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“High-Tuition, High Aid” Hurts Low-income Students at Public U’s

  • By
  • Stephen Burd
May 22, 2013

[The New America Foundation's Education Policy Program recently released "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind," a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-income students at individual colleges. This is the fifth in a series of posts related to the report's findings. Read earlier parts of the series here, here, here, and here,]

For generations, states made college affordable for all of their citizens by keeping the prices of their public higher education institutions low. But with more and more states divesting from their public college systems, those days are increasingly in the past.

There has long been a debate in the higher education policy world about the effectiveness and efficiency of states’ historic low-tuition model. Some student aid experts have advocated against this approach, saying that it doesn’t target subsidies effectively because it lowers the cost of higher education for the rich and the poor alike. They have argued that low-income students would benefit more from a high-tuition, high-aid model, in which states and schools devote their subsidies exclusively to those who couldn’t afford to go to college without the help.

The net price data analyzed in Undermining Pell don’t bear this out. In fact, they clearly show that the lowest-income students fare much better in states that have kept the costs of attending their public institutions relatively low.

Take, for example, North Carolina, which prides itself on its low-cost public higher education system. In the Tar Heel State, in-state public four-year college students with family incomes of $30,000 or less paid an average net price of just $5,361 in the 2010-11 academic year — an amount they could cover without even having to take out the maximum federal student loan for which they were eligible.

In contrast, the most financially needy students attending public four-year colleges in Pennsylvania paid an average net price that was more than double that amount: $12,305. And while not a single public college in North Carolina charged the lowest-income students an average net price over $10,000 (the highest being $7,217 at the University of North Carolina at Asheville), more than two dozen public colleges in Pennsylvania did, with 10 charging more than $15,000.

At the state’s flagship university, Penn State, the neediest students pay an average net price of about $17,000.  At the same time, about 6 percent of the school’s first-time freshmen received an average of $3,800 in so-called “merit aid” in 2010-11.

In addition to North Carolina, other low-cost states that stand out in keeping their public colleges accessible and affordable for the lowest-income students include: Wyoming ($5,046), Hawaii ($5,296); Louisiana ($5,549); Florida ($5,979); California ($6,331); and New Mexico ($6,403).

Meanwhile, low-income students who attend public four year colleges face average net prices over $10,000 in 15 states, including high-tuition, high-aid ones such as Illinois ($10,508), New Jersey ($10,599), Ohio ($10,756), South Carolina ($11,476), and Vermont ($10,532).

So while moving to a high-tuition, high aid approach is certainly appealing in a theoretical sense, the net price data show that the policy isn’t even coming close to working as intended.

Check out the map below to see the vastly different amounts that the lowest-income students are paying to attend public colleges in each state:

Issues:

Growing Research Consensus on Effective Strategies for Dual Language Instruction in Early Childhood

  • By
  • Conor Williams
May 22, 2013

While there is little doubt that excellent early education sets students up for long-term academic success, the definition of “excellent” varies along with communities’ diverse needs. This is nowhere truer than with dual language learners.

Issues:

Subsidized Stafford Loans Come at a Cost – Even at a Higher Interest Rate

  • By
  • Clare McCann
May 21, 2013

The student loan interest rate debate will come to a head early this summer as the 3.4 percent interest rate on Subsidized Stafford student loans nears its July 1 expiration. When that deadline hits, the rate will revert to 6.8 percent, the rate currently charged on Unsubsidized Stafford loans. Last week, we published a piece detailing the half-dozen reform proposals currently floating around Capitol Hill and produced some takeaways on each. But there are still other misconceptions to clear up.

One of the current interest rate plans, Senator Elizabeth Warren’s (D-MA) proposal to reset Subsidized Stafford interest rates for just one year at the Federal Reserve bank lending rate of 0.75 percent, is perhaps the most controversial. Federal Education Budget Project Director Jason Delisle last week published an op-ed on Yahoo! Finance detailing one of the underlying problems with the plan: that the government already loses money on Subsidized Stafford loans. Delisle wrote:

What about Senator Warren’s claim that the government makes money off loans to low-income students?… She points to figures that the non-partisan Congressional Budget Office says “do not provide a comprehensive measure of what federal credit programs actually cost the government and, by extension, taxpayers.” In fact, when the budget office “accounts more fully… for the cost of the risk the government takes on when issuing loans,” it reports that Subsidized Stafford loans – those made to low-income students – cost taxpayers $12 for every $100 lent out, or $3.5 billion per year. If the loans cost $3.5 billion a year when the government charges a 6.8 percent interest rate, cutting the rate to 0.75 percent would more than triple that cost.

Warren’s claim that the government is profiting on student loans – and therefore that it should drop the interest rate it charges on federal loans for low-income students dramatically – is a rhetorical one. Delisle spoke to Dylan Matthews of The Washington Post’s Wonkblog to clear up the issue. Matthews writes:

Just like any institution, the CBO determines the cost of loans by “discounting all of the expected future cash flows associated with the loan or loan guarantee—including the amounts disbursed, principal repaid, interest received, fees charged and net losses that accrue from defaults—to a present value at the date the loan is disbursed.” To do that, it needs to settle on a “discount rate,” which is usually the expected rate of return on the loan in question. Banks and other private institutions generally estimate that by finding loans with similar risks and maturities to the one being evaluated, and then using those similar loans’ rates of returns.

The CBO does not do that. It discounts all government loans using the returns on Treasuries of similar maturity. So a 30-year student loan would be compared to a 30-year Treasury bond. But Treasuries are the safest bonds in the world... To capture the true risk of these loans, you’d need to discount using the rate of return for another loan with similar risk. Comparing them to Treasuries make them seem safe no matter what the actual risk.

The claims that student loans turn a profit for the government are based on unrealistic, rigged budgeting mechanisms. And looking at a fair accounting method, the one recommended by the CBO, it’s pretty clear that Subsidized Stafford loans are actually costing the government (and taxpayers) $12 for every $100 lent.  This may seem a wonky, insider issue, but with Congress under rigid fiscal constraints right now and members arguing that the U.S. needs to reign in the deficit, costs matter.

For more on how the government is losing money on these loans, check out this background page from the Federal Education Budget Project. You can also see the Wonkblog article here, and Delisle’s op-ed about Senator Warren’s proposal here.

Issues:

The Next Generation University

  • By
  • Rachel Fishman
May 21, 2013
Publication Image

With the economy stuck in neutral, tuition prices and student loan debt skyrocketing, and parents and students increasingly questioning the value of a college degree, our public institutions urgently need a different approach to the challenge or educating an increasingly diverse mix of students at a reasonable cost. Today, New America's Education Policy Program released The Next Generation University, a policy report about the future of public higher education. The report comes at a time when too many public universities are failing to respond to the nation's higher education crisis. Rather than expanding enrollment and focusing limited dollars on the neediest of students, many institutions are instead restricting enrollments and encouraging the use of student-aid dollars on merit awards. But, according to the report, some schools are breaking the mold by boldly restructuring operating costs and creating clear, accelerated pathways for students.

The report focuses on six public research universities: Arizona State University, University at Buffalo, University of California at Riverside, University of Central Florida, Georgia State University, and the University of Texas at Arlington. These universities are continuing their commitment to world class research while increasing enrollment and graduation rates, even as the investments from their states have declined. 

The report includes case studies on each of the six universities, which were selected after an analysis of federal education data, site visits, and interviews. Based on similarities in their approaches to reform, the report's recommendations include:  

At the Institutional Level

  1. Increase size to ensure broad access, test new ideas from pedagogy to student services, and serve growing populations.
  2. Create direct connections between two- and four-year colleges to ease access for transfer students.

At the State Level

  1. Guarantee a low net-price for low-income students.
  2. Adopt performance-based funding.
  3. Create transfer policies that encourage completion.
  4. Ensure students in the K-12 pipeline are prepared.

At the National Level

  1. Develop Next Generation Leaders for Next Generation Universities.
  2. Acknowledge that external recognition remains important in higher education, and provide recognition for increasing access and student success.
  3. Create a demonstration program that challenges four-year public higher education institutions to innovate.

These recommendation and lessons will be featured at an event held at the New America Foundation from 10am to 3pm. You can learn more about the event and watch a livestream here. Follow the conversation on twitter using #NextGenU.

Download the full report here.

In addition to the report, New America has released two related issue briefs:

In "Technology and the Next Generation University," New America's Rachel Fishman explores the barriers to technology-enhanced education and presents promising practices Next Generation Universities employ to overcome them.

In "Formation of the Next Generation University: Role of State and System Policy," HCM Strategists' Iris Palmer, Kristin Conklin, and Nate Johnson explore how transfer policy, financial aid, net price, performance funding and the K-12 pipeline affect Next Generation Universities within their state context. It makes recommendations for state and higher-education system policymakers on how to ensure public institutions are meeting the needs of the state.

HCM Strategists, in conjunction with the release of The Next Generation University has developed a new interactive tool:

Next Generation Universities: Select Dimensions of Research University Output, Productivity and Efficiency 2006-2011

This dashboard, created by HCM Strategists and Postsecondary Analytics, includes a selection of measures of public research university performance through the great recession, showing how they have fared over time and in comparison to the sector as a whole. It helps illustrate the very different ways research universities have experienced and responded to the challenges of the last several years, and which institutions have been able to sustain or grow the number of students served in spite of the financial challenges they faced.

Please note that the dashboard is a large file (2.5 mb) and may take up to a minute to load. It requires Adobe Flash, which is already installed in most browsers.

Also released at the event are two conference papers from the Edunomics Lab at Georgetown University: 1) More Students, More Degrees, More Dollars: How Universities Can Close Budget Gaps while Benefiting Students; and 2) The High Price of Excess Credits: How New Approaches Could Help Students and Schools.

 

Issues:

NEW REPORT: ‘Next Generation Universities’ Innovating in Face of Higher Education Crisis

May 21, 2013

Washington, DC — As the nation struggles to find new ways to increase college access and completion rates while lowering costs, a handful of “Next Generation Universities” are embracing key strategies that make them models for national reform, according to a report released today by the New America Foundation’s Education Policy Program.
 

Programs:

The Next Generation University

  • By
  • Kevin Carey,
  • Rachel Fishman,
  • New America Foundation
  • and Jeff Selingo, editor at large for The Chronicle of Higher Education; Hilary Pennington, director of the Generations Initiative; and Iris Palmer, senior associate of HCM Strategists
May 21, 2013

As the nation struggles to find new ways to increase college access and completion rates while lowering costs, a handful of "Next Generation Universities" are embracing key strategies that make them models for national reform.

Programs:

Podcast: The Hell of (and Hope for) American Daycare

  • By
  • Lindsey Tepe
May 21, 2013
Publication Image
Last week, at an event based on the New Republic article, The Hell of American Daycare, author Jonathan Cohn and a panel of experts further explored the dismal state of American child care and started a conversation about potential strategies to improve our early education system more broadly.
Issues:

Map Provides Context for Reforms of Teacher Evaluation Systems

  • By
  • Laura Bornfreund
May 21, 2013
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Nearly every state is overhauling its teacher evaluation system, implementing new teacher observation tools and incorporating measures of student achievement. Why?

Issues:

Is Student Loan Market Ripe for Private Investment? | USA Today

May 20, 2013

"We think that's a better way to target the assistance," said Jason Delisle, director of the Federal Education Budget Project for the New America Foundation in Washington, D.C.. But others say interest rates on direct federal loans still are too high.

Programs:

Less Academically Adrift? | Inside Higher Ed

May 20, 2013

"College leaders have long excused decades of relentlessly rising prices, exploding student-loan debt, and alarmingly high dropout rates with the assumption that students are learning," Kevin Carey, who is now director of the education program at the ...

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