away students looking to live on campus.

lope(Chart courtesy Yahoo! Finance)

Grand Canyon began an effort to become partially nonprofit in 2014 by proposing to create a new nonprofit entity that would then contract with the existing for-profit institution to provide certain services. Although this effort would cost about $2 billion to buy out shareholders, Grand Canyon went ahead and asked its accreditor (the Higher Learning Commission) for permission to make the switch. The HLC denied the request in March due to concerns with the contracting arrangement. Barring a move to a different accreditor (which is unlikely), GCU will likely remain a for-profit for the next several years.

(8) The rate of private nonprofit college closures, although still low, increased. Grand Canyon University has the demographic luxury of being located in the rapidly growing Phoenix metropolitan area, where there are relatively few colleges and lots of prospective students. The majority of private nonprofit colleges, on the other hand, are in areas with less-favorable demographics such as the Northeast, Midwest, or rural South. This concern led the credit rating agency Moody’s to predict last year that about 15 small private nonprofit colleges would close in 2017, up from a ten-year average of five colleges per year.

According to Ray Brown’s excellent College History Garden blog that tracks college closures and mergers, 14 private nonprofit colleges closed their doors in 2016. Two of the closures got a disproportionate amount of attention—Burlington College in Vermont (which was run by Bernie Sanders’s wife for a number of years) and Dowling College in New York (after its attempt to merge with Global University Systems proved unsuccessful). This year’s closure reflects just under one percent of all private nonprofit institutions in the United States, with more colleges opening or expanding in more demographically favorable parts of the country while others are closing.

(7) The National Labor Relations Board allowed graduate students at private colleges to unionize, but this is likely to be temporary. The ability of graduate student employees at public colleges to form unions depends on state laws, but whether or not grad students at private colleges can unionize depends on the National Labor Relations Board. As partisan control of the White House has changed hands, the ability to unionize has also gone back and forth. The Clinton-appointed NLRB allowed students to unionize in 2000, the Bush-appointed NLRB reversed course in 2004, and the Obama-appointed NLRB was widely expected to follow suit as soon as there was a test case before the board.

In August, the NLRB voted to allow Columbia University graduate employees to unionize, setting aside the Bush-era board’s explanation that unionization would adversely affect students’ educational experiences. The union election results were announced last week at Columbia, with students voting to unionize through the United Auto Workers. Undergraduate resident advisers at George Washington University are also considering forming a union, but this effort is likely to last as long as President Obama’s current appointees are still on the NLRB.

(6) A private equity firm with close ties to the Obama administration is attempting to purchase the University of Phoenix.

The University of Phoenix is in need of a rebirth at this point. The for-profit giant once had 460,000 students in 2010, but dropped to half that amount by 2015 amid an improving job market for adults and a range of federal accountability policies that particularly affected proprietary colleges. Seeking a new path (and possibly desiring less scrutiny from the public), three private equity firms offered in February to pay shareholders $1.1 billion to take the company off of the stock market. Notably, one of the firms—Vistria Group—was founded by a close friend of President Obama and employed a former deputy secretary under Arne Duncan who was involved with regulating for-profit colleges.

Shareholders signed off on the $1.14 billion deal in May and the Department of Education approved the deal last week. However, approval comes with several substantial conditions. The owners cannot increase enrollment beyond the current level of 175,000 students or open new programs and must provide the federal government with monthly updates through June 2018. The Department also required that the owners must post a letter of credit equal to 25% of all federal funding, or $386 million. A clause in the deal allows the owners to back out because the letter of credit is larger than 10% of funding, so time will tell if the deal ends up happening.

(5) ITT Technical Institute shut its doors after pressure from multiple stakeholders. When a private nonprofit college closes, that tends to get a lot of attention. Dowling College had about 1,500 students when it closed this summer, while many colleges that close have fewer than 500 students. For-profit college chain ITT Technical Institute, on the other hand, enrolled about 45,000 students in 2015—roughly the size of the University of Michigan’s flagship Ann Arbor campus. ITT Tech’s closure was fully expected when it was announced in September, but the range of factors that led to its demise deserve further discussion—particularly as taxpayers could be on the hook for up to $400 million in forgiven loans.

ITT Tech, along with several other for-profits such as the also-defunct Corinthian Colleges chain, had faced lawsuits from a number of Democratic state attorneys general questioning their recruitment and financial practices. The Securities and Exchange Commission sued ITT Tech in 2015 regarding its private student loan program. In April, ITT Tech received a show-cause notice from its accreditor (the Accrediting Council for Independent Colleges and Schools) asking the college to explain why it should remain accredited. But the final dagger for ITT Tech was the Department of Education’s August decision to cut off all new students from receiving federal financial aid, to place the college under heightened cash monitoring, and to increase the size of the required letter of credit. ITT Tech halted new enrollment as a result, and then announced its closure not long afterward.

(4) Enrollment in federal income-driven repayment student loan plans continues to rise, but so does the cost to taxpayers. One of the Obama Administration’s key higher education initiatives was to expand the realm of income-driven repayment programs that President Bush signed into law in 2007. As shown below (and further explained in this blog post from earlier in the year), about 40% of all federal Direct Loan dollars are now enrolled in income-driven repayment plans.

repay_aug16The growth of loan forgiveness programs, particularly among borrowers with large amounts of debt for graduate school, has the potential to shift part of the price tag for higher education from students to taxpayers. A scathing Government Accountability Office report on income-driven repayment programs that received front-page attention in The Wall Street Journal estimated that the federal government will forgive $108 billion of the $352 billion currently enrolled in these programs—and that the Department of Education’s methods of estimating costs are woefully inadequate. The amount forgiven could be reduced somewhat by capping the forgiven balances, but expect to hear more about forgiveness costs in the coming year as the first few people will officially apply for Public Service Loan Forgiveness in late 2017.

(3) New borrower defense to repayment regulations have the potential to affect all kinds of colleges. Most of the major federal accountability efforts, such as gainful employment regulations, heightened cash monitoring, and letters of credit, have disproportionately affected for-profit colleges. At first glance, the Obama Administration’s newly enacted borrower defense to repayment regulations (summary), which allow student loans to be forgiven if there is “a substantial misrepresentation by the school about the nature of the educational program, the nature of financial changes, or the employability of graduates.” This language is not limited to covering for-profit colleges, meaning that public and private nonprofit colleges may also be subject to the regulations.

In an October blog post, I raised concerns about the ambiguity of the regulations. It will take a while before courts figure out what a “substantial misrepresentation” actually is, and it is quite likely that judges with different ideological perspectives will come up with different definitions. Colleges will be seeking more guidance about how to comply with these regulations, and it will be fascinating to see the first wave of lawsuits that occur under borrower defense to repayment.

(2) One of the largest accrediting agencies may close after a federal panel’s actions. The National Advisory Committee on Institutional Quality and Integrity (NACIQI) usually operates in relative obscurity, but it had a tremendous impact on the year in higher education. In June, the committee was tasked with reviewing the status of the Accrediting Council for Independent Colleges and Schools (ACICS) to determine whether one of the largest accreditors of for-profit colleges should be able to have its member colleges receive federal financial aid. ACICS had faced sharp criticism, most notably by former Department of Education staffer Ben Miller, about its colleges’ academic and recruiting standards.

At the end of a marathon meeting, NACIQI members voted on a largely party-line 10-3 decision to recommend that the Secretary of Education pull ACICS’s accreditation. This decision has been winding its way through the appeals process, with Education Secretary John King denying ACICS’s request to reconsider on December 12. Once the case finishes going through the courts, the 200+ colleges accredited by ACICS serving up to 800,000 students would have 18 months to find a new accreditor in order to maintain federal financial aid eligibility. Some colleges are exploring ways to switch accreditors, while one nonprofit college accredited by ACICS has decided to shut down instead.

(1) Donald Trump’s election brings more questions than answers at this point for American higher education. In almost any normal year, the potential closure of a major accrediting agency would be the lead story. But President-elect Trump’s surprising victory creates a level of uncertainty for higher education that no modern presidential transition can match due to his often-unclear policy positions and lack of political experience. His selection of charter school advocate Betsy DeVos as Education Secretary nominee provides some clarity regarding K-12 education policy, but higher education policy is still relatively unknown.

Following the election, I wrote two pieces looking ahead to the Trump Administration that are still valid given the current state of the presidential transition. The morning after the election, I offered my five suggestions for the Trump transition team in the realm of higher education, including focusing on Higher Education Act reauthorization and working to make more data available to the public. I was then asked to write a piece for The Chronicle of Higher Education on what Trump’s election could mean for higher education finance and accountability. There are still a lot of unknowns, but it is likely that the federal government will likely take a step back on regulations—particularly for the for-profit sector. The first year of the Trump Administration should be interesting, to say the least.

Honorable mentions: States continue discussing tuition-free community college, the Department of Education’s EQUIP experiment begins, campus carry protests in Texas get interesting, three-day faculty strike at Pennsylvania public colleges, financial aid policy makes The Daily Show, public higher education funding improved in most states, gainful employment earnings data release, yours truly being turned into a .gif, Coastal Carolina University won a surprising College World Series title

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How to Improve Income-Driven Repayment Plan Cost Estimates

The Government Accountability Office (GAO) took the U.S. Department of Education (ED) behind the proverbial woodshed in a new report that was extremely critical of how ED estimated the cost of income-driven repayment (IDR) programs. (Senate Republicans, which asked for the report, immediately piled on.) Between fiscal years 2011 and 2017, ED estimated that IDR plans would cost $25.1 billion. The current estimated cost is up to $52.5 billion, as shown in the figure below from the GAO report.

gao_fig1

The latest estimate from the GAO—and the number that got front-page treatment in The Wall Street Journal—is that the federal government expects to forgive $108 billion of the estimated $352 billion of loans currently enrolled in income-driven repayment plans. Much of the forgiven loan balances are currently scheduled to be taxable (a political hot topic), but some currently unknown portion will be completely forgiven through Public Service Loan Forgiveness.

gao_fig2

The GAO report revealed some incredible concerns with how ED estimated program costs. Alexander Holt of New America has a good summary of these concerns, calling them “gross negligence.” In addition to the baffling choices not to even account for Grad PLUS loans in IDR models until 2015 (!) and to not assume borrowers’ incomes increased at the rate of inflation (!!), ED ran very few sensitivity analyses about how different reasonable assumptions would affect program costs. As a result, the estimates have not tracked tremendously closely with reality over the last several years.

But there are several reasonable steps that could be taken to improve the accuracy of cost estimates within a reasonable period of time. They are the following:

(1) Share the current methodology and take suggestions for improvement from the research community. This idea comes from Doug Webber, a higher ed finance expert and assistant professor at Temple University:

ED could then take one of two paths to improve the models. First, they could simply collect submissions of code from the education community to see what the resulting budget estimates look like. A second—and better—way would be to convene a working group similar to the technical review panels used to improve National Center for Education Statistics surveys. This group of experts could help ED develop a set of reasonable models to estimate costs.

(2) Make available institutional-level data on income-driven repayment takeup rates and debt burdens of students enrolled in IDR plans. This would require ED to produce a new dataset from the National Student Loan Data System, which is no small feat given the rickety nature of the data system. But, as the College Scorecard shows, it is possible to compile better information on student outcomes from available data sources. ED also released information on the number of borrowers in IDR plans by state last spring, so it’s certainly possible to release better data.

(3) Make a percentage of student-level loan data available to qualified researchers. This dataset already exists—and is in fact the same dataset that ED uses in making budget projections. Yet, aside from one groundbreaking paper that looked at loan defaults over time, no independent researchers have been allowed access to the data. Researchers can use other sensitive student-level datasets compiled by ED (with the penalty for bad behavior being a class E felony!), but not student loan data. I joined over 100 researchers and organizations this fall calling for ED to make these data available to qualified researchers who already use other sensitive data sources.

These potential efforts to involve the research community to improve budget estimates are particularly important during a Presidential transition period. The election of Donald Trump may lead to a great deal of turnover within career staff members at the Department of Education—the types of people who have the skills needed to produce reasonable cost estimates. I hope that the Trump Administration works to keep top analysts in the Washington swamp, while endeavoring to work with academics to help improve the accuracy of IDR cost projections.

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Nominees Wanted for the 2016 Top Ten and Not Top Ten Lists

It’s safe to say that 2016 will go down in the history books as a pretty important year for higher education. I like to commemorate each year with two lists on this blog. The “top ten” list includes the most newsworthy events of the year, regardless of whether they are good or not for higher education or the public as a whole. Meanwhile, the “not top ten” list also includes some events that are important and newsworthy, but the primary focus is on decisions that look pretty silly in hindsight or show the underbelly of greed and jockeying for power that is often present in higher education.

The previous year’s winners are below:

2015: Student protests shake up higher education (top ten), the University of Akron’s $556.40 olive jar (not top ten)

2014: Collapse of Corinthian Colleges (top ten), Kean University’s $219,000 conference table (not top ten)

2013: President Obama’s proposed college ratings (top ten), Georgetown Law’s Loan Repayment Assistance Program (not top ten)

I’m looking for nominees for this year’s lists, which will be posted during the week of December 12. I’ve been keeping a running list of potential candidates all year long, but I would greatly appreciate your thoughts on some of the most important (and zaniest) happenings in the higher education world this year. Please leave any suggestions in the comments area below or send them to me via Twitter (@rkelchen). I look forward to sharing the results!

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Five Higher Education Suggestions for President-Elect Trump

It’s pretty safe to say that Donald Trump wasn’t the candidate of choice for much of American higher education. Hillary Clinton received nearly 100 times as much in donations from academics as Trump, and the list of academics supporting Trump doesn’t have a lot of well-known names. But the typical American saw the election in a far different way than your average New York Times reader (as evidenced by the big divide in support by educational attainment), and Trump is now the president-elect after a stunning victory.

Here are my recommendations for Trump in the realm of higher education policy as he prepares to move from Trump Tower to the White House in just over two months.

(1) The Department of Education won’t go away, but certain functions could be reassigned. Although the Republicans kept control of the House and Senate, the margins are razor-thin—perhaps a four-vote margin in the Senate and a tenuous grip on the House thanks to divides between establishment and activist Republicans. This makes getting rid of the Department of Education extremely unlikely. Some functions, such as handling student loans, could go to the Department of the Treasury. Others could possibly go to states in the form of block grants. Yet there will still be a need for some administration in Washington to handle basic functions.

(2) Reach out to career staff members at the Department of Education. Trump ran on the concept of “draining the swamp,” but replacing longtime Washington staffers all at once comes at a risk. Career staff members who have served in multiple administrations have knowledge about how programs work that is difficult to replace, so it is essential to keep some of those staff members to help ensure a smooth transition across administrations. Will longtime staffers want to work for Trump? It’s anyone’s guess, but Trump’s transition team should make a good-faith effort to reach out.

(3) Make Higher Education Act reauthorization a priority. With unified (but tenuous) Republican control, Higher Education Act reauthorization suddenly looks more plausible than it did last week. A Trump administration should focus on the HEA in an effort to govern through the legislative branch rather than using executive orders and administrative rules—policies that conservatives have despised. 2017 reauthorization is probably unlikely given the administration’s other priorities, but 2018 or 2019 could work.

(4) Make more higher education data available to the public. The Obama administration made some good strides in the area of consumer information, culminating in the College Scorecard. Yet they also didn’t make data on a range of outcomes (such as PLUS loan default rates or program-level data) available to either the public or researchers. I signed onto a letter along with over 100 researchers last month calling for the Department of Education to release additional data on the federal student loan portfolio, and the Trump administration should release the data. Even if Trump wants to back down in terms of high-stakes accountability, consumer information is important.

(5) Visit a number of colleges across the higher education spectrum. Like most presidents, Trump is a product of high-prestige colleges (attending Fordham and Penn). I’d love to see him experience the great diversity of American higher education, including rural community colleges, HBCUs, technical institutes, and the workhorse regional public university sector. I hope that some colleges extend invitations to Trump—and that he accepts them.

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Borrower Defense to Repayment Regulations: The Obama Administration’s Greatest Higher Education Legacy?

President Obama famously said in 2014 that “I’ve got a pen, and I’ve got a phone.” Although he has used his pen to sign some substantial changes in federal higher education policy (such as ending the bank-based student loan program in favor of federal Direct Loans), his pen has been used more frequently to authorize the Department of Education to start implementing new regulations without going through Congress. The regulatory process has been used to expand income-driven repayment programs, implement gainful employment rules for students in select vocationally-oriented programs, and tie federal TEACH grants to some measure of teachers’ effectiveness. These efforts have been generally opposed by congressional Republicans, which have held a majority in at least one chamber of Congress since 2011.

But from the perspective of colleges, the newest set of regulations may end up being the most influential. The Department of Education recently unveiled the final regulations known as “borrower defense to repayment” in a response to concerns about colleges defrauding students or suddenly closing their doors. These wide-ranging regulations, which will take effect on July 1, 2017 (a summary is available here) allow individuals with student loans to get relief if there is a breach of contract or court decision affecting that college or if there is “a substantial misrepresentation by the school about the nature of the educational program, the nature of financial changes, or the employability of graduates.”

The language regarding “substantial misrepresentation” could have the largest impact for both for-profit and nonprofit colleges, as students will have six years to bring lawsuits if loans are made after July 1, 2017. Notably, this language treats intentional misrepresentation and honest errors in the same way, and also does not define what “substantial” is. For example, if a student enrolls in a program with a posted job placement rate of 98% and later finds out that college administrators e-mailed each other about how to hide a 48% placement rate, most courts would probably consider this to be substantial misrepresentation. But what if a well-meaning person accidentally transposed an 89% placement rate to get 98%? These errors do happen in data submitted to the federal government, and currently there is no penalty for this type of mistake.

As some have warned, the ambiguity of the language will likely open up the door for more lawsuits against colleges with a wide range of misrepresentations—particularly as the regulations allow for class-action lawsuits that colleges could previously restrict. Courts across the country vary considerably in their friendliness toward plaintiffs relative to defendants, meaning that colleges located in more plaintiff-friendly states such as California and Illinois may be more at risk of lawsuits than colleges in defendant-friendly states such as Delaware and Iowa. But even if a college can prevail in a lawsuit, it still has to pay its legal fees and also may be subject to bad publicity.

Although these new regulations are a clear and needed victory for students who attended undeniably fraudulent colleges, the ripple effects regarding the definition of “substantial” misrepresentation could affect a broad group of well-intending nonprofit colleges that either made honest mistakes or happened across a sympathetic judge or jury. Eventually, a series of court cases—perhaps in conjunction with additional federal guidance—should help settle the legal landscape, but in the meantime colleges will be watching these regulations with a great deal of anxiety.

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Clinton and Trump Proposals on Student Debt Explained

This article was originally published on The Conversation. Read the original article.

The high price of attending college has been among the key issues concerning voters in the 2016 presidential election. Both Democratic nominee Hillary Clinton and Republican nominee Donald Trump have called the nearly US$1.3 trillion in student debt a “crisis.” During the third presidential debate on Oct. 19, Democratic nominee Hillary Clinton raised the issue all over again when she said,

“I want to make college debt-free. For families making less than $125,000, you will not get a tuition bill from a public college or a university if the plan that I worked on with Bernie Sanders is enacted.”

Republican nominee Donald Trump has also expressed concerns about college affordability. In a recent campaign speech in Columbus, Ohio, Trump provided a broad framework of his plan for higher education should he be elected president.

In a six-minute segment devoted solely to higher education, Trump proceeded to call student debt a “crisis” – matching Clinton’s language. He also called for colleges to curb rising administrative costs, spend their endowments on making college more affordable and protect students’ academic freedom.

The highlight of Trump’s speech was his proposal to create an income-based repayment system for federal student loans. Under his proposal, students would pay back 12.5 percent of their income for 15 years after leaving college. This is more generous than the typical income-based plan available today (which requires paying 10 percent of income for 20 to 25 years). The remaining balance of the loan is forgiven after that period, although this amount is subject to income taxes.

As a researcher of higher education finance, I question whether these proposals on student debt will benefit a significant number of the over 10 million college-going voters struggling to repay loans.

How student loan interest rates work

Typically, students pay interest rates set by Congress and the president on their federal student loans.

Over the last decade, interest rates for undergraduate students have fluctuated between 3.4 percent and 6.8 percent. Rates for federal PLUS loans have ranged from 6.3 percent to 8.5 percent. Federal PLUS loans require a credit check and are often cosigned by a parent or spouse. Federal student loans do not have those requirements.

While students pay this high a rate of interest, rates on 15-year mortgages are currently below three percent.

It is also important to note the role of private loan companies that have recently entered this market. In the last several years, private companies such as CommonBond, Earnest and SoFi as well as traditional banks have offered to refinance select students’ loans at interest rates that range from two percent to eight percent based on a student’s earnings and their credit history.

However, unlike federal loans (which are available to nearly everyone attending colleges participating in the federal financial aid programs), private companies limit refinancing to students who have already graduated from college, have a job and earn a high income relative to the monthly loan payments.

Analysts have estimated that $150 billion of the federal government’s $1.25 trillion student loan portfolio – or more than 10 percent of all loan dollars – is likely eligible for refinancing through the private market.

Many Democrats, such as Senator Elizabeth Warren of Massachusetts, have pushed for years, for all students to receive lower interest rates on their federal loans. In the past Republican nominee Donald Trump too has questioned why the federal government profits on student loans – although whether the government actually profits is less clear.

Issues with refinancing of loans

The truth is that students with the most debt are typically college graduates and are the least likely to struggle to repay their loans. In addition, they can often refinance through the private market at rates comparable to what the federal government would offer.

Struggling borrowers, on the other hand, already have a range of income-driven repayment options through the federal government that can help them manage their loans. Some of their loans could also be forgiven after 10 to 25 years of payments.

Furthermore, the majority of the growth in federal student loans is now in income-driven plans, making refinancing far less beneficial than it would have been 10 years ago. Under income-driven plans, monthly payments are not tied to interest rates.

So, on the face of it, as Clinton has proposed, allowing students to refinance federal loans would appear to be beneficial. But, in reality, because of the growth of private refinancing for higher-income students and the availability of income-driven plans for lower-income students, relatively few students would likely benefit.

Focus needed on most in need students

In my view, Clinton’s idea of allowing students to refinance their loans at lower rates through the federal government is unlikely to benefit that many students. However, streamlining income-based repayment programs (supported by both candidates) has the potential to help struggling students get help in managing their loans.

Nearly 60 percent of students who were enrolled in income-driven repayment plans fail to file the annual paperwork. That paperwork is necessary if students are to stay in those programs. And failure to do so results in many students facing higher monthly payments.

At this stage, we know many details of Clinton’s college plan. Her debt-free public college proposal (if enacted) would benefit families in financial need, but her loan refinancing proposal would primarily benefit more affluent individuals with higher levels of student debt.

In order to access Trump’s plan we need more details. For example, the current income-based repayment system exempts income below 150 percent of the poverty line (about $18,000 for a single borrower) and allows students working in public service fields to get complete forgiveness after ten years of payments. The extent to which Trump’s plan helps struggling borrowers depends on these important details.

The Conversation

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The Price and Cost of College Are Different Things

As someone who spends a lot of time thinking about some of the wonkier issues of higher education finance, there are some common statements that just drive me nuts. For example, people who refer to the U.S. Department of Education as the “DOE” (it’s “ED” and the Department of Energy is “DOE”) or pronounce the FAFSA as “FASFA” might as well be screeching their fingernails on a chalkboard. But, as much as those things annoy me, they’re examples of inside baseball at their finest—they don’t affect students, but they’re still deviations from the norm. So I’ll try to hide my grimaces in those situations going forward.

However, I will say something every time someone erroneously refers to the cost of college when they truly mean the price of college, as these are two distinctly different concepts. Here are the definitions of the two terms:

Price: This represents how much money a student and/or their family has to pay for college.

Cost: This represents how much money it takes to provide an education.

With the presence of federal, state, and institutional financial aid as well as direct state appropriations to colleges, the price that many students pay can be far below the true cost of providing the education. On the other hand, due to the tangled web of subsidies present in the “awkward economics” of higher education, some students (such as full-freight international students and master’s students as well as those enrolled in large lecture classes) may be paying far more than it costs to provide their education.

From a policymaker’s perspective, it if far easier to propose bringing down the price of college than the cost of college—even though these proposals have large price tags and finding funding can be difficult. (An exception is so-called “last dollar” programs at community colleges, which often leverage other grant aid sources instead of using much of their own money.) Bending the cost curve is a far more difficult endeavor, as technology generally hasn’t done much to reduce costs (a promising master’s degree program at Georgia Tech notwithstanding) and other options such as increasing class sizes or spending less on facilities frequently run into opposition.

Efforts to bring down the price of college have become increasingly popular over the last several years, but they must be accompanied with a willingness to reduce costs in order for these programs to be financially feasible in the long run. To this point, cost control has remained a distant goal for most policymakers—a perfectly reasonable position given the shorter time horizons of most politicians. Bringing down prices today gets attention, while the crucial step of bringing down costs in the future is nowhere near as exciting.

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The Relationship Between Student Debt and Earnings

Note: This piece first appeared on the Brookings Institution’s Brown Center Chalkboard blog.

Student loan debt in the United States is now over $1.25 trillion, nearly three times as much as just a decade ago. The typical student graduating with a bachelor’s degree with debt (about 70 percent of all students) now owes between $30,000 and $40,000 for their education, about twice as much as a decade ago. Although taking on modest amounts of debt in order to pay for college is generally a good bet in the long run, colleges with similar admissions standards and resource levels leave students with different amounts of debt.

College Scorecard data highlight the large amount of variation in what high-debt undergraduate students borrow across colleges with similar admissions criteria.1 The figure below shows the distribution of the 90th percentiles of debt burdens (in 2016 dollars) for students who left 1,156 four-year public and private nonprofit colleges in 2006 or 2007, broken down into three selectivity categories.2 Not surprisingly, the most selective colleges, which have the resources to offer more scholarships and fewer students with financial need, have lower debt burdens than somewhat selective or less selective colleges. These differences in borrowing by selectivity are larger than by type of college, as median debt at public colleges was only about $2,400 more than at private nonprofit colleges.

brookings_fig1_sep16Attending college and taking on $40,000 or even $50,000 in debt can be an outstanding investment in a student’s future—but only if students from that college actually end up getting good jobs. I then examined the relationship between 90th percentile debt burdens upon leaving college in 2006 and 2007 and the median earnings of students in 2011 and 2012 who began college in 2001 and 2002.3 The figure below shows that colleges that tend to have higher amounts of student debt also tend to have lower earnings in later years, which is in part due to student characteristics and their prior family income rather than the causal impact of the college. The correlation coefficient between debt and earnings is about -0.35 overall, but between -0.10 and -0.20 within each selectivity group. This suggests that colleges with higher debt burdens also have higher earnings, but much of the relationship between debt and earnings can be explained by selectivity.

brookings_fig2_sep16An old rule of thumb in paying for college is that students should not borrow more for a bachelor’s degree than they expect to earn one year after graduation. Although the presence of income-driven repayment programs allows students to repay their federal student loans even if they make less money, the debt-to-income ratio is still a useful way to judge colleges. The final figure shows the distribution of colleges’ debt-to-income ratios using the initial debt upon leaving college for high-debt students and annual earnings approximately five years later. A ratio over 1 at this point is a major concern, as earnings should grow considerably during a student’s first few years after college.

brookings_fig3_sep16Few high-debt students at the most selective colleges likely have issues making enough money to repay their loans, as just one of the 191 colleges in this category had a debt-to-earnings ratio above 1. Just under 15 percent of the somewhat selective colleges had ratios above 1, while about one-third of the least selective colleges had ratios above 1. This reflects the fact that financially-struggling students who attend less selective colleges (roughly 13% of the undergraduates in my sample, or about 800,000 students) take on more debt and earn less money than high-debt students at highly-selective colleges.

With student debt being a growing concern among Americans and playing a key role in the presidential campaign, students and their families are wise to consider the likely return on their investment in higher education. As the data show, some colleges do leave their former students with less debt than other similar colleges. But among less-selective colleges that enroll large numbers of lower-income or minority students, some amount of debt is almost unavoidable. Students should not seek to avoid all debt, but they should be mindful that even among broad-access institutions, colleges vary in how much debt their students take on.

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1 Debt and earnings data from the College Scorecard combine students who graduate with those who dropped out.

2 Colleges in the Barron’s categories of special, noncompetitive, and less competitive are in my lowest selectivity tier (n=195), colleges in the competitive, competitive-plus, and very competitive categories are in the middle tier (n=770), and all others are in the highest tier (n=191).

3 The College Scorecard does not track debt burdens by when students started college (only when they left), so I estimated that students either graduated or left college in about five years.

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