[Senate Hearing 115-749]
[From the U.S. Government Publishing Office]
S. Hrg. 115-749
REAUTHORIZING THE
HIGHER EDUCATION ACT:
IMPROVING COLLEGE AFFORDABILITY
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING REAUTHORIZING THE HIGHER EDUCATION ACT, FOCUSING ON IMPROVING
COLLEGE AFFORDABILITY
__________
FEBRUARY 6, 2018
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
___________
U.S. GOVERNMENT PUBLISHING OFFICE
28-636 PDF WASHINGTON : 2020
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming PATTY MURRAY, Washington
RICHARD BURR, North Carolina BERNARD SANDERS (I), Vermont
JOHNNY ISAKSON, Georgia ROBERT P. CASEY, JR., Pennsylvania
RAND PAUL, Kentucky MICHAEL F. BENNET, Colorado
SUSAN M. COLLINS, Maine TAMMY BALDWIN, Wisconsin
BILL CASSIDY, M.D., Louisiana CHRISTOPHER S. MURPHY, Connecticut
TODD YOUNG, Indiana ELIZABETH WARREN, Massachusetts
ORRIN G. HATCH, Utah TIM KAINE, Virginia
PAT ROBERTS, Kansas MAGGIE HASSAN, New Hampshire
LISA MURKOWSKI, Alaska TINA SMITH, Minnesota
TIM SCOTT, South Carolina DOUG JONES, Alabama
David P. Cleary, Republican Staff Director
Lindsey Ward Seidman, Republican Deputy Staff Director
Evan Schatz, Democratic Staff Director
John Righter, Democratic Deputy Staff Director
C O N T E N T S
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STATEMENTS
TUESDAY, FEBRUARY 6, 2018
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, Opening Statement......................... 1
Murray, Hon. Patty, Ranking Member, a U.S. Senator from the State
of Washington, Opening Statement............................... 4
Witnesses
Robinson, Jenna, Ph.D., President, The James G. Martin Center for
Academic Renewal, Raleigh, NC.................................. 7
Prepared statement........................................... 9
Summary statement............................................ 19
Smith, Zakiya, Ed.D., Strategy Director for Finance and Federal
Policy, Lumina Foundation, Indianapolis, IN.................... 19
Prepared statement........................................... 21
Baum, Sandy, Ph.D., Senior Fellow, Urban Institute, Washington,
DC............................................................. 25
Prepared statement........................................... 27
Summary statement............................................ 41
Anderson, Robert E., Ph.D., President, State Higher Education
Executive Officers Association, Boulder, CO.................... 42
Prepared statement........................................... 43
Summary statement............................................ 54
Pollard, DeRionne, Ph.D., President, Montgomery College,
Rockville, MD.................................................. 54
Prepared statement........................................... 56
Summary statement............................................ 60
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.
American Council on Education................................ 81
National Association of Student Financial Aid Administrators. 82
College of William & Mary.................................... 84
QUESTIONS AND ANSWERS
Response by Jenna Robinson to questions of:
Senator Sanders.............................................. 85
Senator Warren............................................... 86
Senator Kaine................................................ 87
Response by Sandy Baum to questions of:
Senator Sanders.............................................. 87
Senator Warren............................................... 88
Senator Kaine................................................ 90
REAUTHORIZING THE
HIGHER EDUCATION ACT:
IMPROVING COLLEGE AFFORDABILITY
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Tuesday, February 6, 2018
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The Committee met, pursuant to notice, at 10:08 a.m. in
room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, presiding.
Present: Senators Alexander [presiding], Isakson, Cassidy,
Young, Scott, Murray, Casey, Bennet, Baldwin, Murphy, Warren,
Kaine, Hassan, Smith, and Jones.
OPENING STATEMENT OF SENATOR ALEXANDER
The Chairman. The Senate Committee on Health, Education,
Labor, and Pensions will please come to order.
This is another in a series of hearings reauthorizing the
Higher Education Act. I look back, and this Committee has held
22 hearings over the last four and a half years, including five
this year, in preparation for reaching a bipartisan result by
early spring that we can recommend to the full Senate.
Senator Murray and I will each have an opening statement,
and then we will introduce the witnesses. After the witnesses'
testimony, Senators will each have 5 minutes of questions.
At the end of World War II, just 5 percent of Americans had
bachelor's degrees. When Congress enacted the Higher Education
Act in 1965, that number had increased to 10 percent; and
today, 35 percent of Americans have bachelor's degrees. That is
a remarkable story.
Today, there are over 20 million students that attend 6,000
colleges, universities, community colleges, and technical
institutions.
This hearing is about the cost of going to college.
While it is never easy to pay for college, it is easier
than many think, and it is unfair and untrue to suggest that
for most students, college is out of reach financially.
Each year, 32 percent of students--those from low-income
families--qualify for up to $5,920 in a Pell Grant that they do
not pay back.
According to the College Board, the average tuition at a 2-
year community college is about $3,600 for the 2017-2018
academic year. So a maximum Pell Grant would more than cover
tuition. Almost 40 percent of undergraduates attend community
colleges.
In 2015, Tennessee became the first state to offer 2 years
of tuition-free education at community colleges and technical
institutes to every high school graduate. According to ``U.S.
News and World Report,'' 12 states have now passed laws
providing some free community college.
The average tuition at a 4-year public college is just
under $10,000 for the 2017-2018 academic year, according to the
College Board. So a maximum Pell Grant would cover about 60
percent of tuition. About 40 percent of undergraduates attend
public 4-year colleges, which include many of the best
universities in the world.
Federal aid does not take into account other scholarships a
student may receive.
For example, at the University of Tennessee, Knoxville,
one-third of students have a Pell Grant. In addition, 92
percent of in-state freshmen receive a State Hope Scholarship,
which provides up to $3,500 annually for the first 2 years, and
up to $4,500 annually for the next two. If a student receives
both a Pell Grant and the Hope Scholarship, that would nearly
cover the full cost of tuition.
On top of these scholarships that students do not pay back,
last year taxpayers loaned students $92 billion that students
must pay back, but on generous terms. For Federal loans, there
is no credit check, and in some cases, students may elect to
pay loans back based on their income, and after 20 to 25 years,
the loans may be forgiven.
At one of our previous hearings, Dr. Susan Dynarski
testified, ``In the United States, typical undergraduate debt
is less than $10,000 for those who do not complete a 4-year
degree and about $30,000 for those who do.''
For most students, an education at a public college or
university is affordable.
Many Members of this Committee believe taxpayers should
spend even more on Federal aid to college students. Whether
there will be additional Federal dollars will be decided by the
Appropriations Committee, where Senator Murray is the Ranking
Member.
As we continue to consider the cost of college, I would
suggest we also consider what is known as the ``Bennett
Hypothesis.'' In 1987, then U.S. Education Secretary Bill
Bennett said, ``If anything, increases in financial aid in
recent years have enabled colleges and universities blithely to
raise their tuitions, confident that Federal loan subsidies
would help cushion the increase. In 1978, subsidies became
available to a greatly expanded number of students. In 1980,
college tuitions began rising year after year at a rate that
exceeded inflation. Federal student aid policies do not cause
college price inflation,'' he said, ``But there is little doubt
that they help make it possible.''
In 1987, 31 years ago when there were almost 13 million
college students, taxpayers spent $3.7 billion on Pell Grants;
today, there are 20 million college students and we spend $28
billion.
In 1987, taxpayers backed $11.3 billion in student loans;
last year, taxpayers directly made $92 billion in new loans to
students.
Thirty-one years ago, the average tuition at a 4-year
college was $3,200; today it is $10,000.
To the extent that the Bennett Hypothesis is true, research
suggests that the loans are more of a cause of tuition rising
than the grants.
As Congress considers increasing Federal spending on
grants, and especially loans, we should also consider whether
those increases have an effect on rising tuition.
Despite this, there is no doubt college costs are rising
and that a growing number of students are having trouble paying
back their debt.
Our work over the last four and a half years has produced a
number of proposals to reduce the cost of going to college and
making it more affordable that do not necessarily include
asking the taxpayer to spend more money on student aid.
First, simplifying the FAFSA, the burdensome Free
Application for Federal Student Aid that 20 million families
struggle each year to fill out. This would remove it as a
barrier to college, and help students better understand the
range of schools they can afford. Of course, to receive a Pell
Grant, or any other Federal aid, a student must complete the
FAFSA.
After hearing testimony at our November hearing, I believe
Senator Bennet and I are now able to finalize a proposal to
reduce the number of questions from 108 to 15 to 25.
The former president of Southwest Community College in
Memphis told me he believes that he loses 1,500 students each
semester because of the complexity of the FAFSA.
Our proposal would also mean that students are able to
apply for financial aid earlier in their senior year, and can
know about how much college aid they are eligible for, and
which schools they could afford, as early as when they enter
high school.
Simplifying the FAFSA would make it easier to apply for a
Pell Grant, which in turn, should help more low-income students
unlock money to pay for college.
A second way to make college more affordable, without
appropriating additional dollars, is to simplify the existing
two grant programs, five loan programs, and nine different
repayment programs, and direct some of those dollars to higher
priorities; for example, creating additional Pell Grants.
This complex system confuses students about aid and
repayment options and makes it harder for them to receive the
aid that can make college affordable.
At our hearing 3 weeks ago, Dr. Matthew Chingos testified
that any money we save from simplifying the student loan system
should be put into increasing the number or size of Pell
Grants.
Third, more competency based education would allow students
to more rapidly complete degrees based on knowledge and
learning, not time in the classroom. Completing a degree faster
saves the student money.
Finally, it makes no sense to spend taxpayer dollars
helping students earn degrees that are not worth the time and
money.
At our hearing last week, witnesses testified that
accountability measures, that hold schools more accountable for
their students' ability to repay their loans, would help make
sure college programs are worthwhile and loans are repaid.
I believe these are all ways that Congress can make college
more affordable.
The Appropriations Committee will consider whether Congress
should appropriate more tax dollars for student aid, but in the
meantime, Congress can also help students afford college by
better spending the $28 billion in grants and $92 billion in
loans that we now spend each year.
This would mean simplifying student aid, redirecting
existing dollars for more Pell Grants, helping students
complete their degrees more rapidly, and making colleges more
accountable for students repaying loans.
Simplifying programs and regulations to make colleges more
affordable, and make it easier for students to apply for
financial aid and pay back their loans, will help higher
education become more financially in reach for students.
Senator Murray.
OPENING STATEMENT OF SENATOR MURRAY
Senator Murray. Thank you, Chairman Alexander.
Before I begin, I do want to say I am pleased that we are
having ongoing conversations about the concerns with the
implementation of our education loans. I appreciate that and I
want to keep working with you on that. So thank you for that.
Thank you to all of our witnesses for being here today. I
look forward to your thoughts on what colleges, and states, and
the Federal Government should be doing to lower the price of
college for students nationwide.
As we now wrap up the first round of hearings on
reauthorizing the Higher Education Act, these conversations
have made it very clear, we have to address all of the
challenges that students face. Not just making college more
affordable, but we also have to increase access to higher
education for underrepresented students.
We need to hold college accountable for student outcomes
and success, and we need to make sure that every student is
able to learn in a safe environment.
Last week, the Democratic Caucus released a set of
principles going into each of these priorities in depth. We
believe a comprehensive reauthorization has to include
meaningful reforms in all of those areas. It is the only way to
truly help students overcome the many barriers in higher
education.
Now, I am very pleased that we are finally discussing an
issue that is hurting so many people across the country, and
that is the continuous growth of college costs with no end in
sight.
With few students able to afford college out of pocket, we
now have almost $1.5 trillion in student debt. That is more
than auto loans and credit card debt combined.
Since 2007, 1 year before the last reauthorization of the
Higher Education Act, student debt has tripled and the number
of students with debt has grown from 28 million to 44 million.
Here is how fast our student debt problem is growing. Every
second, student debt in this country grows by about $3,000.
This is really taking a toll on our students.
A new study suggests up to 40 percent of students may
eventually default on their loans and it is even worse for
students of color. When we talk about affordability, we have to
look beyond averages. That same study showed that African
American students who graduate with a bachelor's degree are
five times more likely to default on their loans than their
white peers.
There are many reasons why college has gotten so expensive,
and I will get into those, but the results are the same. Many
students are choosing to not even apply for college or are
being forced to drop out before they can finish their degree.
A shocking number of our students are going hungry or do
not have a safe place to sleep at night. Student debt stops
people from buying houses, or starting families, or opening
their own businesses, or continuing their education; and for
some, the crushing burden of student debt never ends.
The way we finance higher education by asking everyone to
take on debt is sending a very clear message that college is
for the wealthy, not the students who have the most to gain.
We can, and we must, work to keep college within reach for
all students.
Now, I briefly want to touch on some of the reasons why
college has gotten so expensive.
First, colleges themselves are not doing enough to consider
the burden of debt students have to take out and the challenges
that they will face in landing a good paying job.
Second, states are investing less and less into higher
education. That is not only bad for our students; it is bad for
our states that have to rely on higher education to fuel their
workforce and their economies.
Third, Federal student aid does not go as far as it used
to. Pell Grants allowed me, and my siblings, to go to college,
but today's students will tell you Pell Grants are not nearly
enough to cover the total price they have to pay.
Since I graduated, tuition where I went to college has
increased an astounding 338 percent when adjusted for
inflation.
Chairman Alexander, you and I agreed that the
reauthorization of HEA needs to be student-focused. So with
that in mind, I hope we can discuss college affordability at
all stages of a student's education.
Before students enroll, we need to make sure Federal
investments are going farther for students. Students need to be
able to cover the full cost of college; that is food, and
housing, and textbooks, and childcare, and transportation, not
just tuition and fees.
Once students are enrolled, we have to make sure the price
of college does not increase unexpectedly during their
education. And after students graduate, we must help the
millions of student loan borrowers manage the burden of their
debt.
Borrowers should be able to refinance their student loans
and have affordable, monthly loan payments. There should be
light at the end of the tunnel for borrowers including loan
forgiveness, a cap in the number of years students have to pay
back their loans, and full relief for those who have been
cheated by their colleges.
Chairman Alexander, I look forward to working together on a
comprehensive reauthorization that will address these and many
other challenges.
I am sure there will be a number of issues we do not agree
on, but I believe there is one question that should guide our
negotiations. It is not, are we easing regulations to colleges
and giving student loan companies carte blanche? It is not, are
we reducing the role of the Federal Government in education?
The question we have to ask ourselves all the time is: will
this reauthorization of the Higher Education Act leave students
better off?
I am confident we can work together, and negotiate in good
faith, and get to a yes answer on those.
Thank you.
The Chairman. Thank you, Senator Murray.
I look forward to doing that. We have before, and I
appreciate your comments on our discussions about ESSA. The
quicker we can deal with that, the better.
Now, let me welcome the witnesses.
Our first witness is Dr. Jenna Robinson, President of The
James G. Martin Center for Academic Renewal. She previously
worked at the John Locke Foundation. She serves as a member of
the North Carolina Advisory Committee for the U.S. Commission
on Civil Rights. She previously served as a member of the North
Carolina Longitudinal Data System Board.
I will turn to Senator Young to introduce our second
witness.
Senator Young. Thank you, Chairman Alexander.
It is my pleasure to introduce Dr. Zakiya Smith. She comes
to us from Indianapolis, where she serves as a Strategy
Director for Finance and Federal Policy for the Lumina
Foundation.
Dr. Smith previously served as a Senior Advisor for
Education at the White House Domestic Policy Council, and she
served as a Senior Advisor at the U.S. Department of Education.
In this role, she focused on efforts to address affordability,
completion, and college access.
In her early career, she was an intern with the
Congressional Black Caucus Foundation and she worked closely
with students and their families in roles at TEACH for America
and the Federal Year Up Program.
Dr. Smith is very well-credentialed. She has a Bachelor's
Degree from Vanderbilt University, a Master's Degree from the
Harvard Graduate School of Education, and a Doctorate from the
University of Pennsylvania.
The Lumina Foundation, which is headquartered in
Indianapolis, is the largest private foundation focused on
student access and success. Dr. Smith's work at the Lumina
Foundation plays a critical role to advance Federal policy and
increasing attainment and developing new post-secondary finance
models.
Dr. Smith, I hope we can do some good together moving
forward. I welcome her testimony before this Committee today.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Young.
Welcome, Dr. Smith. With a Vanderbilt degree, I can
understand why you are so successful.
[Laughter.]
The Chairman. Dr. Sandy Baum, we welcome you, Senior Fellow
at the Urban Institute.
Dr. Baum focuses on issues related to college access,
college pricing, student aid policy, student debt, and
affordability.
She has co-authored the College Board's annual ``Trends in
Student Aid,'' and ``Trends in College Pricing'' publications
since 2002.
She is the author of ``Student Debt: Rhetoric and Realities
of Higher Education Financing,'' and co-author of, ``Making
College Work: Pathways to Success for Disadvantaged Students.''
Welcome, Dr. Baum.
I turn to Senator Bennet for our next witness.
Senator Bennet. Thank you, Mr. Chairman. Thank you for
holding this hearing. I thank the Ranking Member as well.
This morning, it is my pleasure to introduce Dr. Robert
Anderson from my home State of Colorado.
For the last 6 months, Dr. Anderson has served as President
of the State Higher Education Executive Officers Association.
He is an expert on college affordability and financing.
The Association, which is based in Boulder, Colorado, works
to advance policies that expand access to higher education and
promote college completion.
Previously, Dr. Anderson served as a Senior Leader for the
University of Georgia. At the University of Georgia, he worked
on college completion initiatives and distance learning. He has
also worked on the State Higher Education Commissions of
Tennessee and West Virginia.
I thank him for being here, and I very much look forward to
his testimony today.
I am sure that he does not think that his representation in
the Senate has improved since the time he was in Tennessee.
The Chairman. Well, I am going to let that stand.
[Laughter.]
The Chairman. But welcome, Dr. Anderson.
Senator Bennet. That is the ``Bennet Hypothesis'' with only
one ``T''.
The Chairman. Is that what it is? All right.
[Laughter.]
The Chairman. Welcome, Dr. Anderson.
Now, Dr. DeRionne Pollard is President of Montgomery
College. At Montgomery College, Dr. Pollard spearheaded a new
strategic plan and mission for the College. She worked with the
public school system and local universities to create a support
program to help disadvantaged students transition from high
school to college.
She previously served as President of Las Positas College
in Livermore, California. She is a member of the Community
College Advisory Panel at the College Board and the Higher
Education Research and Development Institute Advisory Board.
Welcome.
Welcome to all of you.
Why do we not begin now with Dr. Robinson?
STATEMENT OF JENNA ROBINSON, PH.D., PRESIDENT, THE JAMES G.
MARTIN CENTER FOR ACADEMIC RENEWAL, RALEIGH, NORTH CAROLINA
Dr. Robinson. Senator Alexander, Ranking Member Murray,
Members of the Committee.
Thank you for inviting me here today to share my thoughts
about college affordability.
As Senator Alexander said, and I will remind you, in 1987
then Secretary of Education, William J. Bennett, penned an
article in ``The New York Times,'' entitled, ``Our Greedy
Colleges.''
In it he wrote, ``If anything, increases in financial aid
in recent years have enabled colleges and universities blithely
to raise their tuitions confident that Federal loan subsidies
would help cushion the increase.''
Thirty years later, we have empirical research to answer
the question: does the availability of financial aid to
students enable the tuition increases that we see year after
year?
But before I answer that question, I want to talk a little
bit about the theory of university spending.
Before Bennett wrote his op-ed, another economist, Howard
Bowen, was fleshing out an idea of how universities raise funds
and spend money. In 1980, he laid out his now widely accepted
rule.
He said, first, that the main goals of higher education
institutions are excellence, prestige, and influence.
Second, that there is virtually no limit to the amount of
money colleges and universities can spend to increase these
qualitative and reputational improvements.
For example, the spending might go to more administrators,
better buildings, hiring star scholars, impressive athletics
programs, or even expensive branding efforts.
Third, each institution raises as much money as it can,
including in the form of tuition.
Last, because there is no profit that is sent to
shareholders, as there would be with private corporations, and
therefore no need to hold down costs, the institution spends
all the money it raises.
Bennett's theory fits into Bowen's third point; each
institution raises as much money as it can. Without Federal
student aid, ``as much money as it can'' has very clear
limitations.
Students and parents have limited funds to spend on
college. I think we all agree on that. The availability of aid
increases those funds considerably. So when universities
identify new needs or wants, like a shiny, new student center,
they can raise tuition to cover it with student aid footing the
bill.
I think you will agree that this makes sense in theory, but
now we have evidence to support it.
Last year, I examined empirical findings from 25 articles
published since 1987 on the topic of the Bennett Hypothesis. A
few early studies seemed to find no relationship between
Federal financial aid and rising tuition.
But in 2012, Andrew Gillen formulated an important
refinement to Bennett's hypothesis. He explained that different
types of aid affect tuition prices differently. That tuition
caps and price discrimination sometimes weakens the link
between aid and tuition, and that scholars must examine both
dynamic and static considerations when quantifying the
relationship between aid and tuition.
With those refinements in mind, let me summarize the
results.
The 25 studies I surveyed, seven found no Bennett effect
whatsoever. Three of the seven were among the earlier studies
that I already mentioned, and thus relied on the smallest
sample in terms of the years that were surveyed. They also
treated all aid and all institution types monolithically.
Another one of the seven found no effect between increases
in the maximum Pell Grant awarded and increases in tuition.
That comports with the intuition that different types of aid
affect tuition different.
This is to be expected since the maximum Pell Grant award
is already considerably lower than tuition at most public and
private 4-year institutions.
14 studies, a clear majority, found some positive effect of
Federal subsidies on the price of higher education in at least
one segment of the higher education market. Many of these found
support for the Bennett Hypothesis across all segments of the
market: public, private, non-profit, and for-profit. The effect
ranged considerably in size and explanatory power.
For example, Frederick, et al., find very little evidence
in support of an expanded Bennett Hypothesis in community
colleges.
While Cellini and Goldin, in 2012, find that differences in
tuition prices at for-profit colleges and institutions map very
closely to the average amount of Federal grant aid received by
students and institutions.
McPherson and Schapiro show that public colleges and
universities increase tuition by $50 for every $100 in aid.
Lucca, et al., in 2015 say it is more; $60 for every $100 in
student aid.
Across all types of institutions, more studies found that
loans correlated with increased intuition than did grants. The
effect was more pronounced at expensive schools than at
affordable ones, and the effect was stronger at for-profit
institutions than at public and private non-profit
institutions.
Solutions include limiting the total amount of loans
available; targeting Pell Grants to the neediest students;
insisting that universities bear some risk of the borrowing;
and changing the eligibility formula to stop rewarding the most
expensive institutions.
Thank you.
[The prepared statement of Dr. Robinson follows:]
prepared statement of jenna robinson
For nearly half a century, the cost of higher education has risen
faster than the pace of inflation. Between 1978 (the first year in
which college tuition had its own CPI category) and the third quarter
of 2017, the price of tuition and fees increased by 1,335 percent. \1\
This rate of growth exceeded that of medical costs (704 percent) \2\,
new home construction (511 percent) \3\ and the Consumer Price Index
for all items (293 percent). \4\
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\1\ United States Bureau of Labor Statistics. CPI-U: U.S. City
Average; College Tuition and Fees; 1982--84=100; SA. Raw data.
(Washington DC: U.S. Bureau of Labor Statistics, October 15, 2017).
\2\ United States Bureau of Labor Statistics. CPI-U: U.S. City
Average; Medical Care; 1982-84=100; SA. Raw data. (Washington DC: U.S.
Bureau of Labor Statistics, October 15, 2017).
\3\ United States Census Bureau. ``Median and Average Sales Prices
of New Homes Sold in United States.'' 2017.
\4\ United States Bureau of Labor Statistics. CPI-U: U.S. City
Average; All Items; 1982-84=100; SA. Raw data. (Washington DC: U.S.
Bureau of Labor Statistics, October 15, 2017).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The number of student borrowers increases every year. In 2015, 68
percent of new graduates left college with student loan debt, up from
57 percent in 2007. \5\
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\5\ The Institute for College Access and Success. Student Debt and
the Class of 2015, 2016.
A major contributing factor to this explosion of debt is that the
bar to receive a Federal loan is exceedingly low. The Federal
Government issues student loans to any student who attends a qualified
and accredited institution and meets minimal criteria. Federal loans
require no credit check and no collateral. In fact, it is even illegal
for colleges to weigh factors such as a student's program of study,
borrowing history, or high school academic record to determine loan
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amounts.
The steep increase in the cost of tuition has precipitated myriad
downstream problems.
A significant number of students now graduate (or fail to graduate)
with debt levels incommensurate with their earning potential. Many
students at community colleges, for-profit institutions, and non-
selective public and private universities default on their debt or
otherwise fail to make progress toward loan repayment. Three years
after leaving college, just 41 percent of borrowers have avoided
default and paid at least one dollar on their principal balance. At 5
years, that statistic grows slightly--to 47 percent. \6\
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\6\ Robert Kelchen, ``How Much Did A Coding Error Affect Student
Loan Repayment Rates?'' Kelchen on Education (blog), January 13, 2017.
The profligacy does not end when students reach the limit of their
borrowing from the government. Almost one-fifth (19 percent) of the
Class of 2015's debt nationally was comprised of non-federal loans. \7\
Many students who use nonFederal loans do so because they have already
borrowed the maximum Federal loans allowed. These loans often originate
from private banks, where rates are higher to account for the
significant risk of nonpayment.
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\7\ The Institute for College Access and Success. Student Debt and
the Class of 2015, 2016.
This debt has consequences for individual debtors and the national
economy. Some borrowers have accumulated very large balances; in 2014,
4 percent of borrowers had balances over $100,000 and 14 percent had
balances over $50,000. \8\ Many debtors, regardless of the size of
their outstanding balances, report that they have postponed major life
events--including marriage, children, and home ownership--because of
their high levels of student debt. \9\ Their delay, in turn, reduces
overall consumption and contributes to the economic stagnation of
recent years.
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\8\ Adam Looney and Constantine Yannelis. A Crisis in Student
Loans? How Changes in the Characteristics of Borrowers and in the
Institutions They Attended Contributed to Rising Loan Defaults.
Washington, DC: Brookings Institution, 2015.
\9\ AICPA, ``One-Third of College Students Say They'll Live at
Home Post-Graduation Due to Loan Debt,'' 12 Nov. 2015.
It is not just young people who are adversely impacted by the high
borrowing levels. In 2012, senior citizens held $36 billion in student
loan debt \10\, for which the Federal Government can garnish their
Social Security payments. In 2015 alone, the government took $171
million in Social Security payments from older Americans who defaulted
on student loans. \11\ The majority of that debt (73 percent) is for a
child or grandchild's education.
---------------------------------------------------------------------------
\10\ Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas
and Wilbert van der Klaauw. ``Grading Student Loans.'' Liberty Street
Economics (blog), March 5, 2012.
\11\ Government Accountability Office, Social Security Offsets:
Improvements to Program Design Could Better Assist Older Student Loan
Borrowers with Obtaining Permitted Relief, December 2016.
These problems were anticipated as far back as the 1980's. In 1987,
then-Secretary of Education William J. Bennett wrote a prescient op-ed
in New York Times, entitled, ``Our Greedy Universities.'' In the
article, he explained, ``If anything, increases in financial aid in
recent years have enabled colleges and universities blithely to raise
their tuition, confident that Federal loan subsidies would help cushion
the increase.'' \12\
---------------------------------------------------------------------------
\12\ William J. Bennett, ``Our Greedy Colleges.'' The New York
Times, February 18, 1987.
In other words, Federal student aid encourages tuition inflation.
The mechanism is not hard to grasp. Private colleges, like all
customer-oriented organizations, adjust their prices according to what
the market will bear. In simple terms, if an institution's typical
student has $1,000 to spend on education, the school will charge
tuition of $1,000. If students gain access to another $1,000 for
education from grants or loans, the school will raise tuition to $2,000
---------------------------------------------------------------------------
to capture the full amount.
At the time Bennett formulated his hypothesis, very little data
existed about the effects of Federal spending on higher education. But
Bennett's intuition was sound. Writing for the National Bureau of
Economic Research in 2004, Bridget Terry Long examined evidence that
states and institutions change their policies in response to spending
on Federal financial aid:
In fact, many states did react to the introduction of the tax
credits by considering ways to capture the Federal resources
available through the new tax credits. In a report from
California's Legislative Analyst's Office, Turnage (1998) . . .
suggests increasing fees at public colleges in California. He
asserts that the tax credits would offset the increase for
richer students while financial aid could be given to offset
the effect for low-income students. According to his
calculations, an increase from $360 to $1,000 at the community
colleges would increase funding to these schools by over $100
million annually without affecting the California state budget.
It may be that state systems and private colleges indeed raised
tuitions to capture Federal money through tax credits, as suggested by
Turnage in the above passage. In the preceding chart, note how there
was a sharp increase in the rate of growth of student debt in the early
``aughts.''
Economist Howard R. Bowen laid the foundation for Bennett's
understanding of the relationship between aid and tuition in 1980. He
explained his book, Costs of Higher Education, a revenue theory of cost
for university spending.
He wrote:
. . . at any given time, the unit cost of education is
determined by the amount of revenues currently available for
education relative to enrollment. The statement is more than a
tautology, as it expresses the fundamental fact that unit cost
i.e., the cost of education] is determined by hard dollars of
revenue and only indirectly and distantly by considerations of
need, technology, efficiency, and market wages and prices. \13\
---------------------------------------------------------------------------
\13\ Howard R. Bowen, Costs of Higher Education: How Much Do
Colleges and Universities Spend Per Student and How Much Should They
Spend? (San Francisco, CA: Jossey-Bass Inc., 1980), 19.
---------------------------------------------------------------------------
His theory can be summarized into these four rules:
1. The main goals of higher education institutions are
excellence, prestige, and influence.
2. There is virtually no limit to the amount of money
colleges and universities can spend to increase these
qualitative and reputational improvements. (e.g., the spending
can go to more administrators, better buildings, employment of
``star'' scholars and researchers, impressive athletics
programs, or even expensive marketing or ``branding'' efforts.)
3. Each institution raises as much money as it can--including
in the form of tuition.
4. Because there is no profit that is disbursed to
shareholders, as there would be with private corporations, and
therefore no need to hold down costs, the institution spends
all the money it raises.
In short, institutions have strong incentives to capture increases
in Federal student aid in order to spend more on ``prestige.'' Robert
Martin further explored the relationship between Bennett's hypothesis
and Bowen's observations in a paper for the Martin Center in 2009,
``The Revenue-to-Cost Spiral in Higher Education.'' \14\
---------------------------------------------------------------------------
\14\ Robert Martin, ``The Revenue to Cost Spiral in Higher
Education,'' Raleigh, NC: The James G. Martin Center for Academic
Renewal, 2009.
Despite the strong theoretical basis for Bennett's hypothesis,
several current practices may complicate the relationship between loans
and tuition. In 2012, Andrew Gillen proposed an updated version of the
hypothesis, which incorporates Bowen's rule, in a paper for the Center
for College Affordability and Productivity. He suggested three key
---------------------------------------------------------------------------
refinements to Bennett's theory.
1. Different types of aid affect tuition prices differently.
2. Tuition caps and price discrimination weaken the link
between aid and tuition.
3. Scholars must examine both dynamic and static
considerations when quantifying the relationship between aid
and tuition.
In the thirty years since Bennett's famous editorial, 25 empirical
analyses have been performed examining his eponymous theory. This paper
summarizes those findings and makes evidence-based policy
recommendations to address the problem of tuition inflation.
TYPES OF AID (In a sidebar/box)
Loans must be repaid. Grants are free gifts.
Federal Grants
Pell Grant: The most common grant program from the
Federal Government. Pell Grants are awarded to undergraduates
with a clear financial need. The amount awarded is contingent
upon the extent of financial need, the cost of attendance, and
status as a full-time or part-time student. The maximum award
for the 2017-18 school year is $5,920. All students who
demonstrate financial need and meet the eligibility
requirements are awarded with Pell grants. Pell grants can be
received for a maximum of 12 semesters. Approximately $29.9
billion in Pell Grants were awarded in fiscal year 2015.
Federal Supplemental Educational Opportunity Grant
(FSEOG): Only available for undergraduate students. Each school
is awarded a specified amount of funds from the Federal
Government to be spent on student aid. The schools awards the
grants to students with significant financial need. FSEOGs are
first-come, first-serve: when the funds run out, no more grants
are available for the year. Awards vary between $100 and $4,000
annually. Approximately $730 million were appropriated as
FSEOGs in fiscal year 2015.
TEACH Grant: Undergraduates and graduate students are
eligible for TEACH Grants if they pursue a career in teaching.
Recipients can be awarded up to $4,000 a year if they agree to
teach in a ``high need field'' and/or serve low-income students
for 4 years within 8 years of graduating. Potential recipients
must display financial need, and they must meet GPA and
standardized test requirements. About $91 million awarded in
fiscal year 2015.
Iraq and Afghanistan Service Grants: Available for
students whose parent or guardian died in military service in
Iraq or Afghanistan and whose family income exceeds the limit
to be eligible for Pell Grants. Students must meet remaining
Pell Grant requirements, and the awarded amount is equivalent
to that of a Pell Grant.
Federal Loans
Direct/Stafford Loans: Money loaned from the Federal
Government to the student. Approximately $95.9 billion was
awarded in loans for fiscal year 2015.
Subsidized Loans: Loans available to undergraduate
students at a favorable interest rate. The Federal Government
pays the interest on payments while the student attends school
and for a few months upon graduation. Only students with
displayed financial need can qualify for subsidized loans, and
loans can only be received for 150 percent of the time it
should take to graduate from the academic program (e.g., 6
years of loans for attending a 4-year university). Students
cannot accrue more than $23,000 in subsidized Stafford Loans
throughout their undergraduate studies.
Unsubsidized Loans: The Federal Government does not
cover the interest on these loans for any grace period.
Students do not need to demonstrate financial need and can
receive these loans for as many years as they are enrolled.
These loans are available to undergraduate and graduate
students alike. In total, undergraduate and graduate Stafford
Loans cannot exceed $138,500.
Direct PLUS Loans: Part B of Title IV of the Higher Education Act
authorizes the $21 billion PLUS loan program, which provides Federal
loans to graduate students and the parents of undergraduate students.
Parent PLUS Loans: Parents of undergraduate students
are able to borrow up to the cost of attendance at a given
college. During the 2011--2012 academic year, the PLUS loan
program provided 879,000 parents of undergraduate students with
an average of $12,575. There is no limit (either in number of
years or aggregate dollars) on how much a parent can borrow,
and the loans are available in addition to Federal loans that
are already available to the students themselves.
Graduate PLUS Loans: The Graduate PLUS loan program,
open to graduate students who take out loans to finance
graduate school, enables students to borrow up to the full cost
of attendance at a given school, less any other aid received.
During the 2011--2012 academic year, the PLUS loan program
provided 360,000 graduate students with an average loan of
$19,958.
Federal Perkins Loans: Undergraduate students can borrow up to
$5,500 per year ($27,000 total) directly from the university. Graduate
students can borrow up to $8000 a year ($60,000 total). Money is only
available to students with exceptional financial need. In fiscal year
2015, the Federal Government awarded approximately $1.2 billion to the
universities to distribute as loans.
Findings
A previous review of available literature on the Bennett
Hypothesis, conducted in 2003, \15\ found that estimates of the impact
of Federal aid on public tuition level range from negligible to as much
as 50 percent of the increase in aid. Since then, further studies have
analyzed 14 additional years of data and significantly enhanced our
understanding of the effects of financial aid on tuition. A study by
Donald Heller in 2013 for ACE reviewed eight studies on the Bennett
Hypothesis published between 1991 and 2012 and concluded that the
findings were limited and ambiguous. \16\
---------------------------------------------------------------------------
\15\ Michael T. Rizzo and Ronald G. Ehrenberg. ``Resident and
Nonresident Tuition and Enrollment at Flagship State Universities.'' In
College Choices: The Economics of Where to Go, When to Go, and How to
Pay for It. Edited by Caroline Hoxby. A National Bureau of Economic
Research Report (Chicago: University of Chicago Press, 2004).
\16\ Donald Heller, Does Federal Financial Aid Drive Up College
Prices? (Washington, DC: American Council on Education, April 2013).
This Martin Center study adds to the literature by incorporating
evidence both for and against the Bennett Hypothesis and weighing the
evidence. It synthesizes findings from 25 articles published since 1987
in peer reviewed journals or respected economic research institutions
or universities. The studies focus on the empirical evidence for
Bennett's hypothesis that Federal financial aid drives up the price of
college and university tuition. They are listed at the end of this
---------------------------------------------------------------------------
paper.
Two important studies that came out earlier this year aided our
efforts greatly. Mark J. Warshawsky and Ross Marchand, \17\ writing for
the Mercatus Center at George Mason University, did an extensive review
of the literature in support of the Bennett Hypothesis. Additionally,
the Heritage Foundation included a discussion of the hypothesis in its
paper ``Private Lending: The Way to Reduce Students' College Costs and
Protect America's Taxpayers.'' \18\
---------------------------------------------------------------------------
\17\ Mark J. Warshawsky and Ross Marchand, Dysfunctions in the
Federal Financing of Higher Education (Washington, DC: Mercatus Center,
2017).
\18\ Mary Clare Reim Private Lending: The Way to Reduce Students'
College Costs and Protect America's Taxpayers (Washington, DC: Heritage
Foundation, 2017).
Of the 25 studies surveyed, seven found no Bennett effect
whatsoever. Three of the seven were among the earliest studies in the
sample, and thus relied on the smallest sample sizes in terms of number
of years analyzed. Another of the seven found no effect between
increases in the maximum Pell grant awarded and increases in tuition.
But this is to be expected since the maximum Pell grant award is
already considerably lower than tuition and public and private 4-year
---------------------------------------------------------------------------
institutions.
The most recent study to find no Bennett effect (Kelchen 2017)
analyzed the relationship between increases in Federal student loan
limits and law school tuition. The author suggests that the lack of
correlation could be because students shifted from private loans to
PLUS loans and thus already had access for loans up to the full cost of
attendance.
Fourteen studies, a clear majority, found some effect of Federal
subsidies on the price of higher education in at least one segment of
the higher education market. Many of these found support for the
Bennett Hypothesis across all segments of the market--public, private,
and for-profit.
The effects range considerably in size and explanatory power. For
example, Frederick, et al (2012) find ``at most very limited evidence
in support of an expanded Bennett hypothesis'' in community colleges
while Cellini and Goldin (2012) find that differences in tuition prices
at for-profit institutions map very closely to the average amount of
Federal grant aid received by students at the institutions.
In The Student Aid Game (1998), McPherson and Schapiro show that
public colleges and universities increase tuition by $50 for every $100
in aid. Lucca et al (2015) say it's more. They find ``a pass-through
effect on tuition of changes in subsidized loan maximums of about 60
cents on the dollar.''
One of the studies that found a positive effect, Curs and Dar
(2010), also found a negative effect: between merit-based state
financial aid and listed tuition prices at public and private
institutions. They posited that this finding was a result of
institutions competing to attract high-performers and academic
superstars--an effect that is not generalizable to other types of aid.
The remaining four studies found negative effects.
In some cases, the findings were contradictory. For example, some
studies found that tuition is more sensitive to Federal grant aid than
Federal loan aid while others presented the opposite finding. But taken
together, the research suggests that it is likely that Federal
financial aid does enable or contribute to increases in tuition,
probably to a large degree.
Across all types of institutions, more studies found that loans
contributed to increases in tuition than did grants. This is likely
because the maximum Pell grant is less than the published price of
tuition at almost all public and private 4-year institutions. The
effect was more pronounced at expensive schools (such as private 4-year
institutions) than at affordable ones (such as public community
colleges).
As Gillen noted in his 2012 paper, the effect was also more marked
at for-profit institutions than at public and private non-profit
institutions. At public institutions, this is due to tuition caps and
strong political pressure to keep tuition low. At private non-profit
institutions, it is due to the common practice of price discrimination.
(Price discrimination is the practice of charging students different
prices based on their ability and willingness to pay.)
Table 1 shows the correlations demonstrated by 24 recent scholarly
investigations of the Bennett hypothesis. Results shaded in blue are
positive evidence for a relationship between increasing Federal
financial aid and tuition. (The citation count is indication of an
article's academic influence.)
Table 1: Results of recent studies
----------------------------------------------------------------------------------------------------------------
Study Positive Correlation No Correlation Negative Correlation Citations
----------------------------------------------------------------------------------------------------------------
Acosta 2001, working Federal grant loan aid Federal loan aid 10
paper tuition at private four- tuition at public four-
year institutions. year institutions
Federal grant aid,
tuition prices at
public four-year
institutions.
----------------------------------------------------------------------------------------------------------------
Archibald and Feldman Increases in the Increases in the 270
2011, Oxford authorized maximum Pell authorized maximum
University Press award tuition at public Pell award tuition at
universities private universities
----------------------------------------------------------------------------------------------------------------
CelliniGrant and loan aid 11
2014, American tuition prices at for-
Economic Journal profit 2-and 4--year
institutions
----------------------------------------------------------------------------------------------------------------
Cunningham et al 2001, Federal grants and 6
National Center for loans changes in
Education Statistics tuition at public and
private not-for profit
sector
----------------------------------------------------------------------------------------------------------------
Curs and Need-based state Merit-based state 7
working paper financial aid net financial aid listed
tuition price at public tuition price at
and private public and private
institutions institutions
----------------------------------------------------------------------------------------------------------------
Epple et al 2013, NBER Federal aid tuition 32
working paper revenue at private
universities (by means
of reduction in
institutional aid)
----------------------------------------------------------------------------------------------------------------
Frederick et al 2012, Federal funding for 9
Economics of Education community colleges
Review state appropriations
----------------------------------------------------------------------------------------------------------------
Gillen 2012, CCAP Dollar limits on 18
policy paper Federal loans tuition
prices
----------------------------------------------------------------------------------------------------------------
Government Increase in the Federal 3
Accountability Office student loan limit for
2011 first-and second-year
students tuition prices
----------------------------------------------------------------------------------------------------------------
Gordon and Hedlund Federal loans tuition 13
2016, working paper
----------------------------------------------------------------------------------------------------------------
Harvey et al 1998, Availability of Federal 18
National Commission on grants and loans
the Cost of Higher tuition prices
Education
----------------------------------------------------------------------------------------------------------------
Inglet 2016, doctoral Federal financial aid 0
dissertation spending public and
private college sticker
prices
----------------------------------------------------------------------------------------------------------------
Kargar and Mann 2017, Loan eligibility 1
working paper limitations tuition
prices
----------------------------------------------------------------------------------------------------------------
Kelchen 2017, working Federal PLUS loan
paper limits law school
tuition
----------------------------------------------------------------------------------------------------------------
Lau 2014, job market Federal grants and 9
paper loans tuition at 4-year
and 2-year institutions
----------------------------------------------------------------------------------------------------------------
Li 1999, doctoral Pell grant awards 9
dissertation tuition prices at
public and private 4-
year institutions
----------------------------------------------------------------------------------------------------------------
Long 2004, Journal of Georgia HOPE 164
Human Resources Scholarship tuition at
public and private 4-
year institutions
----------------------------------------------------------------------------------------------------------------
Long 2004, NBER Federal Hope and 146
Lifelong Learning
Credits state
appropriations for
colleges and
universities
----------------------------------------------------------------------------------------------------------------
Lucca et al 2015, Federal grants and 37
Federal Reserve Bank loans tuition prices at
of New York public and private
universities and
vocational schools
----------------------------------------------------------------------------------------------------------------
McPherson and Schapiro Federal aid revenues Federal aid revenues 326
1991, Brookings tuition revenues at tuition revenues at
Institution public universities private universities
----------------------------------------------------------------------------------------------------------------
Rizzo and Ehrenberg Maximum available Pell Maximum available Pell 165
2004, NBER award in-state tuition awards out-of-state
prices at public tuition prices at
universities public universities
----------------------------------------------------------------------------------------------------------------
Singell and Stone 2007, Average size of Pell Average size of Pell 79
Economics of Education awards out-of-state awards in-state tuition
Review tuition at public at public universities
universities
----------------------------------------------------------------------------------------------------------------
Turner, L. 2017, Size of Pell grants 0
working paper amount of
institutional aid
----------------------------------------------------------------------------------------------------------------
Turner, N. 2010, Tax-based Federal 61
working paper education aid amount
of institutional aid
----------------------------------------------------------------------------------------------------------------
Welch 2015, doctoral State-funded merit 0
dissertation scholarships tuition
prices
----------------------------------------------------------------------------------------------------------------
Implications
The evidence in favor of the Bennett Hypothesis is compelling. It
is most likely that Federal financial aid significantly increases the
cost of college, possibly across all sectors. Scholars should continue
to study the issue to further refine Federal, state, and institutional
policy.
In light of this evidence, the Federal Government and individual
states should begin to alter their financial aid policies now in order
to:
1. Put downward pressure on tuition prices;
2. Focus aid on universities and students where there is
genuine need so that Federal money is not simply an addition or
supplement to money that is already available, (e.g. lending to
wealthy students or institutions);
3. End or minimize subsidies that are artificially increasing
demand for higher education and/or tolerance for higher prices.
The specific policies that can accomplish these aims are:
Eliminate Graduate and Parent PLUS loans: These are
the types of loans most likely to drive tuition increases.
Undergraduate and graduate students already have access to
up to $138,500 in Federal loans through the Stafford Loan
program. Students enrolled in school to become healthcare
professionals can borrow up to $224,000. The Federal Government
should not encourage or enable borrowing above those already
generous amounts.
Loans to parents are even less circumscribed. There is no
limit on how much a parent can borrow. These loans are
available to parents of students who have already maxed out
their own Federal borrowing. The availability of such loans has
resulted in families incurring substantial debt, while failing
to ease the cost of college over time.
Focus on Pell grants (instead of loans)
Going forward, the Department of Education's main focus
should be on Pell grants to the Nation's neediest students.
Such grants, which are limited in scope and size and meet a
true need, are the least likely to encourage colleges and
universities to raise tuition. Loans should be of secondary
importance.
Change the student aid eligibility formula
Use the Median Cost of College instead of the Cost of
Attendance (COA) at individual institutions to calculate
financial need. Using COA discourages students from choosing
less expensive schools since the current ``need'' formula
awards students more money when they attend institutions with
higher tuition.
Make private student loans subject to bankruptcy
laws
Making private student loans dischargeable in bankruptcy
would give private lenders incentives to tighten lending
standards and lower maximum loan amounts.
Cap the growth of tuition and fees at public
colleges and universities
Public colleges and universities should limit the growth in
tuition and fees to the rate of inflation.
End subsidies for Federal student loans
Lucca et al (2015) found that subsidized loans drive up
tuition to a far greater degree than other forms of student
aid.
Improve students' understanding of student loan
borrowing and debt obligations
One possible solution is for other states to adopt a
version of a 2015 Indiana law (H. 1042) requiring post-
secondary educational institutions that enroll students who
receive state financial aid to annually provide each student
with certain information concerning the student's education
loans.
Demand that institutions have ``skin in the game''
Institutions should have a share in the credit risk of
every student who takes out a loan to attend the institution.
This would put pressure on universities to keep tuition low and
offset some of the artificial pressure on demand for higher
education.
Conclusion
College tuition, student debt, and university spending have
increased almost unchecked for almost half a century. Students,
parents, faculty, and the American economy have suffered as a
consequence.
The Bennett Hypothesis, with some modern nuances, explains at least
part of the problem and directs decisionmakers at the state,
university, and Federal levels to solutions that will work to slow
tuition increases and stem the tide of runaway student debt and
profligate university spending.
Congress, state legislators, and university administrators must act
to make college affordable and accessible and to head off the looming
student loan crisis.
Studies Included in the Analysis
Acosta, Rebecca J. ``How Do Colleges Respond to Changes in Federal
Student Aid.'' Working paper, Department of Economics, University of
California at Los Angeles, October 2001.
Archibald, R. B., & Feldman, D. H. Why Does College Cost So Much?
Oxford: Oxford University Press, 2011.
Cellini, Stephanie Riegg, and Claudia Goldin. ``Does Federal
Student Aid Raise Tuition? New Evidence on For-Profit Colleges.''
American Economic Journal: Economic Policy 6, no. 4 (2014): 174--206.
doi:10.1257/pol.6.4.174.
Cunningham, Alisa F., Jane V. Wellman, Melissa E. Clinedinst, and
Jamie P. Merisotis. (Project Officer: C. Dennis Carroll). Study of
College Costs and Prices, 1988--89 to 1997--98, Volume 1, National
Center for Education Statistics 2002--157 (Washington, DC: 2001).
Curs, Bradley R., and Luciana Dar. Do Institutions Respond
Asymmetrically to Changes in State Need-and Merit-Based Aid? (November
1, 2010).
Epple, Dennis, Richard Romano, Sinan Sarpca, and Holger Sieg, ``The
U.S. Market for Higher Education: A General Equilibrium Analysis of
State and Private Colleges and Public Funding Policies,'' NBER Working
Paper No. 19298. Cambridge MA: National Bureau of Economic Research,
August 2013.
Frederick, Allison B.; Stephen J. Schmidt, and Lewis S. Davis.
``Federal Policies, State Responses, and Community College Outcomes:
Testing an Augmented Bennett Hypothesis,'' Economics of Education
Review 31, no. 6, December 2012: 908-917.
Gillen, Andrew. ``Introducing Bennett Hypothesis 2.0.'' Policy
paper, Center for College Affordability and Productivity, Washington,
DC, 2012.
Gordon, Grey and Aaron Hedlund. Accounting for the Rise in College
Tuition. Working Paper--2015--015, Center for Applied Economics and
Policy Research, Department of Economics, Indiana University at
Bloomington, 2015.
Government Accountability Office. Federal Student Loans: Patterns
in Tuition, Enrollment, and Federal Stafford Loan Borrowing Up to the
2007-08 Loan Limit Increase, May 25, 2011.
Harvey, James, Roger M. Williams, Rita J. Kirshstein, Amy Smith
O'Malley, Jane V. Wellman.Straight Talk about College Costs and Prices:
Report of the National Commission on the Cost of Higher Education.
National Commission on the Cost of Higher Education, February 1998.
Inglet, Jerry. ``Testing the Bennett Hypothesis: Examining the
Relationship between College Sticker Prices and Total Federal Financial
Aid Spending on Higher Education.'' Doctoral dissertation, D'Youville
College, Buffalo, NY, 2016.
Kargar, Mahyar, and William Mann. Financial Aid and College
Pricing: Estimates from the PLUS Program (August 7, 2017).
Kelchen, Robert, An Empirical Examination of the Bennett Hypothesis
in Law School Prices. AccessLex Institute Research Paper No. 17-09,
November 8, 2017.
Lau, Christopher V. The Incidence of Federal Subsidies in For-
profit Higher Education, Working Paper, Department of Economics,
Northwestern University, 2014.
Li, J. ``Estimating the Effect of Federal Financial Aid on Higher
Education: A Study of Pell Grants.'' Doctoral dissertation, Harvard
University, 1999.
Long, Bridget Terry. ``How Do Financial Aid Policies Affect
Colleges? The Institutional Impact of the Georgia HOPE Scholarship.''
Journal of Human Resources 39, no. 4 (2004): 1045-066. doi:10.2307/
3559038.
The Impact of Federal Tax Credits for Higher Education Expenses. In
College Choices: The Economics of Where to Go, When to Go, and How to
Pay For It. Edited by Caroline Hoxby. A National Bureau of Economic
Research Report. Chicago: University of Chicago, 2004.
Lucca, David O., Taylor Nadauld, and Karen Shen.Credit Supply and
the Rise in College Tuition: Evidence from the Expansion in Federal
Student Aid Programs. Federal Reserve Bank of New York. Staff Report
No. 733, 2015.
McPherson, M. S., & Schapiro, M. O. Keeping College Affordable:
Government and Educational Opportunity. Washington, DC: Brookings
Institution Press, 1991.
Rizzo, Michael T., and Ronald G. Ehrenberg. Resident and
Nonresident Tuition and Enrollment at Flagship State Universities. In
College Choices: The Economics of Where to Go, When to Go, and How to
Pay for It. Edited by Caroline Hoxby. A National Bureau of Economic
Research Report. Chicago: University of Chicago, 2004.
Singell Jr., L.D. and J.A. Stone. ``For Whom the Pell Tolls: The
Response of University Tuition to Federal Grants-in-aid,'' Economics of
Education Review 26 (2007), 285-295. (See working paper For Whom the
Pell Tolls: Market Power, Tuition Discrimination, and the Bennett
Hypothesis).
Turner, Lesley J. ``The Economic Incidence of Federal Student Grant
Aid.'' Working paper, University of Maryland, College Park, MD, 2017.
Turner, Nick. Who Benefits From Student Aid? The Economic Incidence
of Tax-Based Federal Student Aid. UC San Diego: Department of
Economics, 2010.
Welch, Jilleah Gayle. ``Three Essays on the Economics of Higher
Education: How Students and Colleges Respond to Financial Aid
Programs.'' Doctoral dissertation, University of Tennessee, Knoxville,
TN., 2015.
______
[summary statement of jenna robinson]
In 1987, then-secretary of education William J. Bennett
penned an article in the New York Times entitled ``Our Greedy
Universities.'' In it, he wrote, ``If anything, increases in financial
aid in recent years have enabled colleges and universities blithely to
raise their tuition, confident that Federal loan subsidies would help
cushion the increase.''
This study synthesizes empirical findings from 25
articles published since 1987 in peer-reviewed journals or by respected
economic research institutions. The studies focus on the empirical
evidence for Bennett's theory.
Of the 25 studies surveyed, a majority found some effect
of federal subsidies on the price of higher education in at least one
segment of the higher education market.
Based on these findings, we make policy recommendations
to help slow the growth of university tuition and fees.
______
The Chairman. Thank you, Dr. Robinson.
Dr. Smith, welcome.
STATEMENT OF ZAKIYA SMITH, ED.D., STRATEGY DIRECTOR FOR FINANCE
AND FEDERAL POLICY, LUMINA FOUNDATION, INDIANAPOLIS, INDIANA
Dr. Smith. Chairman Alexander, Ranking Member Murray, and
Members of the Committee.
Thank you for the opportunity to testify today on the
important topic of improving college affordability.
As you heard, my name is Zakiya Smith, and I work on
Finance and Federal Policy issues at the Lumina Foundation, the
Nation's largest foundation focused specifically on increasing
students' access to, and success in, post-secondary education.
As someone whose grandmother attended college as a
nontraditional student in the 1950's in South Carolina, before
there were integrated schools or even a Higher Education Act to
consider, I know both the transformative power of higher
education, and the pains that come from lack of equity within
the system for students of color and for low income students.
I know from working with students as a college counselor at
a federally funded GEAR UP program, that when talking to
students directly, their concerns about college are clear. They
think it is important, but they just do not know how they are
going to pay for it.
We have talked about this issue at the national level for
decades. We have tried to create measures of transparency,
which I very vocally supported, with hopes that better
information could create market pressure and direct students to
more affordable options. Unfortunately, those efforts alone are
not enough.
Today, students have responsibilities and commitments that
extend far beyond the classroom. Students of color, in
particular, are more likely to be balancing work and the
responsibility of parenting with going to college, as over 40
percent of Black and Native American students are also parents.
Contrary to popular imagination, students today actually
have to work far more than past generations did in order to pay
for college.
In 1971, students could cover tuition at public colleges by
working about 10 hours a week throughout the year. Students
today would have to work about a 60 hour workweek in order to
cover the full cost of attendance at a public college in-state.
These affordability concerns are not just in their heads.
The challenge of paying for college today is greater than it
was in the past.
Some might argue that expenses, like rent and food, are not
really a cost of college, but general cost of living that every
adult must face.
But very few people would argue with the notion that the
traditional student going to college straight from high school,
living on campus deserves to be able to use their financial aid
to pay for room and board.
Take that same student off campus, and now they have to
find an apartment. Room becomes ``rent,'' and food, whether
purchased on or off campus, is the ``board''.
Ensuring these non-tuition needs are covered in some way,
which could include childcare for student parents, or
transportation to and from campus, are integral to student
success. If basic needs are not met, students are less likely
to do well in school, further impeding completion.
As we think about how to address this concern, we must
recognize that affordability means different things to
different people. What is a bargain to one person may feel like
an unattainable luxury to another.
For example, a $10,000 degree could sound great to a family
making $150,000 yet unimaginable for someone making only
$20,000 a year, near the poverty line.
That is why we cannot focus only on the overarching price
or even the average net price because it alone does not capture
what is reasonable for families at different income levels.
We have to start to frame affordability in terms that are
tailored to individual and family needs, yet are transparent
enough for most people to understand. In this vein, Lumina has
developed the concept called the Affordability Benchmark in
consultation with experts from inside and outside of higher
education.
The benchmark is based on some key principles:
That those with the capacity to save should be encouraged
to do so with clear guidelines that can be broken down into
monthly amounts;
That students without the capacity to save should not be
expected to, and;
That no student should have to work so much to pay for
college that it impacts their ability to be successful in
school.
Two interconnected recommendations could make this a
reality.
First, is a Federal-state partnership for affordability,
quality, and completion. A benchmark approach, or any other
type of affordability guarantee, would require a new type of
partnership between the Federal and state government in which
colleges commit to lower prices and better outcomes for
students over time in order to receive funding.
States should be encouraged to invest in post-secondary
education in order to better leverage the Federal spend.
Because affordability cannot really be conceptually
separated from value, it will require being more vigilant about
quality, both to root our fraudulent practices and to ensure
credentials are meaningful.
Second, we must strengthen and preserve the Pell Grant.
Pell is the foundation of Federal student aid, the bedrock on
which the Federal commitment to students is based.
Unfortunately, the grant itself has not kept up with the rising
price of education.
I urge the Committee to consider ways to strengthen Pell so
it remains available for future generations and to encourage
implementation of early awareness and information campaigns to
ensure would-be students even know it exists.
I would be happy to answer any questions about these ideas
or share additional details.
Thank you.
[The prepared statement of Dr. Smith follows:]
prepared statement of zakiya smith
Chairman Alexander, Ranking Member Murray, and Members of the
Committee:
I'm pleased and grateful to have the opportunity to testify before
you this morning as you consider the reauthorization of the Higher
Education Act.
My name is Zakiya Smith, Strategy Director for Finance and Federal
Policy at Lumina Foundation. Lumina, based in Indianapolis, is the
Nation's largest private foundation focused specifically on increasing
students' access to and success in post-secondary education. I've been
at Lumina since 2013; before that I advised President Obama on higher
education policy, worked on budget and policy at the Department of
Education, conducted research on college access for low income students
at the Advisory Committee on Student Financial Assistance, and did a
short stint as a Federal work study student advising high school
juniors and seniors on their college options at East Boston High
School. I actually started my career in education with student teaching
at Franklin Middle School and Freedom High School just outside of
Nashville, in middle Tennessee.
I share these details about my background by way of showing that
I've been focused on helping ensure students successful transition to
post-secondary education for my entire professional career. It's
something that I care deeply about on a personal level. As someone
whose grandmother attended college as a ``nontraditional'' student in
the 50's in South Carolina before schools there were integrated and
there was even a Higher Education Act to consider, I know both the
transformative power of higher education and the pains that come from a
lack of equity within the system for students of color and low-income
students. So, I work today to close gaps by race and income and to
consider how we might make college more affordable and equitable for
all students.
Affordability as a Top Concern in Improving Access and Success
We know from research we've funded at Lumina Foundation that
individuals of all ages and backgrounds, and particularly people of
color, continue to believe that higher education is necessary in the
21st century economy. Increasingly, low-income adults, students of
color, and their families aspire to attain a post-secondary credential.
Unfortunately, at the same time, they believe these credentials are
unaffordable, and see increasing prices and levels of debt as barriers
to attainment.
When talking to students, would-be students, and their families
directly, their concerns about college are clear--they think it's
important but they just don't know how they will pay for it. And we
have talked about this issue at the national level for decades. We've
watched prices rise and tried to create measures of transparency--which
I've supported--with the hopes that better information could create
market pressure and direct students to more affordable options.
Unfortunately, these efforts alone are not enough. And, as we heard in
the hearing last week, we actually still lack the quality of
information that would enable students to find affordable options
tailored to their individual circumstances.
Nearly 40 percent of today's students are 25 years old or older.
More than one-third attend part time, and nearly 20 percent are holding
down full-time jobs as they attend college. And a growing number are
students of color. From 1996 to 2010, Latino student enrollment grew by
240 percent, and black enrollment grew by 72 percent (while white
student enrollment grew by only 11 percent). Students of color, in
particular, are more likely to be balancing work and the
responsibilities of parenting with going to college, as over 40 percent
of black and Native American students are also parents \1\.
---------------------------------------------------------------------------
\1\ Lumina Foundation (n.d.) Today's Student Statistics. Retrieved
from: https://www.luminafoundation.org/todays--student-statistics
Today's students, simply put, have responsibilities and commitments
that extend far beyond the classroom. And these responsibilities in
many cases are a real financial burden, which may help explain why
students continue to list affordability as a top concern. And it's not
just in their heads--contrary to popular imagination, students today
actually have to work far more than past generations did in order to
pay for college. Consider this-in 1971, Americans students could cover
tuition at public colleges by working about 10 hours a week throughout
the year. Today's student would have to work 27 hours a week at minimum
wage to just pay public college tuition and fees alone, and they
wouldn't have any money left over for non-tuition expenses that are
necessary for success in college, like books and supplies, not to
mention room and board--otherwise known as food and rent. Students
today would have to work about 60-hour work week in order to cover the
full cost of attendance at a public college. \2\
---------------------------------------------------------------------------
\2\ Author's calculations derived from National Center for
Education Statistics (NCES) data and US Department of Labor (DOL), Wage
and Hour division data, assuming working 50 weeks per year. NCES:
https://nces.ed.gov/programs/digest/d12/tables/dt12--381.asp,https://
nces.ed.gov/programs/coe/indicator--cua.asp DOL: https://www.dol.gov/
whd/minwage/chart.htm
Some might argue that expenses like rent and food aren't really
costs of college, but general costs of living that every adult must
face. However, very few people would argue with the notion that the
traditional student going to college straight from high school living
on campus deserves to be able to use financial aid to pay for their
room and board. Take that same student off campus, and now they must
find an apartment. Room becomes rent and board is food whether
purchased on or off campus. Ensuring these non-tuition needs are
covered in some way--which could include child care for student parents
and transportation to and from campus--is integral to student success.
If basic needs aren't met, students are less likely to do well in
school, further impeding academic progress.
Affordability is a Conceptually Vague Term: Affordability Benchmark
As we think about how to address this concern, we must recognize
that affordability means different things to different people--what's a
bargain to one person may feel like an unattainable luxury to another.
That's why we can't focus only on the overarching price, or even the
average net price, because it alone does not capture what is reasonable
for families at different income levels. For example, a $10k price tag
could sound great to a family making $150k, yet sound unattainable for
a family making only $20k, near the poverty line. To this end, The
Institute for College Access and Success recently found that ``families
earn[ing] less than $30,000 would need to spend 77 percent of their
total income to cover the net price at public 4-year colleges, more
than double the burden placed on any other income group'' \3\.
---------------------------------------------------------------------------
\3\ The Institute for College Access and Success. 2017. College
Costs in Context: A state-by-state Look at College (Un)affordability.
https://ticas.org/sites/default/files/pub--files/ college--costs--in--
context.pdf.
For this reason, it is important to frame affordability in terms
that are tailored to individual and family needs, yet are transparent
enough for most people to understand. Past policy efforts to address
affordability have either focused on targeting to the point of
obfuscating the process for those who most need the resources or on
simplicity and transparency without concern for the true underlying
financial need. We need a new paradigm that addresses both concerns--a
much clearer message about affordability to would-be students paired
with a truly reasonable expectation of what those students might
---------------------------------------------------------------------------
contribute to post-secondary education.
We at Lumina have spent a lot of time talking with experts in other
fields about this conundrum and through those conversations have come
up with the concept of an affordability benchmark. The premise
underlying the problem is this--students from most low-income families
just can't afford to save anything for post-secondary education, and
they work too much once they get to school to try to cover their costs.
Meanwhile, students from middle and upper income families are also
struggling, but receive no guidance about how much to save for
college--other than being told that they should save ``a lot''. Every
financial expert who knows anything about consumer financial behavior
can tell you that this is a recipe for disaster. Not having safety nets
in place for low income students or clear attainable savings goals for
other groups means that everyone is confused and even those with the
capacity to save are unlikely to do so.
The benchmark is based on some key principles--that those with the
capacity to save should be encouraged to do so with clear guidelines
that can be broken down into monthly amounts, that students without the
capacity to save for college shouldn't be expected to do so, and that
no student should have to work so much to pay for college that it
impacts their ability to be successful in school.
The benchmark also suggests that affordability should be gauged by
the total costs of attendance-not just tuition and fees alone, that
lower income students should be asked to contribute no more toward the
costs of post-secondary education than what they can afford to
contribute from working 10 hours per week, and that middle and upper
income students (those from families making above 200 percent of the
poverty level) should be expected save 10 percent of their income over
10 years to pay for post-secondary education. These numbers are based
on sound evidence, for instance, that students working more than 10
hours per week are at greater risk of dropping out.
Using analyses based on this benchmark and currently available net
price data, the Institute for Higher Education Policy (IHEP) recently
published a report suggesting that the vast majority of colleges are
unaffordable for all but the highest-income families. \4\
---------------------------------------------------------------------------
\4\ Poutre, A, Rorison, J & Voight, M. (March 2017). Limited
Means, Limited Options. Institute for Higher Education Policy.
Retrieved from: http://www.ihep.org/limited-means-limited-options
Still, the numbers outlined in this affordability benchmark are
less important than the principles they represent. That is, that some
students can't afford to pay anything, and shouldn't be expected to do
so, that other students can afford to pay something and should be
provided guidance about how to get there, and ultimately that programs
focused on affordability should be clear about what that means from a
student perspective (e.g. clearly answer the question ``what will I
have to pay'') without requiring a maze of paperwork. These
principles--of transparency, predictability, and reasonableness--could
be met in a variety of ways, but the first step toward creating a
meaningful system based on this outline would be to encourage states to
develop their own benchmarks of reasonableness and incent them for
meeting students' needs within these more transparent visions.
On Affordability and Student Loan Debt
The idea that affordability cannot really be disconnected from
quality is especially important to consider when taking stock of the
growth of our loan-financed education system. In 2011-12, average debt
for those who completed an undergraduate program (of any type) was
$11,400, up from $6,400 in 1995-96. Debt is not necessarily bad, but
our current system is producing terribly inequitable outcomes by race
and income. Recently unearthed data reveal that nearly one quarter of
black bachelor's degree graduates have defaulted on student loans, and
that over 50 percent have higher loan balances after 12 years than when
they first left school. \5\
---------------------------------------------------------------------------
\5\ Miller, B. (October 2017). New Federal Data Show a Student
Loan Crisis for African American Borrowers. Center for American
Progress. Retrieved from: https://www.americanprogress.org/issues/
education--postsecondary/news/2017/10/16/440711/new-Federal-data-show-
student-loan-crisis-african-american-borrowers/
Though most people are able to repay their loans without trouble,
these newly publicized trends suggest a persistent problem with a
subset of students that must be addressed. We need both to consider
ways to make college more affordable on the front end and ensure that
the quality of education is sufficient to help students repay any loans
on the back end, as well. The additional risk posed to students from
the reality of student loan debt requires particular attention to labor
market outcomes. At the same time, we must recognize that our system of
student debt is layered on top of deep racial wealth gaps and a system
that offers neither equal pay nor equal work. Individuals experience
disparate outcomes in the labor market based on race and gender, so
ensuring the affordability of repayment options is an important back-
end safety net for many students, as well. I know this is a topic that
the Committee is also considering, and it is critical that we link
efforts to improve accountability and quality, particularly in
connecting to loan repayment outcomes, with those designed to increase
affordability.
Recommendations for Addressing Affordability
I would like to highlight here two key recommendations for
addressing affordability aligned with the context I've shared.
(1) A Federal state partnership for affordability, quality,
and completion. A benchmark approach, or any other type of
affordability guarantee, would require a new type of
partnership between the Federal and state government in which
colleges also commit to lower prices and better outcomes for
students over time. The Federal Government could encourage
states to advance affordable options for low-and moderate-
income students by providing matching dollars for states that
can meet affordability and quality guarantees. Without this
kind of partnership with states and institutions, the Federal
Government in effect tolerates continued state disinvestment
and tuition increases, reducing the efficacy of the Federal
investment over time. States can pull back on their commitment
to aid and low tuition, allowing for Federal grants and loans
to fill the gap for students.
Inasmuch as a Federal state partnership promotes greater
affordability by leveraging state investment, it should also
ensure that states and institutions focus on increasing post-
secondary enrollment and completion. Focusing on affordability
without insisting on improved access for underrepresented
groups could just mean that states would make college more
affordable for those already attending, without actually
working to open doors to new students who wouldn't have
otherwise enrolled. This is an important point when considering
the potential unintended consequences of fixating on
affordability without connecting to a larger vision of
increased student success and closing equity gaps. We might
begin to see more affordable options across states, but
constricted to serve only those with high GPAs, without
providing access the very students who need it most.
Additionally, because affordability can't really be
separated from value, this kind of partnership would also
require being more vigilant about quality, both to root out
fraudulent practices and ensure credentials are meaningful. The
hearing the Committee hosted last week, on accountability,
began to consider some of these concepts. I applaud the
Committee's exploration of accountability and quality. A
reauthorized HEA should guarantee that new investments will
raise institutional quality and improve outcomes with a
particular eye on equity.
(2) Strengthen the Foundation of Pell. First, the Pell grant
program has served as an important commitment to low-income
students over the past several decades. Unfortunately, the
grant itself has not kept up with the rising price of
education. I urge the Committee to consider ways to strengthen
the Pell grant so that it remains available for future
generations, and to encourage implementation of early awareness
and information campaigns to ensure would-be students are aware
of its availability. Too often, students are not aware that
they might be eligible for Pell grants, even as past
reauthorizations tried to address this challenge by directing
the Department of Education to implement early awareness
campaigns. Those campaigns haven't materialized as concretely
as Congress may have hoped, perhaps due to funding or the
imposition of other priorities. Unfortunately, the challenge of
student awareness of their eligibility for financial aid
remains, limiting the power of Pell to act as an effective
incentive, empowering student access.
Conclusion
The rising costs of a post-secondary education--and the growing
portion of those costs being borne by students--represent a clear
barrier to reaching the Nation's attainment goals. Federal policy must
not only focus on students' ability to pay for post-secondary
education, but should hold states and providers accountable for keeping
prices at an affordable level and while maintaining quality so that
ultimately financial aid is well spent on a quality education.
The success of today's students and the success of our Nation is
one and the same. But that success is not possible without your help.
We must work together to ensure a post-secondary education system that
has affordable, high-quality options that recognize all types of
learning.
I would be happy to share in more detail about any of the ideas
raised here at your convenience.
Thank you and I look forward to your questions.
______
The Chairman. Thank you, Dr. Smith.
Dr. Baum, welcome.
STATEMENT OF SANDY BAUM, PH.D., SENIOR FELLOW, URBAN INSTITUTE,
WASHINGTON, DC
Dr. Baum. Thank you, Chairman Alexander, Ranking Member
Murray, and Members of the Committee.
Thank you for hearing my testimony today. I commend your
efforts to strengthen the Federal system that supports
students' futures. I am grateful for the opportunity to share
insights into these issues drawing on my many years as a higher
education economist.
I am a Fellow at the Urban Institute. As you heard, I
research student aid, higher education finance, college access
and success, and the payoff of higher education. I am also a
Professor Emerita of Economics at Skidmore College. And as you
also heard, since 2002, I have co-authored the College Board's
annual reports, ``Trends in Student Aid,'' and ``Trends in
College Pricing,'' which Senator Alexander earlier cited.
I benefited greatly from the support of the organizations
with which I have worked and my colleagues. That said, the
views expressed in this testimony are my own.
My written testimony includes a lot of data on college
prices, financial aid, and the expenses students face while
enrolled. I hope these data will inform your efforts to reform
the Federal aid system.
Beyond my statement today, I urge you to visit two
websites, the Urban Institute's Understanding College
Affordability site [http://collegeaffordability.urban.org] and
the College Board's Trends in Higher Education site [https://
trends.collegeboard.org].
I would like to use the few minutes I have today to focus
on the concept of college affordability and outline what the
available evidence suggests about the most constructive steps
Congress can take to alleviate existing problems.
What does it mean for college to be affordable? College
affordability depends on the value of the education in addition
to prices and the resources available to students at the time
of enrollment.
Making college cheaper will not, on its own, make it more
affordable. No matter how low the price a program or an
institution that does not support students in completing an
education that serves them well, in terms of both life
opportunities and labor market success, will prove
unaffordable.
An education that provides a significant earnings premium
and opens doors to opportunities for students may be affordable
even if it requires borrowing and using some of the added
earnings to repay student debt.
Our Nation has made a lot of progress in increasing access
to college, but students from low income families are less
likely than others to complete their programs. And when they do
complete, too often their credentials are of limited value in
the labor market.
High and rising tuition prices create a real challenge, but
non-tuition expenses--including books and supplies, housing and
food, et cetera--create the greatest financial hurdles for many
students and families.
These expenses affect students differently depending on
their financial circumstances. The incomes of low and middle
income students have stagnated or declined in recent years.
Published prices have been rising faster than average
prices in the economy for decades. And my read in that of many
economists is that the reliable literature suggests that
Federal aid is not a significant explanation for rising prices.
Increases in both institutional grant aid and Federal aid have
reduced the barriers to college education and lowered the net
prices for many students.
Congress has made progress in supporting college
affordability and has the opportunity to do even more.
What can Congress do?
The goal should be ensuring that more students can access
and succeed in high quality programs. I would be happy to
provide more details about the following evidence-based
suggestions, strengthening the existing system.
First, Congress should ensure that aid programs are simple,
predictable, and easy to apply for. Notices with information
about Federal and state grants sent to families on the basis of
tax returns could significantly boost preparation for college.
Pell Grant award levels should be indexed for inflation and
the system designed to provide assurance that political and
economic vicissitudes will not threaten the program from year
to year.
Similar principles apply to loan repayment. There should be
one income-based repayment plan, preferably with a well
designed payroll withholding system. Payments should be
manageable for all borrowers, and most borrowers should repay
their entire debts with appropriate interest. The amount repaid
should relate to the amount borrowed, possibly linking the
length of time before balances are forgiven to the amount of
debt.
Second, Congress should enact policies that help students
make better choices by placing meaningful restrictions on
institutional eligibility for participation in Federal student
aid programs, and providing better guidance for students
choosing where and what to study.
It should hold institutions receiving Federal funds
accountable for outcomes. Students should not be able to take
their Federal aid to schools that have little chance of serving
them well. The aid system could also incorporate personalized
guidance before students enroll.
Finally, Congress should design effective Federal
incentives to increase state funding of need-based grant aid
and of the public institutions that educate most low income
students.
A stronger Federal-state partnership will make Federal
dollars go farther in achieving their goals.
Thank you for the opportunity to participate today.
I would be happy to answer your questions and provide
further data and resources that may be helpful to your
deliberations.
[The prepared statement of Dr. Baum follows:]
prepared statement of sandy baum
Chairman Alexander, Ranking Member Murray, and Members of the
Committee:
Thank you for the opportunity to testify today about college
affordability. I commend your efforts to strengthen the Federal system
that supports students striving to invest in themselves and their
futures. I am privileged to have the opportunity to share some insights
into college affordability emerging from my long career as a higher
education economist studying these issues.
I am a fellow at the Urban Institute, where I research student aid,
higher education finance, college access and success, and the payoff of
higher education for both students and society as a whole. In addition,
I have co-authored the College Board's annual reports, Trends in
College Pricing and Trends in Student Aid, every year since 2002. These
reports are a trusted source of detailed data on college prices over
time and on the history and distribution of student aid. I am also
professor emerita of economics at Skidmore College.
The views expressed in this testimony are my own, not those of any
organization with which I am affiliated, its trustees, or its funders.
My testimony begins with a discussion of the concept of college
affordability, including the resources available to students and
families and the economic value of college education. An overview of
proposals for congressional action to ameliorate existing problems
follows. I then provide critical data on issues central to college
affordability including tuition prices, net prices, student aid, non-
tuition expenses, and student debt. These data underlie my
recommendations and I hope they will help inform the decisions facing
Congress.
College Affordability: Understanding the Concept
High tuition and fees and living expenses, along with a shortage of
grant aid to help students with limited means cover those expenses,
obviously make college less ``affordable'' than it would be if the
prices of all the things students have to pay for were lower. But
knowing these prices is not enough to evaluate the financial hurdles
students and families face.
As the comprehensive view on the Urban Institute's Understanding
College Affordability website (collegeafforedability.urban.org)
suggests, whether college is affordable for college and for society as
a whole depends on how much it costs to deliver quality education; on
the resources available to institutions, governments, students, and
families to pay those costs; and on the value of the education. Making
college cheaper won't make it more affordable unless sufficient
resources are invested in providing the academic and personal supports
students need to succeed and unless the degrees and certificates they
earn serve them well in the labor market and throughout their lives.
Rising prices certainly contribute to the financial strain of
paying for college. But much of the hardship is caused by low
completion rates of students who enroll; by stagnant family incomes and
rising inequality; and by the reality that while, on average, college
degrees pay off very well in the labor market, earnings vary widely
among adults with similar levels of education. Post-college income is
one important indicator of the value of education; for most students,
it includes a premium over what they would otherwise have earned, some
of which can reasonably be devoted to repaying student loans. Higher
education improves life prospects for most students substantially, but
some students, especially many of those who do not complete their
degrees, end up worse off after paying for college than they would have
been if they had never made the investment.
Student and Family Resources
The failure of real median pretax family income to grow measurably
in recent years makes it more and more difficult to pay for college
(figure 1).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Moreover, the personal savings rate is too low to support most
families in planning ahead and spreading the costs of college over the
years before their children enroll. The personal savings rate in the
United States fell from 8.0 percent of after-tax income in December
1987 to 5.8 percent in 1997, 3.0 percent in 2007, and 2.4 percent in
2017. \1\
---------------------------------------------------------------------------
\1\ Federal Reserve Bank of St. Louis, FRED Economics Data,
``Personal Savings Rate,'' February 3, 2018, https://
fred.stlouisfed.org/series/PSAVERT.
Changes in median family income understate the problems families
from the lower half of the income distribution face in paying for
college. Students from low-and moderate-income families get more grant
aid and pay lower net prices than more affluent students, but the
differences are far from what would be required to compensate for the
large and growing gaps in income across families. The share of total
family income accruing to those in the bottom 40 percent fell from 13
percent in 1996 to 12 percent in 2006 and to 11 percent in 2016. Over
the same period, the share of the top 20 percent rose from 49 percent
to 50 percent to 52 percent. \2\ In other words, low-and moderate-
income families face increasing struggles relative to others.
---------------------------------------------------------------------------
\2\ U.S. Census Bureau, Historical Tables: Income Inequality,
Table H-2, 2017. within 8 years.
---------------------------------------------------------------------------
Access Versus Success
Our nation has done an admirable job of increasing access to
college. Significant gaps in enrollment rates across socioeconomic
groups persist, but more than 85 percent of high school graduates have
some college experience within 8 years. \3\ However, students from low-
income families disproportionately enroll in public 2-year and for-
profit institutions. They are less likely than others to complete their
programs; and, when they do complete them, too often the credentials
have limited value in the labor market. \4\
---------------------------------------------------------------------------
\3\ American Academy of Arts and Sciences Commission on the Future
of Undergraduate Education, 2017, Top Ten Takeaways About
Undergraduates (based on data from NCES, Education Longitudinal Study),
https://www.amacad.org/multimedia/pdfs/publications/
researchpapersmonographs/PRIMER-cfue/PRIMER-Top-Ten--Takeaways.pdf.
\4\ Harry Holzer and Sandy Baum, Making College Work: Pathways to
Success for Disadvantaged Students (Washington, DC: Brookings
Institution Press, 2017).
The average payoff to college degrees is quite high, but earnings
vary considerably among adults with the same education level.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
A third of 35-to 44-year-olds whose highest degree is a bachelor's
degree had incomes of $80,000 or higher between 2009 and 2013, compared
with just 6 percent of those with only a high school diploma. But a
quarter of bachelor's degree recipients earned less than $35,400. Not
all bachelor's degrees--or degrees of any other type--pay off equally
well in the labor market. For those whose degrees do not pay off,
college turns out not to have been affordable. \5\
---------------------------------------------------------------------------
\5\ Graduates who make the choice to follow career paths with low
earnings are in very different situations from those who do not have
viable choices.
The reality is that lowering college prices for students is an
important strategy for helping them succeed. More generous grant aid
can make a real difference in student success. But ensuring that
students have the support they need to make good choices about where to
enroll and what to study and to succeed in completing their programs is
also critical. College is a very good investment but an uncertain on.
Insurance against unexpected weak outcomes is an important part of the
federal government's role in ensuring college affordability.
Seeking Solutions: The Federal Role
The Federal student aid system plays a significant role in reducing
the barriers to college access and success. Federal grants and loans
have allowed millions of Americans to earn college credentials that
improve their lives and increase their contributions as citizens and as
workers.
Many of the significant remaining barriers originate outside the
higher education system. Largely because of extreme inequalities of
income and wealth and limited access to high-quality early education
and health care for many Americans, too many young adults are not
prepared to succeed in college. \6\
---------------------------------------------------------------------------
\6\ See, for example Helen Ladd, ``Education and Poverty:
Confronting the Evidence,'' Journal of Policy Analysis and Management
31, no. 2 (2012): 203--27; and Phillip Oreopoulos, Mark Stabile, Leslie
Roos, and Randy Walld, ``The Short, Medium, and Long Term Effects of
Poor Infant Health,'' Journal of Human Resources 43, no. 1 (2008): 88--
138.
The Federal Government is also limited by the reality that a great
strength of our higher education system is the diversity of
institutions and credentials it offers. The autonomy of states, and of
colleges and universities, to innovate and meet the needs of differing
---------------------------------------------------------------------------
populations is central to our success.
Reauthorization of the Higher Education Act cannot solve all the
problems facing higher education and its students. But Congress does
have the opportunity to create a more equitable society and a more
efficient economy by making changes such as these to the existing
system:
1. Simplify the application process for Federal
student aid. Reducing the amount of information students must
provide on the FAFSA and relying more on data the IRS already
has would increase the number of students who successfully
access Federal aid. \7\
---------------------------------------------------------------------------
\7\ For clear evidence of the role of easing the application
process, see, for example, Eric Bettinger, Bridget Long, Philip
Oreopoulos, and Lisa Sanbonmatsu, ``The Role of Application Assistance
and Information in College Decisions: Results from the H&R Block FAFSA
Experiment,'' Quarterly Journal of Economics 127, no. 3 (2012). A
summary of the results is available from The National Bureau of
Economic Research at http://www.nber.org/digest/feb10/w15361.html.
2. Simplify the formula for calculating eligibility
for Pell grants so prospective students can predict well in
advance how much aid they will receive. The Federal Government
could actively work to improve awareness of Pell grants and
encourage young people to prepare for college both financially
and academically. A good option would be to send out notices to
school children and their parents, based on the families' tax
returns, that would provide information about the Federal and
state grant available to them if their circumstances stay the
---------------------------------------------------------------------------
same.
3. Ensure that the Pell grant program is amply and
securely funded. Award levels should be indexed for inflation
and the system designed to provide assurance that political and
economic vicissitudes will not threaten the program from year
to year.
4. Place meaningful restrictions on institutional
eligibility for participation in Federal student aid programs
and better guide students making post-secondary choices.
Students should not be able to use their aid at institutions
with very low transfer and completion rates, low student loan
repayments rates, or poor employment outcomes. \8\
---------------------------------------------------------------------------
\8\ For discussion of setting benchmarks for these measures of
institutional success, see Sandy Baum and Saul Schwartz, For Which
Institutions Should Students Borrow? Setting Benchmarks, Urban
Institute, forthcoming
5. Even with the least successful institutions
eliminated from the system, students need better guidance about
choosing where and what to study. Proposals to integrate
personalized guidance into the Federal aid system, such as one
from myself and Judith Scott-Clayton in Redesigning the Pell
Grant Program for the Twenty-First Century could increase the
value of students' investments in post-secondary education--
thus increasing its affordability. \9\
---------------------------------------------------------------------------
\9\ Sandy Baum and Judith Scott-Clayton, Redesigning the Pell
Grant Program for the Twenty-First Century, Hamilton Project Policy
Brief 2013-04 (Washington, DC: Brookings Institution, 2013).
6. Hold institutions that receive Federal student aid
funds accountable for student outcomes. Developing ideas about
holding institutions responsible for a share of the Federal
loans their students do not repay deserve serious
consideration. Most promising is a recent proposal from Tiffany
Chou, Adam Looney, and Tara Watson that would base
institutional obligations on the repayment rate--the amount
each institution's students have repaid after 5 years--and use
the recovered funds to provide support to institutions that
serve low-income students well. \10\
---------------------------------------------------------------------------
\10\ Tiffany Chou, Adam Looney, and Tara Watson, A Risk-Sharing
Proposal for Student Loans, Hamilton Project Policy Proposal 2017-04
(Washington, DC: Brookings Institution, 2017).
7. Design effective incentives to increase state
funding of need-based grant aid and of the public institutions
that educate most low-income students. Federal dollars can go
farther toward increasing educational attainment if they
support state efforts to subsidize students who do not have the
---------------------------------------------------------------------------
resources they need to enroll and succeed in college.
8. Simplify and reform the Federal student loan
repayment system. Income-driven student loan repayment is a
critical component of college affordability. While it should be
possible to diminish the number of students whose investments
in higher education do not pay off by restricting institutional
eligibility for participation in Federal student aid programs
and providing better guidance for students, outcomes will
always be variable. There will always be students for whom
college does not pay off well financially, and even if they
have borrowed responsibly, they will struggle to repay their
loans. The Federal Government should provide reliable insurance
against these unanticipated poor outcomes by linking loan
repayment obligations to post-college incomes.
There should be one income-driven loan repayment plan, and Congress
should authorize a pilot program to develop a system of collecting
payments through payroll withholding. The system should be designed so
payments are manageable for all borrowers and most borrowers repay
their debts with appropriate interest. The amount repaid should relate
to the amount borrowed, possibly by linking the length of time before
balances are forgiven to the amount of debt. There is no solid evidence
of the availability of Federal student aid contributing significantly
to rising college prices outside the for-profit sector, but allowing
students to borrow virtually unlimited amounts they are never likely to
have to repay will surely diminish the incentive to hold tuition prices
down. \11\
---------------------------------------------------------------------------
\11\ For careful overviews of the evidence--or lack thereof--for
the relationship between Federal aid and tuition prices, see Adam
Stoll, David Bradley, and Shannon Mahan, Overview of the Relationship
between Federal Student Aid and Increases in College Prices, 7-5700
(Washington, DC: Congressional Research Service, 2014), http://
c.ymcdn.com/sites/www.ncher.us/resource/collection/1CFB07FA-74C6-4F0A-
8E79-3ADB2C453546/R43692.pdf; U.S. Government Accountability Office,
Federal Student Loans: Patterns in Tuition, Enrollment, and Federal
Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase
(Washington, DC: GAO, 2011), https://www.gao.gov/assets/100/97510.pdf;
and Bridget Terry Long, ``College Tuition Pricing and Federal Financial
Aid: Is there a Connection?'' testimony before the U.S. Senate
Committee on Finance, December 5, 2006, https://www.finance.senate.gov/
imo/media/doc/120506bltest.pdf.
---------------------------------------------------------------------------
College Prices
Members of Congress, students and families, and everyone interested
in ensuring broad access to higher education should be concerned about
high levels of tuition and fees and the rapid rise in these prices.
However, these prices constitute only one piece of the complex picture
of college affordability in the United States.
Published Tuition and Fees Over Time
The prices colleges and universities list for tuition and fees do
not represent what students actually pay. Many institutions,
particularly private non-profit colleges and universities but also many
public 4-year ones, provide considerable amounts of institutional grant
aid. In other words, they discount the prices they charge many--and in
some cases, all--students. But the published prices still matter. A
significant number of students do pay these prices. In 2015--16, 63
percent of students received grant aid from some source and 27 percent
did not. Among full-time students, 77 percent received grant aid and 23
percent did not. \12\ Moreover, high sticker prices may discourage
students, particularly low-income students whose parents lack college
experience, from even applying to college.
---------------------------------------------------------------------------
\12\ David Radwin et al., 2015--16 National Post-Secondary Student
Aid Study (NPSAS:16) Student Financial Aid Estimates for 2015--16:
First Look, National Center for Education Statistics, NCES 2018-466,
table 1 (January 2018).
What has happened to published tuition and fees over time? As the
College Board's Trends in College Pricing 2017 report (of which I am a
co-author) documents, in 2017--18, average tuition at public 4-year
colleges and universities is more than three times as high, after
adjusting for inflation, as it was 30 years ago. Prices in the public
2-year and private non-profit 4-year sectors are more than twice as
high in real terms as they were in 1987--88 (figure 3).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Tuition rising more rapidly than average prices in the economy (the
consumer price index) is not a new development. In fact, between 2007--
08 and 2017--18, average prices at private non-profit 4-year and public
4-year institutions rose at a slower rate than they had over the
previous two decades. In the private non-profit sector, average
published tuition and fees rose by 3.3 percent beyond inflation between
1987--88 and 1997--98, by 2.7 percent over the following decade, and by
2.4 percent over the most recent decade. These figures, reported in
figure 4, compare percentage rates of growth. In dollar terms, the 3.2
percent average annual rate of increase in published in-state tuition
and fees in the public 4-year sector between 2007--08 and 2017--18
corresponds to an average annual increase of $270 in 2017 dollars,
compared with $160 per year between 1987--88 and 1997--98 and $250 per
year between 1997--98 and 2007--08. \13\
---------------------------------------------------------------------------
\13\ Jennifer Ma, Sandy Baum, Matea Pender, and Meredith Welch,
Trends in College Pricing 2017 (New York: College Board, 2017), p. 13.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Variation in Tuition and Fees
Elite private colleges frequently make the headlines with their
tuition prices. It's true that published tuition and fee prices at the
most expensive colleges exceed $50,000 and, when room and board are
added in, the price tag for students not receiving aid can be about
$65,000. But even at private non-profit colleges, only 13 percent of
students are enrolled at institutions charging more than $50,000 in
tuition and fees, and about a quarter face charges less than half that
amount. \14\
---------------------------------------------------------------------------
\14\ Ma et al., Trends in College Pricing 2017, figure 2.
---------------------------------------------------------------------------
In 2017--18, average published tuition and fees were $3,570 for
full-time students at community colleges. The average for full-time in-
state undergraduates at public master's universities was $8,670,
compared with $10,830 at public doctoral universities. In the private
non-profit sector, average published tuition and fees ranged from
$29,960 at master's institutions to $42,920 at doctoral universities
(table 1).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Charges also differ significantly within sectors. In 2017--18,
average published tuition and fee prices for in--state students at
public 4-year institutions range from $5,220 in Wyoming and $6,360 in
Florida to $16,040 in Vermont and $16,070 in New Hampshire (table 2).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Net Prices
As noted above, most students receive grant aid to help them pay
for college. Many students also benefit from Federal tuition tax
credits. (In 2017--18, more than 13 million students--almost twice the
number of Pell grant recipients--received education tax credits and
deductions.)
Because of this aid, the average tuition prices students pay are
much lower than the average published prices. Moreover, net prices have
risen more slowly than published prices. Federal and institutional aid
explain most of this difference. Figure 5 reveals a few key points
about the difference between net prices and published prices:
At public 2-year colleges (community colleges), on
average grant aid and tax benefits combined more than cover
tuition and fees. However, the average net tuition and fee
price reached a low of--$910 in 2010--11 and has risen every
year since, as increases in grant aid have failed to keep pace
with price increases. In 2017--18, the average full-time
community college student has $330 of grant aid left to put
toward books and other expenses after paying tuition and fees.
Net tuition, fees, room, and board average over $8,000.
At public 4-year colleges and universities, the
average net price fell dramatically in 2008--09 and 2009-- 10
as the Federal Government increased Pell grants and tax credits
in the face of diminished state subsidies and rising tuition
prices. The average net price has risen every year since 2009--
10 and is now about $4,100--less than half the published price.
When room and board are added, the average net price for full-
time, public 4-year college students is about $15,000 a year--
expenses that have to be covered with a combination of parental
support, work, and loans.
The average full-time student at a private non-profit
4-year institution receives about $20,000 a year in a
combination of grant aid and Federal tax benefits to help pay
for college. About three-quarters of that aid comes from the
institutions in which the students are enrolled. The average
2017--18 net tuition and fee price of $14,500 is lower (after
adjusting for inflation) than the average net price in 2007--
08, but it has risen every year since 2011--12. Average net
tuition, fees, room and board is almost $27,000 per year.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Student Aid
The difference between the published prices and the net prices
students actually pay results from aid provided by Federal and state
governments, colleges and universities, and employers and other private
sources. In addition to this aid, Federal education loans help students
and families spread their payments for college over time.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Since 2010--11, as the economy has been recovering from the Great
Recession, total grant aid has risen (figure 6), but total education
borrowing has declined year after year (figure 7). Part of the decline
in borrowing is due to declining enrollments in the for-profit sector
and, to a lesser extent, community colleges. But borrowing per students
has also declined (figure 8).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Understanding trends in the grant aid that helps students pay for
college is complicated by the recession. The choice of beginning years
can dramatically alter the picture that emerges. For example, the $26.6
billion in total Pell grant expenditures in 2016--17 represented a 75
percent increase in inflation-adjusted dollars over 10 years--but a 26
percent decline from 2011--12. Federal aid to veterans and active
military has grown dramatically and now represents 30 percent of all
Federal grant aid to undergraduate students.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In 2011--12, institutional grant aid to undergraduates was similar
to Pell grants--$34.9 billion versus $35.8 billion. But by 2016--17,
institutional grant dollars for undergraduates were 75 percent higher
than Pell grants--$46.1 billion versus $26.6 billion. Federal grants
(including aid to veterans and active military) declined from 46
percent of total grant aid in 2011--12 to 37 percent in 2016--17 (table
3).
Federal Pell grants provided basic funding to more than 7 million
low-and moderate-income students in 2016--17. More than half of those
students were independent, not relying on parents for financial
support. Among dependent recipients, three-quarters came from families
with incomes of $40,000 or lower. In 2016--17, when the maximum Pell
grant was $5,820, the average award was $3,740. \15\ These funds do not
come close to covering expenses for low-income students, but they do
make it possible for many who would otherwise be unable to piece
together the necessary funds to enroll in college.
---------------------------------------------------------------------------
\15\ Sandy Baum, Jennifer Ma, Matea Pender, and Meredith Welch,
Trends in Student Aid 2017 (New York: College Board, 2017), figures 16,
18B.
---------------------------------------------------------------------------
Nontuition Expenses
Because it is difficult to combine successful engagement in college
studies with full-time work, many students struggle to cover their
living expenses while they are in school. These living expenses,
especially when added to the cost of books and other necessary
supplies, are considerably larger than published tuition and fees for
most students.
In 2016--17, tuition and fees represented 20 percent of the total
estimated expense budgets for full-time students at public 2-year
colleges and 39 percent for those at public 4-year institutions.
Published tuition and fees constitute more than half the budget only
for public 4-year college students enrolled outside their state of
residence and for private non-profit 4-year college students (figure
9).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
These total budgets are based on estimates of living expenses
developed by financial aid offices. They include many expenses that
people would incur even if they were not in school, such as food and
rent. But even though most students work at least part time, few earn
enough to cover these expenses.
Many low-income students do not actually pay tuition and fees. In
fact, on average, low-income students at both 2-year and 4-year public
institutions paid $0 in net tuition and fees in 2011--12, the latest
year for which these detailed data are available (figure 10). Still, we
know that many low-income students struggle financially while they are
in school. Research from the Urban Institute has documented a
significant amount of food insecurity, particularly among community
college students. \16\ While it is difficult to isolate the role of
finances in students' dropping out without completing their programs,
it is clear that many need assistance with meeting other expenses--not
just tuition and fees--if they are to succeed.
---------------------------------------------------------------------------
\16\ Kristin Blagg, Craig Gundersen, Diane Schanzenbac, and James
Ziliak, ``Assessing Food Insecurity on Campus, (Washington, DC: Urban
Institute, 2017), https://www.urban.org/sites/default/files/
publication/92331/assessing--food--insecurity--on--campus--3.pdf.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Student Debt
Much of the current concern over college affordability relates to
the attention to rising student debt levels. There is no question that
an increasing share of undergraduates are borrowing to help finance
their education and that average debt levels are growing. But there is
a considerable amount of misunderstanding about where the real problems
lie.
As noted above, investing in college pays off well on average and
for most students. The 60 percent of those who completed bachelor's
degrees at private non-profit and public institutions in 2015--16 who
had taken students loans borrowed an average of $28,400. \17\ Median
annual income for 25-to 34-year-olds with bachelor's degrees is $19,500
higher than the median for high school graduates. \18\ It doesn't
require a large share of this earnings premium to repay the average
debt in a few years.
---------------------------------------------------------------------------
\17\ Baum et al., Trends in Student Aid 2017 (New York: College
Board, 2017), figure 12.
\18\ U.S. Census Bureau, Educational Attainment-People 25 Years
Old and Over, by Total Money Earnings, Work Experience, Age, Race,
Hispanic Origin, and Sex, PINC-03 (2017).
The debt levels of 4-year college graduates, however, vary
considerably. Students who earn their degrees at for-profit
institutions, independent students, and black students are particularly
likely to borrow at high levels. \19\
---------------------------------------------------------------------------
\19\ Urban Institute, ``Understanding College Affordability,''
http://collegeaffordability.urban.org/after-college/student-debt/#/.
The real problems lie with students who borrow relatively little
but leave school without a degree or certificate or earn a credential
with little labor market value. Among students who entered repayment in
2011--12, 24 percent of those who had not completed their programs had
defaulted within 2 years, compared with 9 percent of completers. \20\
Default rates are highest for those with the lowest levels of debt, and
about two-thirds of defaulters owe less than $10,000. \21\ Improving
rates of program completion is an important policy goal in improving
college affordability.
---------------------------------------------------------------------------
\20\ Urban Institute, ``Understanding College Affordability,''
http://collegeaffordability.urban.org/after-college/loan-repayment--
and-default//delinquency--and--default.
\21\ Baum et al., Trends in Student Aid 2017, figure 12B.
Households in the upper quartile of the income distribution hold
most of the outstanding student debt. \22\ They have advanced degrees
or at least bachelor's degrees, and the vast majority will successfully
repay their loans. The more serious student debt problem is too many
students borrowing for programs in which they have a low chance of
succeeding and accruing debts that will impede their abilities to
support themselves and their families.
---------------------------------------------------------------------------
\22\ Sandy Baum and Victoria Lee, ``Affluent households owe the
most student debt,'' Urban Wire, January 22, 2018, https://
www.urban.org/urban-wire/affluent-households-owe-most-student-debt.
---------------------------------------------------------------------------
Conclusion
Many factors combine to create challenges for students and families
paying for post-secondary education. The Federal Government has a
responsibility to ensure that those with the most limited resources can
overcome the multiple challenges they face in earning college
credentials that will allow them to lead successful and productive
lives and create opportunities for their children.
Congress should use the reauthorization of the Higher Education Act
to strengthen the student aid system so it better supports student
success and protects against unanticipated poor outcomes and to ensure
that institutions provide high-quality educational opportunities to
their students.
______
[summary statement of sandy baum]
High and rising tuition prices create a real challenge to many
students and families attempting to finance a college education. But
many other factors also contribute to college affordability. Incomes at
the top of the income distribution have grown enough in recent years to
keep up with the price of college, but the incomes of lower-and middle-
income households have stagnated or declined. Low savings rates mean
that few families successfully prepare in advance for college payments.
College affordability depends on more than tuition prices and other
expenses students incur and the resources available at the time of
enrollment. The value of the education helps determine its
affordability over the long run. No matter how low the price, a program
or an institution that does not support students in completing an
education that will serve them well, both in life opportunities and
labor market success, will turn out to be unaffordable. An education
that provides a significant earnings premium and opens doors to
opportunity for students is affordable, even if it requires borrowing
and using some of the added earnings to repay student debt.
The Federal student aid system plays a critical role in increasing
the number of Americans who can enroll and succeed in post-secondary
education. Yet too many barriers remain, and Congress has an
opportunity to address some of them with the impending reauthorization
of the Higher Education Act.
Congress should help make college more affordable for students and
families by simplifying the aid application process, making Pell grants
more predictable and reliable, eliminating institutions with very poor
outcomes from Federal aid programs and holding institutions accountable
for student success, providing better information and guidance for
students, and improving the income-driven system for student loan
repayment.
The data required to understand trends in college affordability
include information on
1. the net prices students actually pay in addition to
published prices,
2. non-tuition expenses students must be able to meet in order
to succeed in college,
3. institutional grant aid as well as the grants and loans
available from the Federal Government, and
4. student debt.
Basing policies on reliable data and evidence about effectiveness
is the best strategy for increasing college access and success.
______
The Chairman. Thank you, Dr. Baum.
Dr. Anderson, welcome.
STATEMENT OF ROBERT E. ANDERSON, PH.D., PRESIDENT, STATE HIGHER
EDUCATION EXECUTIVE OFFICERS ASSOCIATION, BOULDER, COLORADO
Dr. Anderson. Chairman Alexander, Ranking Member Murray,
and Members of the Committee.
Thank you for the opportunity to testify.
My name is Rob Anderson, and I am President of the State
Higher Education Executive Officers Association.
For the first time in our Nation's history, we are at the
cusp of college students and their families paying for the
majority of college costs. In 2016, net tuition revenue
accounted for 47.3 percent of total revenue in higher
education, up from 36.7 percent 10 years earlier.
This increased reliance on tuition dollars most adversely
impacts those students who can least afford it: our
historically underserved populations.
The combination of increased costs and stagnant wage growth
has resulted in an increasingly large gap between the cost of
college and a family's ability to pay for college.
There are several noticeable trends during economic
downturns.
First, state funding per student declines while enrollments
increase as the newly unemployed enter higher education for up-
skilling and retraining. Consequently, institutional reliance
on tuition revenue increases as do tuition rates.
During periods of economic recovery, state appropriations
generally increase and increases in tuition tend to moderate.
Unfortunately, the most recent educational recovery has not
been as robust as we have experienced in the past; state
investment in higher education declined by 26 percent per
student between 2008 and 2012. In constant dollars, this marked
the lowest funding level per student since 1980. By 2016,
funding had partially recovered, but remained 15 percent below
pre-recession levels. Only four states reported in 2016 that
their state and local funding exceeded 2008 levels.
While state funding per student has declined, we also know
that the situation is worse in the institutions where the
majority of our underserved students reside. These institutions
receive fewer state resources.
A 2016 study by Bridget Terry Long notes that while holding
other factors constant, public research institutions received
$2,500 more per Full Time Equivalent student than other public
4-year institutions, and $5,200 more than public 2-year
colleges.
However, there is good news in that reducing these funding
inequities can result in meaningful gains. Recent research by
David Deming and Christopher Walters found that at community
colleges, a 10 percent rise in spending increases Associate's
Degree completion by 10 percent and certificates by 23 percent,
both within a 1-year period of time. Bachelor's Degree
completion rose between 4 and 5 percent within 3 years.
Similarly, the researchers cleared that directing increased
aid to low income students raises both enrollments and
graduation rates.
With this context in mind, we must provide a targeted
approach to address system inequities and inefficiencies.
President Trump recently proposed a partnership that includes
Federal, state, and local entities to address our Nation's
infrastructure needs. I agree that this is a national
imperative.
A similar post-secondary partnership that incentivizes
increased investment in students and institutions, that are
most in need, would benefit us all and is of similar national
importance.
Funding should flow to keep tuition increases modest and
predictable, while expanding system-wide strategies resulting
in increased college completion and accountability.
Additional resources should be targeted and focused on
outcomes. Forty-one states now have attainment goals, set at a
level that matches workforce demands, and nine states have
well-designed allocation models aligned to pay for outcomes,
particularly the improved outcomes of underrepresented
students.
States and systems are also developing plans informed by
data with campus level completion goals and strategies to
expand lower priced options.
Members of the Committee, yes, money matters and both the
Federal Government and states will need to spend more if we
want double digit improvements in the next decade. But this is
not just a matter of resources, but also of leadership and
system alignment.
This Committee, and the Nation you represent, should have
assurances that state governments, higher education systems and
their campuses are in lockstep regarding attainment goals,
spending, and strategies.
Thank you, and I would be happy to answer any questions.
[The prepared statement of Dr. Anderson follows:]
prepared statement of robert anderson
Chairman Alexander, Ranking Member Murray and Members of the
Committee:
Thanks you for the opportunity to testify today. My name is Rob
Anderson, and I am the President of the State Higher Education
Executive Officers (SHEEO) Association. SHEEO is the national
association of the chief executives of statewide governing, policy, and
coordinating boards of post-secondary education. We seek to advance
public policies and educational practices to achieve more widespread
access to and completion of higher education, more discoveries through
research, and more applications of knowledge that improve the quality
of human lives and enhance the public good.
I have been asked to address the issue of college affordability. As
the only national membership organization representing the state
perspective on higher education, I feel a special obligation to focus
on the role of higher education finance and policy in either removing
or raising barriers to college student success and to address how we
might utilize the tools available to us to move our states and our
country forward toward greater prosperity and equity. To do this, I
will be addressing the following interrelated topics: 1) state higher
education finance trends, 2) the implications of cost and
affordability, 3) the implications of institutional resources, 4)
aligning state appropriations and tuition policies with strategies for
affordability, 5) the concept of a Federal/state partnership for
affordability, and 6) recommendations moving forward.
State Higher Education Finance Trends
It is well known that the cost of attending college has been rising
for students and families for decades. This steady increase in cost has
constrained student choice and priced generations of potential students
out of higher education. Every state and Federal higher education
finance decision made moving forward ought to reflect this reality. In
order to accurately understand and respond to the reality of this cost
crisis, accurate data and relevant high-quality research are needed. In
that regard, the State Higher Education Finance (SHEF) report brings
important context and trend analysis to help inform policy decisions
made in this arena. Since 2003, SHEEO's State Higher Education Finance
report has been a leading national resource for tracking national and
state-level trends in state and local funding, tuition revenue, and
enrollment. These trend data go back to 1980, and depict the impact of
the economic cycle on the balance between tuition and state
appropriations.
The SHEF report depicts educational appropriations from state and
local sources and how these resources interact with tuition. In 2016,
net tuition revenue accounted for 47.3 percent of total revenue in
higher education, up from 36.7 percent 10 years earlier. \1\ This
increased reliance on tuition dollars most adversely impacts those
students who can least afford it--our historically underserved
populations.
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\1\ Carlson, A. and Laderman, S. (2016). State Higher Education
Finance 2015, Figure 5. Retrieved from http://sheeo.org/sites/default/
files/project-files/SHEEO--SHEF--2016--Report.pdf
There are several noticeable trends during economic downturns.
First, per student funding declines as states struggle to maintain
current levels of support for higher education. Concurrently,
enrollments increase as the newly unemployed enter higher education for
upskilling and retraining. Third, during downturns, institutional
reliance on tuition revenue increases as do tuition rates in most
cases. During periods of economic recovery, these trends reverse. Per
student funding levels increase, enrollments decline, and reliance on
tuition stabilizes.
Figure 1 indicates that the Great Recession had a profound impact
on state funding for higher education. Immediately before the downturn,
in 2008, educational appropriations per student in the United States
were $8,372. By 2012, this amount declined to $6,185. In constant
dollars this is the lowest per student funding level since 1980. By
2016, funding per student had recovered to $7,116, still 15 percent
below pre-Recession levels. Only four states report 2016 state and
local funding that exceeds 2008 levels.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Of further concern is an easily missed downward trajectory in the
data. Focusing on state educational appropriations per FTE (the light
blue bars in Figure 1), reveals not only declines resulting from the
recessions, but that each of the subsequent recoveries has been
sequentially smaller, indicating a steady downward trend in state
support.
It is evident why this matters for affordability when we look at
the other side of the revenue equation, net tuition revenue. Over the
same 8-year period, per student net tuition revenues increased 35
percent in constant dollars from $4,682 in 2008 to $6,321 in 2016. In
other words, tuition rate increases helped institutions offset
reductions in per student state funding, but at a significant cost to
students.
Figure 2, below, clearly shows the trend toward greater reliance on
tuition revenue. Before the Great Recession (in 2008), 35 percent of
higher education revenue came from tuition. This share peaked in 2013
at 48.5 percent and declined only slightly to 47.3 percent by 2016. If
history is any indication, the next downturn will result in tuition
reliance that exceeds 50 percent, meaning students and families will be
paying the majority of the cost. While this would be a significant
development for the United States as a whole, it is worth noting that
24 states have already reached this point.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Further recessions could accelerate these trends. It is impossible
to make precise projections of what will happen to state funding for
higher education in the future, but recent history portends an alarming
outcome. One attempt at extending state support of higher education
trends from the 1980's into the future projects that if trends persist
into the future, states would reach zero support for higher education
in 2056. \2\ This represents the increasing privatization of public
higher education. Read another way, if the Federal investment in higher
education takes on a larger and larger percentage of overall revenue
(in addition to student tuition and fees) this would also represent an
increasing Federalization of higher education. While I do not believe
that states will zero out public higher education, such projections
highlight the serious dilemma facing state lawmakers, SHEEOs, and
institutional leaders. Action needs to be taken now to correct current
trends.
---------------------------------------------------------------------------
\2\ Mortenson, T.G. (2017). State fiscal investment effort in
higher education: fiscal year 1961 to fiscal year 2017. Post-Secondary
Education Opportunity, 292.
To compound these trends, the recently adopted Tax Cuts and Jobs
Act (Public Law No: 115-97) will likely affect state decisions on
funding for higher education. This legislation placed a $10,000 cap on
the state and local income and property tax (SALT) deduction, which has
significantly changed the revenue decisions that states and localities
can make to support public investments through their income and sales
taxes and is already a source of debate in many state legislatures.
Limiting additional revenue sources could stagnate or further reduce
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state funding for higher education.
In considering the shift toward a majority tuition-financed public
higher education system, it is important to recognize the factors
driving a greater reliance on tuition. The need for institutions to
raise tuition stems from many factors, including covering inflation
costs, salary increases for faculty, rising health insurance expenses,
expanded institutional financial aid and, in some cases, pension
obligations. \3\ Many public institutions have already made cuts in
recent decades to trim costs and expenses in areas where efficiencies
could be found, often in an effort to avoid raising tuition. This is
particularly true for those institutions that are state appropriations
dependent and enroll larger shares of low-income students However, the
biggest factor in public institutions deciding what tuition rate is
charged is the level of state funding support.
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\3\ Carlson, A. and Laderman, S. (2016). State Higher Education
Finance 2015, Figure 8. Retrieved from http://sheeo.org/sites/default/
files/project-files/SHEEO--SHEF--2016--Report.pdf
The empirical evidence in the peer-reviewed literature has
established that state appropriations are related to the price
institutions charge students. The exact scale of this relationship is
still being analyzed, but the overwhelming consensus supports this
finding of a causal impact. Most recently, in a peer reviewed study,
Douglas Weber estimated an average pass-through rate from state
appropriations to tuition and fee revenue of between 25 percent and 41
percent. Put differently, for every $1,000 per student cut in state
appropriations, over time, the average student has paid $257 more in
tuition. \4\ That same research also showed that students are
shouldering higher tuition increases from these cuts in recent years
than in previous decades. Since 2008, the pass-through rate has been
41.2 percent.
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\4\ Webber, D. A. (2017). State divestment and tuition at public
institutions. Economics of Education Review, 60, 1-4.
Some other analyses of state fiscal support over time have shown a
smaller and less causal relationship between state appropriations and
tuition. However, many of these studies fail to properly account for
the complexity of state laws in appropriation and tuition-setting
authority; states vary in how and when institutions can increase
tuition and fees--and these decisions often change over time and many
years after a recession. Legislatures also do not make uniform
appropriation decisions for each college, so it is important to measure
the impact of this institution-specific state support to institution-
specific net tuition and fee revenue. Additional research is needed to
continue to monitor this question and add great clarity and specificity
to the relationship.
Implications of Cost and Affordability
Student loan debt and the cost of higher education in the United
States have received considerable attention in the popular media and in
the academic literature. The price of higher education has grown faster
than the cost of health insurance, prescription drugs, and family
income. \5\ According to the College Board, tuition and fees at public
4-year institutions have increased at an average annual rate of 3.2
percent above inflation over the last 10 years. Tuition and fees at
public 2-year institutions have risen at an annual rate of 2.8 percent
above inflation over the same period. \6\ This growth in tuition prices
has slowed since the peak of the Great Recession, but continues to
outpace inflation. \7\ Concurrent with the increasing price has been
stagnant wage growth for the average worker. While, on average, top
earners have experienced significant income growth over the last
several decades, middle-and lower-income earners have not experienced
comparable growth. \8\ The combination of increased costs and stagnant
wage growth has resulted in an increasingly large gap between the cost
of college and a family's ability to pay for college.
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\5\ College Board (2016). Trends in College Pricing (Trends in
Higher Education series). Washington, DC: College Board. Bureau of
Labor Statistics (2017). Consumer Price Index Summary. Washington, DC:
Bureau of Labor Statistics.
\6\ Ma, J., Baum, S., Pender, M., and Welch, M. (2017). Trends in
College Pricing 2017. Retrieved from https://trends.collegeboard.org/
sites/default/files/2017-trends-in-college-pricing--0.pdf
\7\ Ibid.
\8\ Stone, C., Trisi, D., Sherman, A., & Horton, E. (2016). A
Guide to Statistics on Historical Trends in Income Inequality.
Washington, DC: Center on Budget and Policy Priorities.
Not surprisingly, both college participation and attainment rates
are considerably higher for students in the highest income quartile
compared with those in the lowest income quartile. \9\ Researchers
further find that low-income students are less likely to enroll in
college even when controlling for student achievement. \10\ This is
concerning for many reasons, including that future earnings are clearly
associated with educational attainment. According to the Georgetown
Center on Education and the Workforce, the average difference between a
high school and college graduate's wages is $1 million over a lifetime.
\11\ And the impacts reverberate across generations as children from
higher-income families, and those whose parents went to college, are
significantly more likely to attend and graduate from college. \12\
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\9\ Bailey, M. J., and Dynarski, S. (2011). Gains and Gaps:
Changing Inequality in U.S. College Entry and Completion (University of
Michigan Population Studies Center Report 11-746). Retrieved December
1, 2013, from http://www.psc.isr.umich.edu/pubs/pdf/rr11-746.pdf.
Belley, P. & Lochner, L. (2007). The Changing Role of Family Income and
Ability in Determining Educational Achievement. Journal of Human
Capital. University of Chicago Press, vol 1(1). Pages 37-89
\10\ Bowen, W.G., Chingos, M.M., and McPherson, M. (2009).
Crossing the Finish Line: Completing College at America's Public
Universities. Princeton, New Jersey: Princeton University Press. Hoxby,
C.M. and Avery, C. (December 2012). The Missing ``One-Offs'': The
Hidden Supply of High-Achieving, Low Income Students . NBER Working
Paper No. w18586. Available at SSRN. https://papers.ssrn.com/sol3/
papers.cfm'abstract--id=2186316
\11\ Carnevale, A. P., Cheah, B., & Hanson, A. R. (2015). The
Economic Value of College Majors. Washington, DC: Georgetown University
Center on Education and the Workforce.
\12\ Putnam, R. D. (2016). Our Kids: The American Dream in Crisis.
New York, NY: Simon and Schuster.
Figure 3 shows average net price \1\ as a percent of median income
within each of the lowest four income quintiles. As this figure shows,
those who come from families earning $15,000 (the median income of the
bottom income quintile) experience a disproportionately larger burden
in paying for college, with net price making up as much as 69 percent
of their annual income. By comparison, net price at a 4-year
institution makes up only 19 percent of annual income for families in
the fourth income quintile.
---------------------------------------------------------------------------
\1\ Net price is calculated by subtracting the average amount of
Federal, state/local government, and/or institutional grant and
scholarship aid from the total cost of attendance using IPEDS 2013-2014
Average Net Price by Income Quintile and Total Price for In-State
Students (weighted by living situation).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Issues related to affordability take on even more significance when
one considers the changing makeup of college students in the United
States. As the Center for Post-Secondary and Economic Success notes,
``today's typical college student is no longer an 18-year-old recent
high-school graduate.'' \13\ Between 2004 and 2014, part-time student
enrollments grew by 17 percent and enrollments of students age 25 and
over increased by 16 percent. \14\ Students over the age of 25 now
comprise 40 percent of undergraduate students in post-secondary
education. A majority of students work full-or part-time while
enrolled, and over a quarter are parents. \15\ These trends are
expected to continue and are likely to increase. These formerly
``nontraditional'' students face significant cost barriers and unique
and significant challenges in earning a post-secondary degree.
---------------------------------------------------------------------------
\13\ Center for Post-Secondary and Economic Success (2015).
Yesterday's Non-Traditional Student is Today's Traditional Student.
https://www.clasp.org/sites/default/files/public/resources-and-
publications/publication-1/CPES-Nontraditional-students-pdf.pdf
\14\ NCES (2016). Characteristics of Post-Secondary Students.
Washington, DC.: National Center for Education Statistics.
\15\ Taliaferro, W. and Duke-Benfield, A. (2016). Redesigning
State Financial Aid to Better Serve Nontraditional Adult Students:
Practical Policy Steps for Decisionmakers. Washington, DC: CLASP.
It is imperative for states to develop long-term strategies to
address these concerns in order to meet the needs of their citizenry
and workforce. If states are to achieve their post-secondary education
attainment goals, they must take direct and immediate action to address
the equity gaps between underserved populations and upper-income white
and Asian students (who are succeeding at higher rates). As Steve
Murdock, demographer and former director of the U.S. Census Bureau, has
said, the economic prosperity of the entire nation hinges on reducing
these gaps, since reducing them is the single greatest way for us to
drive economic growth. \16\ One necessary step in closing these gaps is
to make college affordable for low-income individuals.
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\16\ Murdock, S. (2015). Population Change in the United States:
Implications for Education and Socioeconomic Development. Presentation
at SHEEO Higher Education Policy Conference, Newport Beach, CA.
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Implications of Institutional Resources
Not only must we ensure that college is affordable for all
students, we must also ensure that our colleges and universities have
the resources to serve them properly. In her paper, State Support for
Higher Education: How Changing the Distribution of Funds Could Improve
College Completion Rates, Bridget Terry Long argues that increasing the
resources committed to public institutions and addressing current
funding inequities between institutions could help the country make
significant progress toward increasing the number of adults with post-
secondary credentials. \17\
---------------------------------------------------------------------------
\17\ Long, B. T. (2016). State Support for Higher Education: How
Changing the Distribution of Funds Could Improve College Completion
Rates. The Miller Center. http://web1.millercenter.org/commissions/
higher-ed/Long--No9.pdf
Long gives particular attention to the unequal distribution of
resources between different types of institutions and between
institutions that serve students with varying levels of preparation. In
her analysis, Long found that while holding other factors constant,
public research institutions received $2,504 per full-time equivalent
student more than other public 4-year schools and $5,227 more than
public 2-year colleges. She further showed that institutions that
enroll the students who are best prepared academically to succeed, and
therefore may require the fewest resources, are receiving a
disproportionate amount of state funding relative to institutions that
enroll students who are less prepared academically. \18\
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\18\ Ibid.
These differences in funding and institutional resources matter.
Deming and Walters found that at appropriations-dependent institutions
(community colleges and non-selective public 4-year universities), an
institution's financial resources had a substantial impact on degree
completion. \19\ At community colleges, a 10 percent rise in spending
increases associates degree completions by 10.6 percent and
certificates by 23.2 percent (one year after the spending increase).
For bachelor's degrees, a 10 percent rise in spending increases
completions by between 4 and 5 percent (2 to 3 years after the spending
increase). Further, Deming and Walters found that when the institutions
in their study experienced revenue increases, the institutions directed
those resources primarily toward student and academic support services.
Increases in spending in such areas have been shown to directly and
positively impact student success. \20\ The authors conclude that
institutional spending increases are more effective per-dollar than
price cuts as a means of increasing post-secondary attainment. \21\
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\19\ Deming, D. J., & Walters, C. R. (2017). The Impact of Price
Caps and Spending Cuts on US Post-Secondary Attainment (No. w23736).
National Bureau of Economic Research. http://www.nber.org/papers/w23736
\20\ Ehrenberg, R. G., & Webber, D. A. (2010). Student Service
Expenditures Matter. Change: The Magazine of Higher Learning, 42(3),
36-39.
\21\ The relationship between state support, institutional
resources, and student outcomes has been investigated in a number of
other studies which likewise show that institutional resources, and
state support in particular, matter for student outcomes. See, for
example: Bound, J., Lovenheim, M. F., & Turner, S. (2012). Increasing
Time to baccalaureate Degree in the United States. Education, 7(4),
375-424. Kane, T., & Orszag, P. (2003). Funding Restrictions at Public
Universities: Effects and Policy Implications. Brookings Institution
Working Paper. Koshal, R. K., & Koshal, M. (2000). State Appropriation
and Higher Education Tuition: What is the Relationship?. Education
Economics, 8(1), 81-89. Robst, J. (2001). Cost Efficiency in Public
Higher Education Institutions. Journal of Higher Education, 730-750.
Titus, M. A. (2009). The Production of Bachelor's Degrees and Financial
Aspects of State Higher Education Policy: A Dynamic Analysis. The
Journal of Higher Education, 80(4), 439-468. Toutkoushian, R. K., &
Hillman, N. W. (2012). The Impact of State Appropriations and Grants on
Access to Higher Education and Outmigration. The Review of Higher
Education, 36(1), 51-90. Volkwein, J. F. (1989). Changes in Quality
among Public Universities. The Journal of Higher Education, 136-151.
Zhang, L. (2006). Does Public Funding for Higher Education Matter?
Cornell University, School of Industrial and Labor Relations, Working
Paper. Retrieved from: http://digitalcommons.ilr.cornell.edu/
workingpapers/149/
The research is clear--if the goal is to improve rates of degree
completion and increase educational attainment, states and the Federal
Government will need to get serious about increasing the resources at
institutions that serve the largest share of students at risk of
dropping out.
The State Imperative: Aligning State Appropriations and Tuition
Policies with Strategies for Affordability
As I have tried to establish, it is critical that we address the
affordability crisis with the urgency it deserves. It is also critical
that we ensure that our appropriations-dependent institutions, where
the majority of our underserved populations are enrolled, have adequate
institutional resources to foster student success. To do this, the
states and the Federal Government will need a coordinated and strategic
effort.
States need a more educated workforce to meet workforce demands and
grow their economies. States also accrue benefits from an educated
populace, including higher tax revenues, better civic engagement, and
an overall higher quality of life. \22\ Realizing this, 41 states have
enacted state attainment goals to raise the percentage of their
population with post-secondary credentials. \23\ The combination of
decreasing college affordability (driven in part by tuition rate
increases), and the focus on increasing college attainment has resulted
in some states enacting new policies designed to expand access to
public institutions while removing financial barriers to college
completion. Ideally, these policies have the support of state
government, higher education system offices, and post-secondary
institutions. Concerted alignment between these entities creates the
greatest opportunity for a rational path forward. I will highlight a
few examples of states that have developed coordinated approaches
addressing college costs and helping students enroll and succeed in
college.
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\22\ Li, J.(2009). How Taxpayers Benefit When Students Attain
Higher Levels of Education. Retrieved from https://www.rand.org/pubs/
research--briefs/RB9461/index1.html
\23\ Lumina Foundation (2017). A Stronger Nation 2017. Retrieved
from https://www.luminafoundation.org/resources/a-stronger-nation-2017-
report
---------------------------------------------------------------------------
Best Practice--Colorado
Colorado's legislature utilizes the Colorado Department of Higher
Education (CDHE) to assist the legislature by estimating tuition
changes based on an increase or decrease in the state general fund
appropriation. CDHE develops an estimate of the additional revenue that
each post-secondary institution will need to cover inflation and
increases due to other cost drivers, (e.g., utilities, employee
benefits). Once a total additional-revenue figure is developed, CDHE
models how much the tuition rate would need to be increased if state
funding is to be kept constant, and for each potential percentage point
increase or decrease in state appropriations. This allows legislators
to explore the hypothetical, ``If we cut the appropriation to higher
education by 2 percent, tuition will increase by this amount at each of
our public institutions.'' \24\
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\24\ Armstrong, J., Carlson, A., Laderman, S (2017). The State
Imperative: Aligning Tuition Policies with Strategies for
Affordability. Retrieved from http://www.sheeo.org/sites/default/files/
State--Tuition--Fees--Financial--Assistance--2017.pdf
---------------------------------------------------------------------------
Best Practice--Tennessee
Tennessee was the first state to implement a statewide ``Free
Community and Technical College'' program. The first cohort of
Tennessee Promise students enrolled in fall 2015. The program grew out
of a local promise program in Knox County. Now in its fourth year,
Tennessee Promise functions as a last-dollar scholarship for students
enrolling in one of the 13 community colleges or 27 colleges of applied
technology in the state. Eligible students must apply and complete
specific tasks (fill out the Free Application for Federal Student Aid,
meet with a volunteer mentor, and complete community service hours)
during their senior year of high school.
Early results indicate that Tennessee Promise is proving effective,
and that non-financial aspects of the program have contributed to its
success. The mentorship component of Tennessee Promise is key to
helping low-income and traditionally underserved populations navigate
post-secondary education. Furthermore, the first years of the statewide
program have clarified the importance of messaging. For many of the
students enrolled in Tennessee Promise, community college would be
``free'' without the program (tuition and fee costs are covered by
Federal aid). Many students may not realize this, however, and making
it clear that Tennesseans can attend community and technical colleges
with very little cost has boosted access significantly across the
state. According to the Tennessee Higher Education Commission,
enrollment at community colleges has increased by 25 percent in the
first 2 years of the program, while retention rates have not changed
from prior years. Approximately 30 percent of the additional students
come from the lowest income quintiles. \25\ Although many of these
students may not receive additional funds, the Tennessee Promise
program is proving effective in increasing access and success for low-
income students.
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\25\ E. House, phone call with John Armstrong, September 22, 2017.
Other states have implemented or proposed other promise programs
similar to Tennessee. These programs often include structuring
financial aid policies to make community college tuition-free or debt-
free. Some of these proposals limit the benefits of ``free'' college to
low-income students by enacting eligibility restrictions that have not
always allowed all students to access the programs or in ways that do
not reflect the student body of today, including requirements to remain
in state after college or to pass drug tests. Further, programs have
often restricted eligibility to students starting college right out of
high school. Unfortunately, these restrictions may reduce the potential
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benefit and reach of the initiatives.
Most of these ``last dollar'' programs are structured only to cover
tuition with state or local resources after other Federal aid has been
applied. Other models include some stipends for other costs of
attendance. In many cases, college affordability is addressed ``at the
margins,'' meaning that very specific categories of students who are
likely to benefit from increased aid are targeted by these proposals
and policies. Further research is needed to see how these programs are
meeting students' total financial needs.
Best Practice--Washington State
The State of Washington provides a case study that demonstrates how
state support and tuition rates are inextricably linked, and the key
role of state policy in protecting affordability for students.
In the depths of the Great Recession, Washington policymakers
granted their public colleges and universities additional flexibility
in setting tuition rates. This meant that institutions could enact
increases, sometimes double-digit percentage increases, to meet revenue
needs and offset state funding reductions. However, in 2014, as the
economy began to recover, Washington legislators reasserted their role
in the tuition-setting process. Tuition rates were decreased in
exchange for a large increase in state appropriations to institutions.
Reductions in tuition rates are rare, and Washington's was made
possible through a significant state reinvestment. Legislators in
Washington clearly understood the relationship between state funding
and tuition, and considered institutional revenue needs.
As these changes in tuition-setting authority were being made in
Washington, the impact on state financial aid was on the minds of state
policymakers. Washington has one of the best funded need-based
financial aid programs in the country. \26\ Washington's Need Grant
program is a flexible award that is explicitly tied to tuition. A
student's maximum award is determined by both her family's income (as a
percentage of the state's median income) and the tuition rate charged
at the public institution she attends. Students who attend high-tuition
universities in Washington receive higher awards than those who attend
less expensive institutions. Their impact on the state's need-based
grant program was a key factor in deciding how to adjust the parameters
for tuition setting. When tuition rates increased sharply, the
appropriation for need-based aid also increased in the state.
Washington has a long history of protecting need-based aid from changes
in tuition levels brought about by changes in policy. \27\
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\26\ See http://www.nassgap.org/viewrepository.aspx--
categoryID=421#
\27\ See https://education.illinoisstate.edu/downloads/csep/
stateprofiles.pdf
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Best Practice--Ohio
In Ohio, an annual report is due to the legislature and Governor to
track progress on how efficiency gains made at the state's public
universities benefit students. \0\ The Ohio Board of Regents estimates
that the savings from efficiency gains across its public institutions
in 2016 totaled $250 million. In the most recent report, institutions
outlined how their cost savings were redistributed to students, either
in the form of decreased tuition or increased financial aid.
Institution-level information for cost savings is available in the full
report and this information is updated on an annual basis.
---------------------------------------------------------------------------
\0\ https://www.ohiohighered.org/sites/ohiohighered.org/files/
uploads/affordability-efficiency/2016-efficiency--advisory-committee-
report--FINAL--011317.pdf
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SHEEO Federal State Partnership for College Affordability
States alone may not be able to reach true college affordability.
In 2014, Lumina Foundation organized an effort to generate innovative
ideas for approaches to student financial aid. As a component of this
effort, SHEEO proposed a Federal/state student financial aid
partnership. Under the proposed SHEEO model, Federal funds would match
any additional funding the states provided to support low-income
students, with the goal of each state eventually meeting an
affordability threshold of students devoting no more than 10 percent of
their discretionary income toward student loan repayment. These
matching funds would incentivize states to prioritize the increased
investment of any higher education resources.
There are additional examples of Federal-state partnerships and
proposed partnerships in other areas that lead us to believe such a
model could prove fruitful to higher education. President Trump
recently proposed an initiative to address our Nation's infrastructure
needs that includes the framework of a Federal/state/local partnership
where Federal funds would incentivize matches from the other two
entities. Other areas of the Higher Education Act embrace the concept
of institutions matching Federal funds to enhance the combined impact,
including college access and campus-based aid programs. A similar
incentive within core higher education investments to encourage state
investment in our traditionally underserved populations would mitigate
a portion of the price sensitivity that often prohibits college access
and completion.
While we believe Federal involvement is needed to properly incent
state action, we also realize that state and institutional action can
and should be taken now. The primary responsibility is with the states,
and each state needs to approach increasing student access and success
in a manner that reflects state needs as well as innovative approaches
and interventions that are proven to increase efficiency. The recent
rise in performance funding models is indicative of a more widespread
acknowledgment that student outcomes are of significant importance--and
many states are working to refine these models to achieve the desired
results. The investment of family, state, and Federal resources must
result in a meaningful credential to prove worthwhile.
Policy Recommendations
Federal Policy
Given what we know about state best practices, and the long-term
trends that risk further privatization or Federalization of higher
education, I recommend that the HEA reauthorization fund and implement
a Federal-state partnership that includes incentives for states to
bring down college prices for students, and in particular for lower-
income students. The Federal investment must be sufficiently large to
adequately leverage new state commitments, given that states may need
to seek new revenue sources or change existing budget allocations. The
new Federal investment should reflect an intentional and rational
balancing of shared roles between the Federal Government and the
states.
State Policy
In regard to state higher education finance policy I recommend the
following and further encourage that any Federal-state partnership
should also recognize or promote the following components:
Link state financial support for higher education to long-term
state goals: Cuts and inadequate support for higher education may limit
its ability to support states in accomplishing their broader goals. For
example, as indicated earlier, the financial resources of an
institution directly impact the quality of education and student
completions. Both factors, in turn, impact a state's economy and
workforce. In this regard, state appropriations to higher education
should be viewed as investments.
Focus financial aid on the students who need it the most: As states
consider revising their existing financial aid programs or adopting new
ones, the most efficient use of resources would be to focus their
scarce state dollars on those students for whom cost is a limiting
factor. Financial aid can be the deciding factor between whether they
enroll and persist to graduation or not. The research on the impact and
importance of need-based financial aid is overwhelming. \28\
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\28\ Goldrick-Rab, S., Harris, D., Kelchen, R., & Benson, J.
(2012). Need-Based Financial Aid and College Persistence Experimental
Evidence from Wisconsin. SSRN: https://papers.ssrn.com/sol3/
papers.cfm--abstract--id=1887826 Heller, D. E. (1999). The Effects of
Tuition and State Financial Aid on Public College Enrollment. The
Review of Higher Education, 23(1), 65-89. Alon, S. (2011). Who Benefits
Most from Financial aid? The Heterogeneous Effect of Need-Based Grants
on Students' College Persistence. Social Science Quarterly, 92(3), 807-
829. Heller, D. E. (2013). The Role of Finances in Post-Secondary
Access and Success. The State of College Access and Completion:
Improving College Success for Students from Underrepresented Groups,
96-114. Kim, J. (2010). The Effect of Prices on Post-Secondary Access:
An Update to Heller. Higher Education in Review, 7.
Ensure adequate resources at the institutions that serve
underrepresented students: Intentional efforts are needed to ensure
that institutions have the necessary resources to support their
students to graduation. state policymakers should evaluate their
institutions' current resources and the allocation of state dollars. If
inequalities exist, states should take deliberate corrective action.
Further, if a state has or decides to adopt a performance funding
program, policymakers should ensure that the formula rewards
institutions for enrolling and graduating underserved students. \29\
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\29\ Umbricht, M. R., Fernandez, F., & Ortagus, J. C. (2017). An
Examination of the (Un)Intended Consequences of Performance Funding in
Higher Education. Educational Policy, 31(5), 643-673. Kelchen, R., &
Stedrak, L. J. (2016). Does Performance-Based Funding Affect Colleges'
Financial Priorities?. Journal of Education Finance, 41(3), 302-321.
Hillman, N., & Corral, D. (2017). The Equity Implications of Paying for
Performance in Higher Education. American Behavioral Scientist, 61(14),
1757-1772. Gandara, D., & Rutherford, A. (2017). Mitigating Unintended
Impacts? The Effects of Premiums for Underserved Populations in
Performance-Funding Policies for Higher Education. Research in Higher
Education, 1-23. Kelchen, R. (forthcoming). Do Performance-Based
Funding Policies Affect Underrepresented Student Enrollment? Journal of
Higher Education. Hillman, N. & Crespin-Trujillo (forthcoming). State
Accountability Policies: Can Performance Funding be Equitable? Jones,
T., Jones, S., Elliott, K. C., Owens, L. R., Assalone, A. E., &
Gandara, D. (2017). Outcomes Based Funding and Race in Higher
Education: Can Equity be Bought?. Springer.
Evaluate tax and revenue structures to ensure an adequacy in
capturing the appropriate level of state resources: The changing
economy has made capturing sales tax and other resources much more
difficult. States should evaluate their tax and revenue structures to
ensure that they are receiving adequate resources to appropriately fund
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state obligations, including higher education.
Incorporate tuition policy into broader affordability and
attainment strategies: Consider tuition policy within the broader
context of affordability and attainment strategies so that tuition
setting at the institution level does not undermine comprehensive
strategies. Encouraging or requiring longer-term tuition setting that
allows students and families to plan ahead may facilitate better
planning and enrollment decisions. Further, tuition policy that
facilitates progress toward completion should be considered.
Seek coordination of key institutional revenue sources: State
policymakers, SHEEOS, and boards of higher education institutions
should coordinate institutional revenues--including state
appropriations, financial aid and tuition--toward meeting broader state
college attainment goals. While the unique demographic, economic, and
political circumstances of each state will influence the level of
coordination, considering the primary revenue streams based on progress
toward state attainment goals can help stakeholders make tough
decisions. There are many ways that appropriations, tuition, and
financial aid policies can be coordinated to ensure that changes in one
or more revenue streams are linked with meeting the state educational
attainment goal. For example, allowing for an increase in tuition but
reserving a portion of the increase for need-based aid during a period
of declining appropriations can mitigate tuition increases for the most
price-sensitive students.
Consider the impact of tuition policy on state financial aid
programs: State policymakers and SHEEOs should understand how tuition
policy impacts state financial aid programs. In some states, state
need-based grants cover the full cost of tuition and fees. When tuition
rates increase in these states, unless there is a concomitant increase
in the total amount of state aid, the number of students who receive
grants is reduced. In other words, the tuition increase lessens the
impact of the state's aid program. Care should be taken to understand
how tuition policy and aid programs interact and make sure state needs
are addressed along with institutional revenue needs.
Allow for longer-term, multiyear strategies around tuition rate
setting: In many states, the limitations on how much tuition can
increase vary from year to year. One year, the legislature may limit
tuition increases to an inflationary adjustment; the next year they may
freeze the allowable rate increase. In this environment, there is
little incentive for governing boards to raise tuition to an amount
below the allowed limit in a single year as there is no way to
anticipate what the future will allow. A more rational approach would
provide allowable increases for three to 5 years and be based on state
revenue projections and policy direction from the state. This would
allow for better planning by institutions, and create a more
transparent environment for the students and families who ultimately
must pay the tuition costs.
______
[summary statement of robert anderson]
For the first time in our Nation's history, we are at the cusp of
college students and their families paying the majority of college
costs. In 2016, net tuition revenue accounted for 47.3 percent of total
revenue in higher education, up from 36.7 percent ten years earlier.
This increased reliance on tuition dollars most adversely impacts those
students who can least afford it--our historically underserved
populations. The combination of increased costs and stagnant wage
growth has resulted in an increasingly large gap between the cost of
college and a family's ability to pay for college.
Unfortunately, the most recent higher education recovery has not
been as robust as we have experienced in the past. State investment in
higher education declined by 26 percent per student between 2008 and
2012. In constant dollars, this marked the lowest funding level per
student since 1980. By 2016, funding had partially recovered but
remained 15 percent below pre-Recession levels. Only four states report
2016 state and local funding that exceeds 2008 levels.
Conversely, over the same eight-year period, per student net
tuition revenues increased 35 percent in constant dollars from $4,682
in 2008 to $6,321 in 2016. In other words, tuition rate increases
helped institutions offset reductions in per student state funding, but
at a significant cost to students. The empirical evidence in the peer-
reviewed literature has established that state appropriations are
related to the price institutions charge students. The exact scale of
this relationship is still being analyzed, but the overwhelming
consensus supports this finding of a causal impact.
Concurrently, states realize they need a more educated workforce to
meet workforce demands and grow their economies. Forty-one states have
enacted state attainment goals to raise the percentage of their
population with post-secondary credentials. The combination of
decreasing college affordability (driven in part by tuition rate
increases), and the focus on increasing college attainment has resulted
in some states enacting new policies designed to expand access to
public institutions while removing financial barriers to college
completion.
Given what we know about state best practices, and the long-term
trends that risk further privatization or federalization of higher
education, I recommend that the HEA reauthorization fund and implement
a federal-state partnership that includes incentives for states to
bring down college prices. These additional resources should be
targeted and focused on outcomes, particularly the outcomes of
underrepresented students. This initiative is not just a matter of
resources but also leadership and alignment. Our Nation should have
confidence that state governments, higher education systems and
campuses are working together to address this cost and affordability
crisis.
______
The Chairman. Thank you, Dr. Anderson.
Dr. Pollard, welcome.
STATEMENT OF DERIONNE POLLARD, PH.D., PRESIDENT, MONTGOMERY
COLLEGE, ROCKVILLE, MARYLAND
Dr. Pollard. Good morning, Chairman Alexander, Ranking
Member Murray, Members of the Committee.
Thank you for the opportunity to speak here this morning.
Affordability is the most significant challenge students
face. I know this, because I am a community college President
and I am also a person who lived that experience.
While I was in college, I worked three part-time jobs and I
relied on food stamps to get through college. Growing up on the
South Side of Chicago, I was the first in my family to complete
college, and my father struggled mightily with the FAFSA
application.
Ultimately, those Federal grants and loan programs got me
through college, but they would not have gotten me across the
finish line in today's economy.
This is the untold story of higher education today.
Students who leave college without completing do so usually
because of cost.
When I look at the 8,600 Pell Grant recipients at my
college, two-thirds of them have an expected family
contribution of zero dollars. Their incomes are so low that
they could not afford to pay any of their tuition. This is at a
college where full time tuition is less than half of that at
the University of Maryland.
Pell Grants are invaluable to getting students through the
door of college, but many recipients do not stay because they
cannot afford their other expenses. Others, further on the
margin, do not enroll at all.
The cost of living has risen. Workplace demands for post-
secondary education have risen. But our national investment in
a growing body of vulnerable students has not kept pace.
At Montgomery College, thousands of our students rely
heavily on college-funded programs to help make ends meet. We
have a food pantry in all three of our campuses because food
insecurity is so commonplace.
We run free shuttle buses between our campuses because
students struggle with the cost of public transportation. And
textbooks can cost almost $1,500 a year, so our faculty strives
to use open educational resources.
We set up a loaner laptop program because many students do
not have computers, but many still do not have Internet service
at home.
Many of these students already have Pell Grants. In fact,
26 percent of my credit students have Pell Grants and another
53 percent have some form of financial aid, but that is not
enough.
These students are living on the edge. Poverty, not the
lack of personal effort, is the biggest barrier to their
degrees.
Federal support has not kept up with this need, in part,
because our image of a typical college student needs updating.
That 18-year-old living in a dorm at a 4-year college on his
parents' bill is no longer the norm. While that student might
be worrying about beer money or entertainment money, my
students are budgeting for health insurance and childcare.
The typical community college student is 28 years old,
works while she goes to school, and takes an average of five
and a half years to attain a 2-year degree. nationwide, one-
third of all community college students are the first in their
family to go to college. More than half of them are women, and
at my college, 72 percent of them are people of color. This is
critically important to note when one considers the racial
disparities and financial need, college, debt, and family
wealth.
The provisions the Federal Government has made to support
college students no longer match the demographics or the
economies of our communities. At Montgomery College, the
average income for our Pell Grant recipients is $24,800 a year
in a county where a family of four needs $80,000 a year to
subsist without help.
The Federal Government galvanized a generation of students
in 1947 when it acted on the recommendations of the Truman
Commission to expand community colleges. The educational needs
of today's students are equally urgent and the Government can
answer them with six steps in mind.
Raise the maximum amount of the Pell Grant awards to cover
the true cost of college attendance.
Peg the Pell Grant to inflation and free us from the annual
debate about funding.
Expand Pell Grant eligibility to those who are often
forgotten when we think about today's student: ex-offenders,
those without parents to verify their application, and
Dreamers.
Provide Federal aid for short-term credentials that allow
workers to fill middle skill jobs which change lives and
strengthen the economy. My college's DOL TAACCT Grant is a
great example of that dynamic in action and Congress should
reauthorize it.
Simplify the overly complex FAFSA verification process and
draw more students in who are first-generation.
Encourage Federal-state partnerships and incentivize state
investments.
Let me end with what I know for sure; it benefits none of
us if the family in which you were born remains the dominant
determinant in how you are able to pursue and fund quality
education.
The reauthorization of the Higher Education Act is a
crucible moment for my students: the working poor, the American
with or without a birth certificate, the displaced worker, the
ex-offender, the disconnected youth, and many more.
I thank you in advance for what I know that you are going
to do on behalf of those students.
Thank you.
[The prepared statement of Dr. Pollard follows:]
prepared statement of derionne pollard
Testimony on Reauthorizing the Higher Education Act: Improving College
Affordability
Affordability is the biggest challenge facing community college
students today. As a college student from a low-income household
myself, I worked three part-time jobs and relied on food stamps while
attending college. Growing up on the south side of Chicago, I was the
first in my family to go to college, and my father struggled mightily
with the Free Application for Federal Student Aid (FAFSA). Ultimately,
those Federal loans and Pell grants got me through college, but they
would not have enabled me to complete in today's economy.
The untold story of American higher education today is how many
students leave college without completing because of costs. At
Montgomery College, where I am president, there are 8,600 Pell grant
recipients. Two-thirds of them have an Expected Family Contribution of
zero dollars. The Federal Pell formula has determined that their annual
incomes--an average of $24,864 in 2018--would not enable them to pay
any tuition. In fiscal year 2017, 65 percent of our Pell grant students
had annual incomes below $30,000 and 78 percent had incomes below
$40,000. These students live in one of the most expensive regions in
the country, where a family of four is deemed sustainable on a minimum
annual income of $80,000. As income inequality continues to grow,
students who start out in low-income families are less likely to be
able to afford college, and more likely to start their own families
while in poverty.
Tuition for full-time, credit enrollment at Montgomery College (MC)
is $5,000 a year, which is less than half of the tuition at the
University of Maryland. So, while my college works hard to keep tuition
increases to a minimum, this total still keeps some students from
enrolling. For students who do enroll, usually with the help of Pell
grants or other financial aid, many of them do not complete their
education because they cannot afford their other academic and living
expenses. Pell grants are invaluable to getting students in the door to
college, but the grants' buying power has diminished so students must
still work--many full time--to make ends meet. Twenty-two percent of
full-time students at community colleges nationwide work full-time,
while 40 work part-time, according to the American Association of
Community Colleges data in 2017. Others, even further on the margin,
decide not to enroll at all.
The cost of living has risen, workplace demand for post-secondary
education has risen, but our national investment in a growing body of
vulnerable students has not kept pace. At Montgomery College thousands
of our students rely heavily on College-funded programs and
partnerships to help them make ends meet: we have a food pantry on each
of our three campuses because food insecurity is widespread. In
addition, we have a partnership with the Capital Area Food Bank that
has distributed 63,000 pounds of food on our campuses in the last 5
months. Two thousands students have visited these mobile markets for
free food packages, which are sized according to the number of people
in their households. The markets are staffed by College volunteers and
travel to all three campuses.
We began running free shuttle buses among our campuses in 2015
because students struggle with the steep cost of commuting by local
public transportation. The shuttle ridership increased 48 percent over
2 years, and we now transport about 2,000 students each week. The cost
of textbooks is another barrier to affordability. Costs have risen
three times faster than the rate of inflation and can reach $1,500 a
year. To lessen the burden, our faculty strive to use Open Educational
Resources, free online teaching materials. MC has begun offering
courses with zero textbook costs. More than 330 sections of such
courses benefited more than 6,000 students at MC in 2017. \1\ The
College has also set up a loaner laptop program, because many students
do not have computers. They still struggle to submit assignments
electronically, though, when they lack Internet service at home. At one
campus, we have a ``clothing library'' where students who cannot afford
clothes can come in and ``shop'' at no cost. This winter we had an
extraordinary number of students looking for winter coats and boots
because of the extreme cold. Many of these students already have
Pellgrants--in fact, 26 percent of our credit students have Pell grants
and 53 percent have some form of financial aid--but it is not enough.
These students are living on the edge. Poverty--not lack of personal
effort--is the biggest barrier to their degrees. The Montgomery College
Foundation provided $2.4 million in scholarship that benefited 2,000
students last year. The foundation helps dozens of students each month
with emergency aid for utility bills, rent, and childcare costs, when
some unforeseen expense--like a health care need--derails their tight
budgets.
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\1\ A $100,000 grant from Achieving the Dream in August 2016
allowed the College to offer its General Studies degree free of
textbook costs.
Despite the burdens that college costs entail for students, most
enroll because they understand it will increase their employment
prospects and their earning potential. Countless studies have shown
that workers are more competitive when they attain more education.
Having an associate's degree, for example, can raise a worker's average
annual income in Maryland by almost $17,000. A bachelor's degree, adds
$30,000 to the average income in Maryland. Many fields that are
predicted to grow significantly in the next decade, do not require a 4-
year degree. An associate's degree or a technical certificate can move
a person into an array of middle-skills job opportunities that can make
a difference of $10,000 to $20,000 a year in income for a single
worker. \2\
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\2\ Montgomery College: The Workforce Development Anchor, 2015
Federal support has not kept up with need, in part, because our
image of a typical college student needs updating. That 18-year old
living in a dorm at a 4-year college on his parents' bill, is no longer
the norm. While that student might have been worrying about money for
entertainment, my students are budgeting for health insurance and
childcare. The typical community college student is 28 years old, works
while she goes to school, and takes an average of 5.6 years to attain
an associate's degree. \3\ nationwide, a third of all community college
students are the first in their family to go to college, and more than
half are women. At my college, 72 percent are people of color. The
provisions that the Federal Government has made to support college
students no longer match the demographics or economics of our
communities. At Montgomery College, the average income for our Pell
grant recipients is $24,800 in one of the most expensive regions in the
country. In Montgomery County, a family of four needs $80,000 a year to
subsist without help. For students who are forced to take our loans
because Pell grants are not available, default rates are high,
according to a recent Brooking Institute study. Students' explanation
for these defaults is telling: the earnings of students who do not
complete their degrees do not allow them to make the required payments.
The report concludes that several factors would improve these
outcomes--address more fully the challenges faced by students of color;
improve degree attainment; and promote loan repayment that is tied to
income, so that students are able to cover other expenses while they
work. \4\
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\3\ Time to Degree: A National View of the Time Enrolled and
Elapsed for Associate and Bachelor's Degree Earners, National Student
Clearinghouse Research Center, 2016
\4\ Scott-Clayton, Judith ``The Looming Student Loan Default
Crisis Is Worse Than We Thought,'' Brookings, January 11, 2018
Since the Federal Government promoted the expansion of community
colleges through the Truman Commission, it has set the tone for the
direction of higher education. Today it can do even more by increasing
the maximum Pell grant award and pegging Pell grants to inflation. This
would allow students to cover the true cost of living, stay in school,
and continue making progress on their degrees. Research has shown that
students who work too many hours while in school do not complete their
degrees. \5\ A recent study of alternate tuition pricing at Montgomery
College found that discounting students' fifth class at 50 percent of
tuition costs would incentivize full enrollment. \6\ Students who
enroll full time are more likely to complete. \7\
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\5\ Carnevale, Smith, Melton and Price, Learning While Earning:
The New Normal, Georgetown University, 2015
\6\ Montgomery College: Strategic Enrollment Alignment & Tuition
and Fee Pricing: Study prepared for the College Enrollment Management
Advisory Team, 2015.
\7\ Even One Semester: Full-Time Enrollment and Student Success,
Center for Community College Student Engagement, University of Texas at
Austin, 2017.
Making workforce development students eligible for Pell grants
would help, too. Certificates are the fastest growing higher education
credential. They are usually shorter and based on time in class rather
than an industry exams required by certifications. They allow workers
to fill gaps in our middle skills jobs and increase their earning
potential, according to a study by the Georgetown University Center on
Education and the Workforce. \8\ Almost half of my college's students--
roughly 27,000 students--are enrolled in these programs, where the
average age is 35. These programs help students to get a good job at a
good wage and to move up the career ladder. A home health care worker
becomes a certified nursing assistant; an IT worker gets a Certified
Information Systems Security Professional (CISSP) certification; a
maintenance worker gets an HVAC certificate. Allowing Pell grants to be
used for short-term trainings in high-demand areas would benefit
students and our economy. \9\
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\8\ Certificates: Gateway to Gainful Employment and College
Degrees, Center on Education and the Workforce, Georgetown University,
2012
\9\ Ibid.
Community college students form a rich tapestry of Americans
working to advance themselves and contribute to their families and
neighborhoods. They are workers who have been displaced by contractions
in the economy. They are low-income students who are priced out of 4-
year colleges. They are immigrants and refugees who are learning
English while they train for entry-level jobs. Their circumstances are
different, but they are all part of a diverse fabric that makes up our
Nation. They are also essential parts of our labor force, filling
critical gaps in middle skills job areas. In Maryland there are
currently 20,000 unfilled jobs cyber-security. Grants such as the Trade
Adjustment Assistance Community College and Career Training grant are
preparing students to fill them, among other jobs. Federal investments
in community colleges shows that they already believe that community
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colleges are doing this work well.
Simplifying the overly complex FAFSA and certification processes,
would draw in more students who are the first in their families to go
to college. An in-depth analysis of MC enrollment patterns cited
trouble with financial aid as a large barrier to students. It stressed
more energy be invested in ``assisting low-income prospective students
to manage the financial aid application process. Many prospective
students likely have demonstrated need, but do not finish the FAFSA or
fail to send it to MC.'' \10\ Once students get the FAFSA submitted,
many face the hurdles of verifying the answers they gave on the FAFSA,
most of which were already confirmed by a Federal agency. Verification
is a process that has very little effect on the expected family
contribution of most students, but further confuses students with
additional paperwork. MC's financial aid staff spend over 80 percent of
their time on verification processes, when they could be spending that
time helping students through the aid process.
---------------------------------------------------------------------------
\10\ Montgomery College: Strategic Enrollment Alignment & Tuition
and Fee Pricing: Study prepared for the College Enrollment Management
Advisory Team, 2015.
Lowering the barriers for students with special circumstances, such
as a parent who is incarcerated or one who cannot be located, is
another step forward. Giving Dreamers, like other Americans, the chance
to advance themselves would also improve our Nation's strength.
Montgomery College has over 6,000 students who were born outside the
United States. Community colleges are often the places they start to
improve their English in order to work. About 6,000 students a year
take some form of English as a Second Language at our college. \11\ A
specialized program that combines job skills training with English
language classes, the Maryland Integrated Basic Education and Skills
Training (MI-BEST) initiative, helps move non-native English speakers
into employment more quickly by teaching targeted job skills while they
improve their language capabilities.
---------------------------------------------------------------------------
\11\ Montgomery College: The Workforce Development Anchor, 2015
Immigrants are among the most vulnerable of our Nation's people. At
MC, our Refugee Training Program offers language skills and
acculturation to hundreds of refugees a year. The College also offers
GED classes and other skills training in the Montgomery County
Correctional Facility, so that inmate-learners will have at least the
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minimum needed to enter the workforce upon release.
Making college accessible is also about preparing at-risk students,
who are almost always low-income, for post-secondary education. The
Achieving Collegiate Excellence and Success (ACES) program, now in its
fifth year, begins preparing high school juniors in 13 of our local
public high schools, for college finances and academics. Since 70
percent of its students are the first in their families to attend
college, ACES coaches assist students while still in high school, to
apply for scholarships and understand their financial aid options. In
addition to teaching students how to navigate the College, ACES helps
students transition to our partner, the Universities at Shady Grove, a
higher education center of the University System of Maryland, to
complete a 4-year degree. Since the program's inception, ACES has
served more than 3,500 students.
Helping Pell-grant students keep their eligibility is another
challenge that our college is tackling. Students who lose their
eligibility for Pell grants because they cannot maintain satisfactory
academic performance (SAP) is another way that needy students miss
opportunities to succeed. Montgomery College is now creating financial
aid coaches, who will help monitor students in danger of losing their
funding due to violations of SAP.
Accountability is a core tenet at Montgomery College. We track our
students' success on an annual, public scorecard. Factors such as time-
to-degree, progress on benchmarks, course pass rates, and completion
data are disaggregated by race and gender. From there we can see trends
emerge, and target certain populations for special attention. The
College's the Boys to Men mentoring program, for example, is designed
for African American males who need support, offering academic and
personal mentoring, to foster greater overall success.
These are just some ways in which Montgomery College goes to
extraordinary lengths to prepare students to plan for college, make
college financially accessible, and keep students in school by helping
to meet their living expenses. These strategies have evolved from years
of working closely with ambitious, talented students who want to earn
degrees and certificates. They understand the value of higher education
and its potential to transform their lives. But they face multiple
challenges: rising income inequality, ignorance about financial aid
programs, and the disadvantages of households in which no one has ever
gone to college. Lowering the barriers to a post-secondary education is
critical. For those who want to earn a certification, their financial
options are limited as Pell grants are largely unavailable. All of
these students are striving for opportunity, one of the fundamental
values of our Nation. As we invest in them, we are investing in our
communal future.
When the Truman Commission on Higher Education produced its report
in 1947, it realized that leadership was necessary to manage the
significant changes in the economy and society in the post-war era.
Expanding the reach of community colleges was its strategy for bringing
more skilled workers into the labor market and building the middle
class. At the crossroads of profound demographic and economic changes
in the 21st century, our Nation needs leadership again. Affordable
higher education that closes the skill gaps will fuel America's
economy. Students who are given clear paths to and up the ladder of
opportunity will return that investment to their families and their
communities. It is time to move from a K to 12 model of thinking to a K
to J--from Kindergarten to Job paradigm. It's time to make college
affordable for all.
______
[summary statement of derionne pollard]
Affordability is the biggest challenge facing community college
students today. The American college student of 2018 is not the one
that so many of us imagine: a recent high school graduate, at a 4-year
school, living in a dorm, and relying on parental support. Community
college students today are people who grew up in households without a
college graduate; they are low income people; they are displaced
workers, returning workers, and immigrants; they are women; they are
often people of color.
Many of them are so daunted by the cost of higher education that
they do not enroll. Others enroll, but do not complete their degrees
because of the high cost of living. Two-thirds of the 8,600 Pell grant
recipients at Montgomery College have an Expected Family Contribution
of zero dollars. Their average income in 2018 is $24,864. Community
colleges like Montgomery College in Maryland expend extraordinary
energy and resources trying to support students' financial needs beyond
tuition so that they can complete their studies.
Our college, like many others in the Nation, has food pantries, a
clothing library, loaner laptops, and free shuttle buses. We know that
any of these extra expenses could break the budget of a student living
on the edge. The College is supported by a foundation that even
provides emergency aid to students for utilities and rent. The
Montgomery College Foundation distributed $2.4 million in scholarships
in fiscal year 2017, July 1, 2016, through June 30, 2017.The College
also offers special academic support programs, financial aid coaching,
and personal mentoring to help students navigate college while working
and caring for family members.
The reason that so many students leave college without completing
their degrees is not complex--it comes down to finances. Several
strategies by the Federal Government could provide support that would
transform these outcomes that cripple people's job prospects, their
earning potential, and their ability to contribute to our Nation's
skilled workforce: increase the amount of Pell grants; tie Pell amounts
to inflation; simplify the FAFSA and certification processes; and make
workforce development training programs eligible for Pell. Increasing
the buying potential of the Pell grant and making the FAFSA more
accessible would work wonders in moving more students to degrees. As
the Truman Commission on Higher Education saw so clearly in 1947 when
it expanded the reach of community colleges, investments in higher
education for more students benefit us all.
______
The Chairman. Thank you, Dr. Pollard.
Thanks to all of you.
We will now go to a round of 5 minute questions. I am going
to try to keep the exchanges between Senators and witnesses to
5 minutes so everybody can participate.
Senator Cassidy has deferred to Senator Young.
Senator Young. Thank you, Chairman, and I thank my
colleague, as I head out to preside monetarily.
We know college is becoming increasingly unaffordable for
far too many Americans, which is the reason we are having this
series of hearings.
In fact, over the last 7 years, the amount of student loan
debt has doubled while median household incomes has decreased
for so many middle income Americans and people of more modest
means.
When we look at how to address college affordability as a
whole, there is no single entity, we are discovering, to blame.
Real reform should encompass all aspects of the affordability
conversation. Part of this conversation should include the
opportunity that income share agreements provided to students.
I visited Purdue University last October, and I met with a
student, Amy Wroblewski. She is a first generation college
student who became increasingly worried about her student loans
and her ability to pay them back.
By participating in Back a Boiler, their variant of an
Income Share Agreement at Purdue, Amy can financially plan for
the future and focus on excelling in her classes.
Dr. Smith, I would appreciate your insight.
What role do Income Share Agreements play in the broader
conversation of college affordability?
Dr. Smith. Certainly. Particularly for students who have
maxed out their Federal student loans, and are relying on
financial products in this private market, private student
loan, Income Share Agreements could be a good alternative to
those private student loans.
They have an inherent risk sharing in the way that Purdue
has done them, and I think that is probably the best possible
mechanism for the school itself to have some skin in the game
and not just some kind of investor somewhere else; that the
school itself is relying on the students to pay back. But
first, the student should be maxing out their Federal student
loan so that they are using those kinds of products to offset
credit card debt and other things like that.
Senator Young. Well, it sounds like you think they should
play a role in the overall.
Dr. Smith. I think they could play a role for many students
that have that need.
Senator Young. Well, I have legislation that would
establish a framework so that these contracts will be legally
recognized and instill consumer protection for income sharing.
Dr. Smith. Yes. We need a framework for Income Share
Agreements because right now, as you know, there is not one.
Senator Young. Yes. Thank you, doctor.
For Dr. Anderson, there are several institutions in Indiana
taking great strides to address college affordability. In fact,
it is state law that all public higher education institutions
must provide degree maps to all first time, full-time students.
Institutions have found clever ways to address
affordability, like launching financial literacy programs, and
switching from a credit hour system to a flat rate for tuition
fees.
Other institutions have made pledges to freeze tuition or
lower other student fees. I know we see these things occurring
in other states as well.
Dr. Anderson, in your experience, what are some successful
initiatives that institutions of higher education have launched
to combat affordability concerns?
Dr. Anderson. Thank you very much for the question,
Senator.
I think you have hit on some of the important ones that
Indiana is moving in the direction of. They are a state that
has gotten it, the connectivity between these completions and
building out a robust economy. There are other states as well
where we see similar types of developments.
But regarding these types of programs, there are certain
reforms that we know are working. When I am speaking of a state
and Federal partnership, these are the types of reforms they
could incentivize and should incentivize.
One of the big ones, where we have seen tremendous strides
where both work, I have seen in Tennessee and Georgia is the
developmental education reform. This whole idea that if a
student is not seen as prepared to go straight into credit
bearing classes that they have a developmental experience. It
can be a series of classes, one to maybe even three, where they
have to get to square one in order to pass go.
To make these credit bearing, so that immediate supports
are being added where students can get through these
experiences, and they are already going down their career path,
gaining less debt, finishing more quickly, is an important
outcome to look for, for many states.
Senator Young. Dr. Anderson, just to interject, is this to
compensate for a lack of complete preparation as certain
students enter the post-secondary education atmosphere?
Dr. Anderson. That is the concept there.
Senator Young. Yes.
Dr. Anderson. We have seen better alignment between K
through 12 and higher education trying to work in a lot of
these shortfalls during their senior year, but there are still
students who were assessed and seen as not being college ready.
Instead of going into a noncredit bearing format, what we
have seen are students even with a 12, 13, 14 ACT have been
successful in these credit bearing experiences if you add the
right supports.
We have these interventions that are working. What they
have to do is be scaled, though, nationwide, not just one state
doing good work, this state doing good work. We have to build
on these practices that work.
Senator Young. My time is up. I just state the obvious
here. I know this is about higher education and its
affordability.
I do think it is lamentable that if someone spends 12 years
in a classroom or more, they enter college not prepared to
handle the basics.
Dr. Anderson. Yes.
Senator Young. Thank you.
The Chairman. Thank you, Senator Young.
Senator Murray.
Senator Murray. Well, thank you, Mr. Chairman.
Before I begin my questions, I just want to note my concern
with some of the framing that we just heard that Federal
student aid is hurting college affordability. We have talked a
lot about making this a student-centered reauthorization, which
is why we have to increase investments and expand access for
all students.
I have three letters. One from the American Council on
Education, the National Student Financial Aid Administrators,
and from noted Professor David Feldman on how Federal aid
actually makes college more affordable, not less.
I would ask unanimous consent to put those in the record.
The Chairman. It will be.
Senator Murray. Thank you.
[The following information can be found on pages 81 through
84 in Additional Material:]
Senator Murray. Dr. Smith, I wanted to start with you.
I wanted to talk about the burden of student loan debt,
something students and families across the country consistently
say they want Congress to address this.
Right now, we have millions and millions of workers who
scramble every month just to pay back their loans. We have
millions and millions of families who are unable to take
important life steps, like buying a home, because they have
student debt. And we have millions and millions of students who
are being deterred from actually pursuing higher education
because they were worried about having to shoulder that debt.
So my question is kind of simple.
How important is it that the reauthorization of the Higher
Education Act take steps to help reduce their student debt?
Dr. Smith. Extraordinarily expensive. Not all debt is bad,
but we have a clear problem with some students, particularly
low income students and students of color, who
disproportionately rely on debt.
Recent reports have come out that one-quarter of black
Bachelor's Degree graduates are defaulting on their student
loan. So we clearly have to do something to address
affordability on the front-end for students, but also to make
sure that there are really great repayment options on the back-
end. Default is the worst possible outcome.
That kind of masks the many more students who are
struggling, as you mentioned. They may be making the payments,
but who knows what other sacrifices they are making in life.
Senator Murray. Right.
Dr. Smith. That message that it sends to would-be students
that it can be really, really tough and life altering to go to
college reduces their likelihood and their desire to take on
debt. I think we are seeing that backlash now.
We really must have, in the next reauthorization, something
to make sure that debt is truly affordable. I know that is
something that you all discussed in previous hearings that
students do not have to take on so much debt in the first
place.
We know that debt is not, when we talk about averages, that
masks some kind of clear and present issues within that debt
bubble.
Senator Murray. Right.
In your testimony, you spoke to the need to strengthen Pell
Grants to make college more affordable, and in particular, for
working families. But not everyone has access to that important
source of aid, and some students face challenges in keeping
their grants.
I wanted to ask you, in addition to increasing the maximum
Pell award, what are some of the policy changes that you would
recommend for Federal grants to help more students afford
college and stay on track?
Dr. Smith. As it relates to Pell Grants in particular?
Senator Murray. Yes.
Dr. Smith. One thing that has been talked about in many
years past, and I do not know if it is possible now, but we
have a Pell Grant program that effectively acts as an
entitlement, but we do not fund it that way.
We fund it as if it is a discretionary program year after
year, and it would be really great to kind of see if we could
bring that conversation about mandatory Pell back.
Another thing is just the cost of living increases. Many
other Federal programs have those. Instinctively year after
year, we recognize that there is going to be inflation, and we
have a cost of living increase added to them. Pell does not
have that; so inflationary increases in the Pell Grant are also
very, very important.
Then there is the prospect of even expanding Pell to
students that do not get it now. The drug question is part of
Pell Grants. Really, we do a lot of work at Lumina with
incarcerated populations. And even if they actually do not meet
the definition of not being eligible for Federal student aid,
the fact that the question is there really deters many
students.
Senator Murray. Deters them from even applying, yes.
Dr. Pollard, let me ask you. The data is clear that a
college degree or credential, including an Associate's Degree,
is necessary to compete in today's economy. For many low income
students, it provides them just a path to middle class.
But as the cost of college continues to climb, many
students have increasing concerns about whether college will
pay off for them personally, whether they will be able to land
a good paying job, and whether they will be able to even manage
their debt.
What are some of the ways we can address those challenges?
Dr. Pollard. Thank you, Senator.
I think a couple of things become paramount in this.
One is that I think we have to actually talk about the
impact of not being educated in today's economy. We know the
Georgetown Center for Workforce Education recently released a
study that indicated that 60 percent of all jobs in the future
will require some form of post-secondary education.
The idea that someone should not have a path to education
to ultimately increase the quality of life is a struggle for me
to understand that.
Our economy demands post-secondary education. We are in a
knowledge economy and to ignore that, and to assume that some
people can and should be left behind, while others are not, is
a problem for me as well.
College and job training is a must. That is something we
specialize in, in community colleges. We know the lifetime
earnings of an individual by having an Associate's Degree is
over $600,000 increase. Baccalaureate Degree is over
$1,000,000.
If, indeed, we are to make sure that everyone who is in the
room is educated, we also think about the folks who are not in
the room, and work deeply to form partnerships to have that
happen.
Senator Murray. Thank you very much.
Dr. Pollard. Thank you.
Senator Murray. I am out of time.
Thank you, Mr. Chairman.
The Chairman. Thanks, Senator Murray.
Senator Cassidy.
Senator Cassidy. Let me put some things in context, then I
will make a statement trying to get colleagues onboard with
some legislation, and then I have some questions in particular.
College tuition is going up, programs are going up, and
programs which are not sustainable. Students are being burdened
with debt for decades, and oftentimes have no information about
their likelihood of paying off that debt, and taxpayers will be
burdened paying $36 billion in shortfalls related to student
loan default.
We have a College Transparency Act which is Senators Hatch,
Cassidy, Warren, and Whitehouse, which creates a student level
data network to have more complete, accurate information on all
students and outcomes.
Dr. Baum spoke about how students do not have the ability
to pay off depending on what curriculum they are in.
It streamlines reporting requirements for colleges--this
will be dear to Senator Alexander's heart--saving colleges time
and money, and decreasing burdens on currently reporting.
It is a better system that allows students to compare
similar situations--ma'am, you are going to love this--low
income, black male, first time college student taking
engineering; what is his potential to earn? Would that not be
good? I like that.
Last, it is a better system which allows students to better
know their return on investment. I think that is what we heard.
We need the student o have the information that he or she
needs to know for the return on investment. So anyway, I say
that with Senator Warren over there wearing her good Republican
red.
Dr. Anderson, and Dr. Baum, I think, or maybe Dr. Smith,
alluded to this, but Dr. Anderson, I am going to shoot the
question at you.
We have spoken about the Federalization, and Dr. Robinson's
testimony, the Federalization of how we pay for colleges. The
more student loan dollars, the less states are putting out
toward colleges. Dr. Smith is nodding her head.
People have spoken of maintenance of effort. How do we get
the states to continue to put up the funds that they previously
have so that it is not falling upon students and upon Federal
aid programs?
But what is different is that if we have a maintenance of
effort for primary and secondary schools that is institution-
based, or state-based loans, or grants, or money, whereas for
colleges it is student-based.
The issue is if the money is going to the student, how do
you get maintenance of effort from the state because, really,
the state is the bystander as the student pulls down the money?
I hope that question is not too convoluted, but I think you
know what I am speaking of. Dr. Anderson first and then perhaps
Dr. Smith.
Dr. Anderson. Thank you so much for the question, Senator.
When I spoke to the opportunity for a Federal-state
partnership on post-secondary education, this is what I had in
mind, a way for the Federal Government to incentivize greater
state participation. This incentivizing would need to be around
completion, accountability, and transparency. Those would all
need to be key to this process.
I mentioned that 41 states have attainment goals, but what
we need is a drill-down to completion goals in each of these.
Senator Cassidy. But I am sorry, unless you have a hook on
that, unless you say, ``State, you get more money for more
completion.''
Dr. Anderson. Right.
Senator Cassidy. ``Or your children cannot borrow money if
you do not.'' You have to have a hook.
Dr. Anderson. My recommendation would be to create a
program similar to what we had with LEAP and SLEAP, which were
focused funding toward low income students. And at that time
with LEAP and SLEAP, it was also toward community service
oriented types of projects.
Senator Cassidy. I do not comprehend how you can actually
leverage the states. ``State, you do not get or you do get
unless you keep putting state general fund money toward public
universities.''
Dr. Anderson. It would have to be that type of
relationship.
Senator Cassidy. Dr. Smith, your comments.
Dr. Smith. You would have to really create a new program
that is not available currently. There was maintenance of
effort, kind of, in the last reauthorization that was going to
a very small pot of funding.
But in order to really leverage state spending, you have to
create a really new paradigm that does not exist.
Senator Cassidy. What is that paradigm? Do you know what
that paradigm is?
Dr. Smith. You would have to have someone from the state--
it could be a state higher education executive officer, it
could be a Governor--agree, someone with the authority, to
actually make some guarantees.
Actually, the maintenance of effort was included in the
American Recovery and Reinvestment Act, in ARRA----
Senator Cassidy. Yes, but that was direct funding that you
only got if you maintained.
Dr. Smith. Yes.
Senator Cassidy. Now, are you suggesting that is what we
need to do if we are going to have the leverage?
Dr. Smith. Yes, we are going to have to create something
new that does not currently exist in the law.
Senator Cassidy. Does that take dollars away that are
currently being loaned to students and, instead, giving it to?
Dr. Smith. I would not say that. I think you really need to
have a substantial amount of new funding to be available for
this. And right now, this is not leveraging any of the Federal
money at all in this way, as you know----
Senator Cassidy. We are totally not leveraging.
Dr. Smith ----as you expertly outlined the challenges. I
know we are over time, so we can talk more about specific ways
that you could do that.
Senator Cassidy. Thank you.
I yield back.
The Chairman. Did you notice how disciplined Vanderbilt
graduates are in staying within the time?
[Laughter.]
The Chairman. Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
At this point, anyone who denies we have a college
affordability and debt crisis problem in this country has their
heads buried pretty deep in the sand.
We know the basic facts and we have talked a lot about them
in multiple hearings here, but I wanted to zoom in on one
particularly alarming statistic.
The Education Department recently released data showing
that almost half of all black students who took out loans in
2003-2004 have defaulted on their Federal student loans. Black
college students default at five times the rate of white
college graduates. In fact, black college graduates are more
likely to default than white college dropouts.
Now, Dr. Baum, you have argued that the student debt
problem is not really a problem for most people. So let me just
focus in on these data that I just talked about.
Do you believe that student debt has reached a crisis for
African Americans?
Dr. Baum. Student debt has reached a crisis for a number of
subsets of students. Black students are notable in this. I
think we need to understand much more about why.
There are some obvious reasons even such as given income
levels. Wealth levels among African American families are much
lower than they are among others with similar incomes.
We know that black students are more likely to wait longer,
and be older, and have other responsibilities when they go to
college. They borrow more and we know that their incomes
afterwards are not as high for various reasons, including
discrimination in the labor market.
We clearly need to focus on the circumstances facing these
students, on the circumstances facing older students, and in
particular, on students who are attending for-profit
institutions borrowing more than other students and not
necessarily getting degrees of value.
Notably, the questions about quantity of debt for
individual students do not get at the real issues because many
of the students struggling most are those who do not complete
their degrees. They have low levels of debt and they cannot pay
them because their education investment has not paid off.
Senator Warren. This is what one of the subsets in the data
looks at that most people are better off because they go to
college, but this was not true for nearly half of all black
students.
What I want to think about is how we solve that problem?
There are a lot of pieces to understand the data, but how do we
fix the problem?
Dr. Smith, let me ask you. Do you think that more financial
aid counseling alone will fix this problem?
Dr. Smith. No.
Senator Warren. What about FAFSA simplification? Will that
fix the problem?
Dr. Smith. Very good, but will not fix it.
Senator Warren. Okay.
How about risk sharing or accreditation reform?
Dr. Smith. Also really, really great things; will not fix
this particular problem.
Senator Warren. How about college deregulation?
Dr. Smith. No.
Senator Warren. No, not going to fix this problem. Okay.
Recently, the Chair of the House Education Committee
argued, quote, ``There is not any more money out there to spend
on students in higher education.''
Can we solve this problem without investing more money in
our college students?
Dr. Smith. I think it is really difficult, especially when
Congress passes billions of dollars of tax cuts and things like
that, which I know is not the purview of this Committee.
But when I talk to people every single day, they do not
understand the rhetoric that there is not money to better
themselves through education, but there is for these other
types of things.
Senator Warren. Dr. Smith, actually, I think you put it
exactly the right way.
That we just learned that Congressional Republicans could
find $1.5 trillion to give away to rich people in corporations,
but suddenly there is no money left to invest in people who are
trying to get a college education; an investment that not only
pays off for the individual, but pays off for the whole economy
and for the whole country.
The higher education law that we write in this Committee
could be the law of the land for the next decade.
It would be unconscionable for us to write a law without
making college more affordable and without dealing with the 40
million Americans who are struggling to pay off $1.4 trillion
in student loan debt. I think that should be our first job.
Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you. Well-disciplined as well. Thank
you, Senator Warren.
Senator Isakson.
Senator Isakson. Thank you, Mr. Chairman.
Mr. Chairman, I apologize to our panelists. I had another
Committee meeting and did not hear your testimony. I deeply
apologize.
Dr. Anderson, you are a native of Augusta.
Dr. Anderson. Yes, sir.
Senator Isakson. Worked for the University System of
Georgia, as I understand; vice chancellor, if I am not
mistaken.
Dr. Anderson. Yes, sir.
Senator Isakson. I appreciate your comments on
developmental programs and students. In fact, the University of
Georgia, when they accepted my son, they did not accept my
daughter, but they did accept my son.
He got in on developmental studies, which was an entry
level program where he had to accomplish passing certain
courses at the University of Georgia before he could earn
credits at the University of Georgia.
They changed him from a mediocre student performance-wise,
to a student that graduated with honors at the University of
Georgia. It taught him how to study. It also gave him a goal at
the beginning of his college career to shoot for in achievement
and attainment, which helped him be responsible in how he
handled it. And also responsible in how he handled the money
that he had to go to college, some of which was mine, some of
which was borrowed.
I appreciate your comment on the programs that you had to
develop for students.
Interestingly enough, that program was developed for
athletes who were recruited to come, but were not passing the
SAT scores with as high scores as they need to, and they built
them back up to get it so they could play football.
Now they do it for all students regardless of their
athletic talents. It has had a measurable help in terms of
doing that. So I appreciate you mentioning that.
I just want to say two things. This morning I watched CNN
and heard the testimony of two people in Cincinnati who took
the bonus their company gave them, because of the tax law, and
are paying tuition for their children going to college. So
there was a reference about what would we do with our money
from the tax cuts.
I wanted to reference that some people, like the two I saw
from Cincinnati this morning on T.V., took the money their
company gave them based on the tax cut and are sending their
two children to college, that they could not have done had they
not gotten it. That was just their testimony.
Economic policy does make a difference and every time we
can put money in the pockets of parents through better
management of the government, better management of the tax
system, the more money is going to be available for children to
become educated.
Last, on the statement about African American students,
which I appreciate so much Senator Warren bringing up, Georgia
State University in Atlanta has done a remarkable job in
meeting the needs of the African American community, No. 1.
Two, providing access to financing that was affordable and
repayable at the right time in their career. So good, that now
Georgia State University graduates the highest number of
baccalaureate degrees for African Americans of any university
in the United States.
That is because they focused on the affordability issue and
because they did a little bit of the reverse of the performance
base. They tracked the students from the day they went to the
university and they looked for certain benchmarks that would be
indicators they might be falling behind economically or sliding
behind on their payments.
They brought in what they called Panther Grants, which were
mini micro loans to get them through a difficult time so they
stayed on course, and did not end up dropping out of school at
the end because they did not see that they could afford and pay
for it.
I think there are innovative ideas going on being applied
in the universities around the country today that make a huge
difference.
But it is our responsibility to see to it that we do
everything we can to move everybody toward the best education
they can afford and achieve. A better educated America is a
more productive America, and it is a safer America for our
country, and I am glad to be a part of this hearing.
I appreciate the time, Mr. Chairman.
The Chairman. Thank you, Senator Isakson.
Senator Kaine.
Senator Kaine. Thank you, Mr. Chair.
Thanks to the witnesses for great testimony.
I am interested, Dr. Robinson, in some of your testimony
about the Bennett effect. Senator Murray introduced a letter
from a William and Mary professor. I am from Virginia, so I
cannot resist quoting from it, because I think there are some
similarities. I think he has some different conclusions than
yours, but there are some similar points.
Just to quote from the letter that she has introduced in
the record.
``There is serious social science research on the
interaction between Federal higher education support and
college access and affordability, and a number of conclusions
from that literature are increasingly supported by strong
evidence.
``One, public universities and private colleges that serve
large numbers of the Nation's lower income and first generation
students pass most, or all, of any increase in Federal aid back
to students as a lower net tuition.
``Net tuition is the list price minus any government aid
the student receives and any institutional discount the schools
offers.''
In other words, extra Federal support creates more access.
``Two, highly selective private colleges do not pass all of
an extra dollar of Federal aid to students. They tax an extra
dollar made by reducing their own need-based discount, but some
of the aid does pass through as a lower net price.
``Third, the best evidence of a causal link between Federal
education and list price tuition comes from the Nation's for-
profit higher education institutions.''
You make a similar point on Page 10 of your testimony, ``As
Gillen noted in his 2012 paper, the effect,'' the Bennett
effect, ``Was also more marked at for-profit institutions than
at public and private non-profit institutions. At public
institutions, this is due to tuition caps and strong political
pressure to keep tuition low. At private non-profit
institutions, it is due to the common practice of price
discrimination. (Price discrimination is the practice of
charging students different prices based on their ability and
willingness to pay.)''
I think this is an important aspect of studying the effect
as to segregate the kinds of institutions and not just use
averages. And it sounds like both from the Feldman letter and
your own testimony, you recognize that the inability to pass on
student aid completely to students is more marked in the for-
profit institutions.
I got to Page 14 of your recommendations, and I was
interested in the recommendations.
You have a recommendation about capping the growth of
tuition and fees at public colleges and universities. But if
this effect is more marked at the for-profit institutions, I
did not necessarily see a recommendation that was really geared
at the for-profit institutions that may be the more egregious
examples of this Bennett effect.
Do you have thoughts about what we might do as we approach
the Higher Education rewrite to the for-profit institutions?
Dr. Robinson. I think the question of for-profit
institutions is a difficult one because they, as you know, rely
on tuition more than any other type of institution.
They do not have endowments. They do not have a state that
is contributing. And so, they are faced with different kinds of
pressures.
I think it is definitely in keeping with Bennett's ideas,
and with everything that we have seen, that a tuition-dependent
institution is not going to see better effects, but more
stronger effects from increases in aid.
I think that having more transparency and accountability
for every type of institution will affect those for-profit
institutions.
I think, as I said, any of the recommendations that have to
do with targeting our aid better specifically focusing on Pell
Grants for the neediest of students essentially reduces the
amount that will flow through just to the bottom line for any
type of institution, including for-profit schools.
Senator Kaine. I think it is important because the original
Bennett Hypothesis as articulated in an article, I think it was
called ``America's Greedy Colleges,'' and painting a broad
brush of our colleges as greedy when they are still the gold
standard in the world for colleges for so many.
But then you get into actually what the data shows after 20
years and where is the greed in the institution? Where is there
evidence that financial aid does not make it more affordable
for students, but it is just padding the pocket of the
institution?
There is a suggestion that there might be greedy colleges,
but it is unfair to paint everybody with that broad brush.
I notice another recommendation you make that, I think, is
interesting on Page 14. One way to deal with some of this issue
is to make private student loan debt subject to bankruptcy
laws.
Explain why you think that would be a good idea and do
other members of the panel also agree with that as a
recommendation?
Dr. Robinson. The reason I recommend that is all of the
recommendations stem from the idea that we have to effect
demand for higher education. We have to end artificial demand
for education and, in particular, artificial demand for loans.
I believe that students will not demand loans if they know that
the loans are less available.
But the idea is to make private student loans subject to
bankruptcy, as every other type of loan is in the United
States.
Senator Kaine. A loan for a yacht, and a loan for a
vacation home.
Dr. Robinson. Right. The idea behind that is it will
incentivize lenders to lend more widely and to lend less. And
ultimately, it will decrease the number of private student
loans going to students who ultimately cannot pay them back.
Senator Kaine. I am out of time, but I am going to ask for,
in writing, for other panel members to comment on that.
Thank you, Mr. Chair.
The Chairman. Thanks, Senator Kaine.
Dr. Baum, you have studied every trend in higher education.
Normally in this Committee, we have a price problem. Many
Members of the Committee, not all, would say, ``Let us get some
more competition in. That will lower the price of drugs. That
will lower the price of computers. That will lower the price.''
And often, it does.
[Showing smart phone.]
The Chairman. These things do not get cheaper apparently.
[Laughter.]
The Chairman. But almost every other thing does.
Now, you look at the higher education market, and for
something so involved with government, it is a pretty
remarkable market; 6,000 reasonably autonomous institutions,
vouchers, really, for 20 million students to help them choose
among those colleges.
Why does the market not lower prices more? I mean, why do
we have a situation where over 30 years, we do not have even
twice as many students? We have gone from 13 to 20 million, yet
we are spending 7 times as much on Pell Grants and 8 times as
much on student loans.
Dr. Baum. You get the aggregate spending, it can be a
little bit misleading because, in fact, one of the things that
the student aid system is designed to do is to increase demand
for higher education. Right?
This is not artificial demand for education. This is
creating opportunities for people who do not have the resources
on their own to actually enroll and succeed in college.
Now competition, if you look at the way different markets
work, of course, competition can sometimes reduce prices, but
there is a lot of product differentiation. So colleges tend to
compete based on their characteristics, and if you look for----
The Chairman. Well, let me interrupt for just a minute.
Why do not more people look at this market and say, ``Here
is a high quality, lower priced degree,'' and you do not have
to borrow to do this?
Dr. Baum. That is a good question about why, for example,
students choose to enroll in more expensive for-profit
institutions than in public universities. But one problem is
that there is a high correlation between the cost of educating
students and the quality.
There is a lot of evidence that if you add resources to
public institutions or private institutions, they do a better
job of educating students.
The Chairman. Well then, if that is true, we should just
turn the whole Federal budget over to the colleges and
universities and let everybody go for free. Then we would have
the best educated country in the world. Right? I mean, that is
not the way we usually work.
We usually leave opportunities for people to come in and
say, ``I can offer you higher quality at a lower price.''
Dr. Baum. Unfortunately, we have not been very successful
at doing that.
The Chairman. Yes. Well, let me ask this of any of you.
Assuming we were to spend more taxpayer dollars, where
would you put it?
Now, it is nice to say, ``We will put it everywhere.'' But
we never have that choice usually, and rarely have that choice
as legislators.
Would you put it on lowering rates for loans? Would you put
it on forgiving more loans? Would you put it on larger Pell
Grants? Would you put it on more Pell Grants?
What would you do, Dr. Baum?
Dr. Baum. I would put more money into low income students
directly through the Pell Grant program and into the
institutions in which they enroll. So we want to be very
careful not to----
The Chairman. Well, the money goes to the students, not to
the institution.
Dr. Baum. Well, the money goes to the students.
The Chairman. Do you want more Pell Grants or higher Pell
Grants, if you had a choice? Or if you put a priority on the
available money, what would you put first priority?
Dr. Baum. Higher Pell Grants for the students who need them
most. This is a critical issue that the low income students who
are enrolling in college do not have the money to both pay
their tuition--they can cover tuition--but not to cover their
living expenses. Need-based aid is critical.
The Chairman. Wait a minute. Does that mean more Pell
Grants or Pell Grants more generous?
Dr. Baum. Pell Grants with higher dollars per student.
The Chairman. Okay. So your choice would be to raise the
Pell Grant limit from $5,920 instead of more Pell Grants.
Dr. Baum. Well, of course, if you raise the limit the way
the program is currently structured, you also increase the
number of students who are eligible by raising the income limit
on eligibility.
The Chairman. Well, but you do not have that luxury, if you
have X billion dollars here.
Dr. Baum. Right. So you have to change the structure.
I would say fund Pell Grants up to a certain percentage of,
say, the poverty level and make sure the students----
The Chairman. Even though that will reduce the number of
Pell Grants, you would do that?
Dr. Baum. It would not necessarily reduce the number.
The Chairman. Well, you have to make a choice.
Dr. Baum. The fixed number of dollars?
The Chairman. Do you want more Pell Grants or do you want
more generous Pell Grants?
Dr. Baum. Yes, I would give more money. I would put more
money to the neediest students and reduce somewhat the number
of Pell Grant recipients. There are certain students receiving
Pell Grants who do not need them nearly as much.
The Chairman. Would you put money into Pell Grants before
you would reduce the interest rate on student loans or forgive
more student loans?
Dr. Baum. Absolutely. The loan program needs to be better
structured. The interest rate, if people are in income driven
repayment plans, the interest rate matters less. It will affect
how long it takes them to repay their loans, not their monthly
payments.
The Chairman. My time is up, but we had a good deal of
testimony last week that would seem to get a number of Senators
interested.
Did I hear you say that you favor, you would prefer pay
your loan back, but pay it based on your income with an
automatic payment out of your salary? Did I hear that too?
Dr. Baum. Yes, you did hear that.
The Chairman. Okay. Thank you very much.
Senator Smith. No, I am sorry.
Senator Hassan.
Senator Hassan. Thank you, Mr. Chair.
The Chairman. Excuse me. I looked over there.
Senator Hassan. I am always delighted to be confused with
Senator Smith.
I am very, very happy to see such a distinguished panel
this morning. It is very hard to figure out how to find my way
through just 5 minutes with you because you all have so much
experience and expertise.
I will say that the issue of affordability of higher
education is something I hear about from constituents just all
the time. In an economy where we know that 80 percent of jobs
are going to require post-secondary credential or degree of
some kind, it is even more imperative that we find a way to
make sure that people can afford to continue to improve and get
those credentials.
I want to start, Dr. Anderson, with a question for you. I
am from New Hampshire. So I have seen firsthand how state
investment in public higher education can impact whether or not
students are able to access an affordable education.
Like many states, New Hampshire's investment in higher
education declined during the recession. It has since struggled
to get back up to where it needs to be.
As you have just heard from the Chairman, as policymakers,
we have to make tough decisions about where to invest finite
funds and a large part of our discretionary budgets can take
hits.
What is clear, though, is that there is a far reaching
return on investment when we support higher education.
When I became Governor of New Hampshire, one of the first
things I did was to work to freeze tuition for 2 years at our
university system and to lower it at our community colleges. I
have also seen how important things like TAACCT Grants and
Federal aid are in our community college system.
Dr. Anderson, can you talk some more? You have referenced
it. How could we develop Federal-state partnerships that would
incentivize states to invest more in higher education at all
levels?
Dr. Anderson. Thank you for the question.
Tying into what was said by Senator Alexander regarding
some of these investments into Pell. I think an increased Pell
amount, I think looking at negative EFC on that front, will
help fund more of those students who are most in need.
Senator Hassan. Yes.
Dr. Anderson. I think that will free up institutions and
systems to put a little bit more of their aid more toward those
institutions that serve these students.
I referred to a study earlier in my comments regarding a 10
percent investment upfront into these types of institutions--
community colleges and 2 year programs--resulting in a 10
percent increase within a year for Associate's Degrees and 26
percent for certification programs.
What we found in that also, and what that research
discovered is that increased money is put into academic
supports and student supports. That is what is key.
When an institution is having to cutback to what they would
consider barebones, that is what leaves, and that is what
students who are underserved need the most. They need the
academic supports and the student supports.
Senator Hassan. Well, thank you very much for that. I
appreciate it.
Dr. Smith, I wanted to drilldown on the concept of
affordability goals with you.
Last year, the University of New Hampshire launched a
program called Granite Guarantee. Under this program, first
year Pell Grant eligible New Hampshire students will receive
free tuition for 4 years.
Over 400 students have been served under the Granite
Guarantee program, and the Tuition Assistance Program is
expanding to our entire university system.
In an effort to make college more affordable and expand
access to low income students, institutions and state
university systems are implementing these kinds of programs
across the country.
We also know that we need to be thinking about how to help
students beyond tuition, because the entire panel has made this
point. It is not just tuition; it is the cost of living.
As we look at ways to leverage Federal aid to expand access
to college, how do you think states and institutions of higher
education should be using an affordability goal to inform their
policies and funding?
Dr. Smith. First, I think that is fantastic. I think more
states need to have an affordability goal. Right now, we talk
about affordability, but we do not tell people what that means.
The average person does not know when you say, ``I want to
make college more affordable,'' without something specific that
resonates with them. They do not understand what you are trying
to accomplish and what that requires of them. So I think having
that goal is important.
Then, second, having goals complementary around completion;
you cannot just get people in. You also have to make sure that
you are helping them through.
You could, I want to make sure we say this, could actually
have affordability just for people who are already going, and
that would be terrible for us to just say, ``We are not going
to use this to get more people in. We are going to just use
this to make it less expensive for those who are already
going.''
Those things have to pair together.
Senator Hassan. Well, thank you very much.
I see I am out of time. Dr. Pollard, I will follow-up with
you because you are not the first community college president
who we have heard from in the last month or so to talk about
the need for additional supports, financial and other kinds of
assistance, for students on community college campuses to help
them succeed.
I will follow-up in writing with you about that.
Thank you.
The Chairman. Thank you, Senator Hassan.
Senator Murphy.
Senator Murphy. Thank you very much, Mr. Chairman.
I wanted to broaden out the conversation that Senator
Hassan started about how you build affordability into
regulatory accountability measures to the panel here because I
think this is an incredibly important conversation to have; in
large part because we spend so much time and energy regulating
colleges between state-based regulatory systems, Federal
regulatory systems, and accreditation that have nothing to do
with accountability. It has nothing to do with affordability.
Has lots to do with the number of professors, and the number of
books you have in the library, and what your financials look
like. But in the end, it does not translate to a cheaper
product.
I want to just present a little out of the box way to think
about this, and this is maybe also to Senator Alexander's point
about why the market does not work.
I get it that when thinking about the way that the
government spends money, department to department, it is apples
to oranges.
But when we buy a submarine from Electric Boat in
Connecticut we, at the outset, set expectations for the quality
of that submarine and say, ``If you cannot meet these
qualifications, then we are not going to buy it from you.''
But then after that, we look to cost and we essentially try
to buy the cheapest product for the specs that we set out. I
understand we are not going to revolutionize the way that we
spend Federal student aid dollars.
Why do we not look at higher education in somewhat of the
same way? In that we set an expectation that every degree has a
quality metric attached to it. That we are not going to fund
schools in which 40 percent of their students cannot pay back
their loans.
But that we are also going to have an affordability
expectation that, ``We are not going to pay more than X for a
degree. And if you cannot produce these results for a certain
amount of money, then you are no longer in the game.''
Give us a little bit more on what we should build-in to an
accountability system when it comes affordability.
Dr. Smith. I actually think what you have just described
would revolutionize the way we spend Federal student aid and we
should do it.
We are at a breaking point. I think the statistic that we
have referenced, the fact that so many African American
students are struggling, and not just African American
students, but so many students are struggling to pay, and they
are struggling with loans. We have reached a point where there
is a crisis in college affordability. And so, that crisis
requires some kind of revolutionizing of the system.
The amount of money that is currently spent on Federal
student aid without any kind of clear guarantees--and we have a
baseline default rate, and we all talked about that before and
how that is in position, et cetera--but along with those
quality criteria, some guarantees around affordability which
could include about how many people repay their loans or how
easy it is, recognizing the limits of that. There needs to be
also some front-end. limitations that would revolutionize the
system and is absolutely necessary.
Senator Murphy. Dr. Baum, we spend all this time. Speak to
my concern that we spend all this time regulating colleges on
things that do not have to do with the price of college when,
to most families, that combined with whether they get a job
afterwards is the mot important thing to them.
Am I wrong?
Dr. Baum. Well, first of all, it is very reasonable to put
a floor on quality and to say, ``We are not going to support
institutions that do not meet that floor,'' but to suggest that
beyond that, it does not matter.
I mean, the reality is that people are willing to pay more
for different kinds of education and different quality. If you
look at where people who can afford to spend whatever they want
to on college to send their kids, they pick the most expensive
colleges.
We have a very complicated situation here.
What we really need to be looking at is what the Federal
Government is willing to subsidize and where the Federal
Government can create added opportunities, not worry about if
there is some other, more expensive option out there. That is
fine, if people want to pay for it.
But the Federal Government needs to make sure that it
provides reasonable subsidies for students to attend high
quality institutions and it does not. And it does not now pay
for students to pay the full tuition at the most expensive
colleges in the country, and it should not.
Senator Murphy. Dr. Robinson, talk to me. A lot of the
focus of your work is around how to get students thinking more
about affordability, but you referenced accountability for
institutions as well.
What do you think of my idea?
Dr. Robinson. I think that the easiest way for the Federal
Government, without doing anything revolutionary to go to
exactly that point, is to change the aid eligibility formula.
Right now, say you apply to go to Duke and UNC Chapel Hill,
both in my home State of North Carolina. You fill out your
FAFSA and as part of the formula the Federal Government uses to
decide how much money you will get, it uses the cost to attend
at each institution.
Duke costs a lot more than UNC Chapel Hill. So when you get
your loan information back from the Federal Government about
how much you will be lent, you will get more to go to Duke than
to Carolina.
This is sending students, or at least stopping them from
having an incentive to go to the less expensive schools. And
so, I think we should change that formula.
Instead of using the cost of attendance at a particular
school, we use the median cost of college. That means you are
no longer incentivizing students to choose a more expensive
college. You are actually incentivizing colleges to compete
more on price because they know that they are not going to be
able to use those loans for the most expensive schools and to
pad the bottom line at the most expensive schools.
I think that without creating a new system, we are
operating in this system that exists now where student loans
are the main vehicle for Federal funding for higher education.
Changing that eligibility formula would be the easiest and most
direct way to do it.
Senator Murphy. Thank you, Mr. Chairman.
The Chairman. Thanks, Senator Murphy. Very, very
interesting.
Senator Murray.
Senator Murray. I want to thank all of you. I have some
questions I will submit for the record.
But Dr. Pollard, I did want to ask you about community
colleges because there are some unique challenges. There are
some who have suggested that community college is already
affordable or even already free for some students.
But I know that data shows that students are borrowing or
paying more than $7,000 a year out of pocket for community
colleges in Maryland, even after their grants and scholarships.
I think it is clear that we need to redefine how we talk
about the total cost of college and I wanted to ask you what
additional costs should be considered when we look at making
college affordable for all of our students?
Dr. Pollard. Thank you, Senator Murray.
I would offer a couple of points in here. Students in
community colleges are typically low and averse. Our students
are typically first generation. More often than not, they come
from families where the idea of taking on debt is highly
irregular for them, and they also know over the long term, they
are concerned about their ability to pay that back.
As a result of that, this idea of looking at the total cost
of education becomes a barrier for many of them: childcare,
healthcare, transportation, food, living expenses, all of those
things.
I loved the reference earlier about the room and board.
Room and board exists even if you are in a resident situation
or you are not. So how are you going to live?
If you have to make a choice oftentimes between providing
for your children and your family versus you going to school--
even if you know the long term implications for your family are
better if you go to school--you will not make that choice to go
to college. You will, instead, invest it in things you need to
do or you will be looking at social services in order to be
able to meet that gap.
It is a critical issue for the students that I work with
each and every day.
Senator Murray. Okay. Thank you.
Dr. Pollard. Thank you.
Senator Murray. I really appreciate you talking about that.
Thank you, Mr. Chairman. I think this has been an excellent
panel and I think this issue is one that we really need to
address so all students can feel that they have access to
higher education.
The Chairman. Thank you, Senator Murray.
I think we had this hearing because you suggested to me
that we should have this hearing.
[Laughter.]
The Chairman. I think it has been very good too. If I could
ask a couple of questions.
Does anyone have any comment on Dr. Robinson's point about
using the median cost of college rather than getting more money
to go to Duke than North Carolina or Vanderbilt in Tennessee?
Dr. Baum. I agree that giving students more aid because
they go to more expensive institutions, more Federal aid, is
problematic.
That said, the current loan limits--particularly for
dependent students as most of the students attending schools
like Duke are--are not high enough for this issue to solve many
of these problems for many students. There are just not very
many people whose amount of loan is affected by anything that
Duke might do to change its price.
But it is certainly true that what we do for graduate
students, however, we give them as much money as cost of
attendance. We should not do that.
Dr. Smith. I would concur with most of what Dr. Baum just
said.
Vanderbilt and colleges, I will just talk about Vanderbilt
and not about Duke, but they actually offer very generous
financial aid. So no student at Vanderbilt has to take out a
loan to attend college at all because they offer financial aid
and donors are able to pay for that. That comes out of
Vanderbilt's endowment, actually.
Not every college does that. More colleges that have the
resources like Vanderbilt should be encouraged to do that and
it would be ``shame on them'' if they have the resources and
they are not doing what Vanderbilt does.
But the specific challenge that she raised, I think that is
the wrinkle. That, one, the current loan limits do not actually
jump up against what even the tuition and fees are. I would
venture to guess UNC is very inexpensive, but with the full
cost of attendance, you cannot meet it just with Federal
student aid, which is part of the challenge that we are faced
with today.
In theory, I think it makes sense, but in practice, I think
where we are with college prices has unfortunately already
outstripped what the Federal aid is that is available.
The Chairman. Anyone else have a comment on that?
I was thinking, though, that our conversation about
simplifying the FAFSA, one of the advantages of it is that you
would apply. You would fill out in the first semester of your
senior year, when you still could shop around a little bit. You
would not just receive your admission at the same time you knew
how much money you had.
In addition, given these things, and a simplified FAFSA,
you could find out when you are a freshman in high school how
much Federal aid you are able to get, and you could plan ahead
with, hopefully, some counseling and make more decisions about
what you could afford for college.
My last question is explore this problem of state support
for higher education. I have been around long enough to see it
from both ends.
In the 1980's, when I was Governor of Tennessee, $2 out
every $3 was paid for by the taxpayer, mostly the state
taxpayer. And if we raised tuition 2 percent, we raised the
state contribution 2 percent. Now it is $1 out of $3; it is
reversed and the reason is pretty obvious and none of you
mentioned it. Nobody ever does. It is the cost of Medicaid.
When I was Governor, 8 percent of the state budget was
Medicaid costs, and today it is more than 30 percent and most
of the money for that has come out of higher education. So from
my vantage as a former Governor, that is the reason for it.
Now, how you get back into the business of more state
support for higher education, it seems to me that one way might
be this growing movement as Tennessee has done of recognizing
that the Pell Grant pays for most of the tuition for community
college. And saying, ``To the extent it does it, we will pay
the rest,'' and so, it is free; tuition free in any event.
Along with mentoring services, most of the time spent filling
out the FAFSA, and community service, and other things.
Does the growing interest in tuition free 2 years of post-
secondary education present an opportunity for states to renew
their funding support for higher education? And if so, what is
a way for the Federal Government to encourage that without a
bunch of Federal mandates on states that will boomerang, and
backfire, and which I generally do not like?
Who has a comment on that?
Dr. Baum. I would like to comment on that. I wrote a paper,
actually, last year about what the Federal role in free
community college programs should be.
The consensus of a diverse group of experts involved in
this was the Federal Government should continue to use student
aid programs to target low income students and a real concern
about the state programs that are last dollar programs.
The Federal Government has gone to great lengths to make
sure that its largest subsidies go to the neediest students.
If you have a program that just fills in the gaps left by
Pell Grants, what you are saying is, ``Everybody gets the same
subsidy.'' So the state should be encouraged to devote their
extra dollars to students who need them most, not just the
students who were not poor enough to get Pell Grants.
The Chairman. Well, maybe the state thinks that is not its
primary goal. That the Federal Government's primary goal is
equity, and the state's primary goal is the largest number of
well educated citizens and that it puts its dollar in at the
last dollar in order to encourage that.
I do not know as most of the people at the community
college being----
The average median income in Tennessee is $50,000. So there
are not a lot of rich people at the community colleges.
Dr. Pollard. No, there are not.
I think the part that I appreciate about your comment, Mr.
Chairman, is the fact that the issue stems back from the
disinvestment, or the lack of investment, by states in public
education, particularly at the community college level, but
also across the board.
In the State of Maryland, for instance, the master plan had
been one-third, one-third, one-third; one-third from the local,
one-third from the state, one-third from the student.
At this particular point, about 50 percent of my budget
actually comes from the county. The students pay about 33
percent; 15 to 16 percent will come from the state, and that
number has not changed in the last decade. In fact, it has
continued to precipitously go down.
This idea of figuring out a way to help states understand
that the investment in higher education is not just one simply
about ensuring equity, which we all should be working toward.
It is also about the economy. Let us be very serious about
that.
There are 20,000 vacant jobs in Maryland right now in cyber
security. We know that, contrary to popular opinion, there are
not a lot of coal jobs coming back in our region. What is going
to come back: cyber security, technology, and HVAC.
How do we start to invest those dollars to create the
economy that we want to see? That idea of a public-Federal-
state opportunity for collaboration, I think, is essential.
Otherwise, we will continue leaving people behind in an economy
where we do not have the luxury of that occurring.
The Chairman. Well, thanks to each of you.
Now, if when you leave you think, ``Well, here is one more
thing I wish I had said,'' please know that we would be
interested in it. And if you want to write us a letter, or a
memo, or anything and say, ``Enlarging on the point I made or
the one I did not get a chance to make,'' we would welcome
that.
This has been a very interesting hearing. I thank Senator
Murray for working with me on it.
The hearing record will remain open for 10 business days.
Members may submit additional information and questions to our
witness for the record within that time, if they would like.
The next meeting of the full Committee will be on Thursday,
February 8, 2018 at 10 a.m. on, ``The Opioid Crisis: Impact on
Children and Families.''
Thank you for being here.
The Committee will stand adjourned.
ADDITIONAL MATERIAL
American Council on Education
February 5, 2018
Hon. Lamar Alexander, Chairman
Hon. Patty Murray, Ranking Member
U.S. Senate Committee on Health, Education,
Labor, and Pensions,
428 Senate Dirksen Office Building,
Washington, DC.
Dear Chairman Alexander, Ranking Member Murray, and Honorable
Members of the Committee:
As your Committee continues its hearings into reauthorizing the
Higher Education Act to explore the topic of college affordability, we
would like to address claims that Federal student aid is responsible
for tuition increases. Over many years, some individuals have asserted
that there is a causal link between college tuition and Federal student
financial aid. This claim is at least as long-standing as any proof of
the connection is elusive. This concept has been rigorously explored
and the full body of available research data does not support this
theory.
A number of methodologically sophisticated studies have concluded
that there is no relationship between Federal student aid and tuition.
In 2014 the congressional Research Service (CRS), in response to
numerous requests from Members of Congress, examined the possible
relationship between student aid and college prices and found no
consensus or consistent set of findings across multiple studies on any
causal relationship between student aid and tuition and fees.
Several years earlier, in response to a congressional mandate, the
U.S. Department of Education also examined the relationship between
tuition prices and various general and targeted subsidies, including
financial aid. Indeed, the department identified a single tuition price
driver: reductions in direct state support for public 4-year colleges
and universities. That is, when state support for higher education goes
down, public sector tuition increases.
A significant number of economists--including Don Heller, David
Feldman, and Robert Archibald, among many others--have also evaluated
this theory and concluded that there is no relationship between Federal
aid and college prices.
In any form of rigorous research, proving causation requires that
the evidence demonstrates a clear and unambiguous relationship. Absent
such results, it is simply wrong to contend that such a causal
relationship exists or to state in any way that the research is
conclusive.
Colleges and universities are extraordinarily complex organizations
that rely on many revenue sources to advance their missions of
instruction, research, and community service. Numerous authors and
researchers have examined the relationship between college tuition and
Federal student aid programs,
and as yet there is no consensus on the existence of any
generalizable or causal link between the two. To claim otherwise is to
misrepresent the state of the extensive existing research on this
question.
We hope to continue collaborating with you as the Committee on
Health, Education, Labor and Pensions works to update and reauthorize
the Higher Education Act, and that an increased Federal commitment to
student financial aid will be seriously considered.
Sincerely,
Ted Mitchell
President
______
National Association of Student
Financial Aid Administrators
February 5, 2018
Hon. Lamar Alexander, Chairman
Hon. Patty Murray, Ranking Member
U.S. Senate Committee on Health, Education,
Labor, and Pensions,
428 Senate Dirksen Office Building,
Washington, DC.
Dear Chairman Alexander, Ranking Member Murray, and Honorable
Members of the Committee:
On behalf of the National Association of Student Financial Aid
Administrators (NASFAA), I respectfully submit the following letter for
the record on the Senate Health, Education, Labor and Pensions (HELP)
Committee hearing entitled Reauthorizing the Higher Education Act:
Improving College Affordability.
For decades, the theory that increases in Federal student aid lead
colleges to increase their prices has permeated conversations about
higher education cost and affordability. Unfortunately, that theory,
often referred to as the ``Bennett Hypothesis'' is not supported by
conclusive evidence, and yet frustratingly, still tends to drive higher
education policy discussions. NASFAA is concerned that we have reached
a point where the perpetuation of this hypothesis has become harmful,
irresponsible, and will lead to misguided policy decisions if not
refuted.
On its surface, the idea that Federal, state, or other public
subsidies would lead to higher, inflated prices resonates. But the
higher education funding landscape is far too complex to attribute
price increases to any single factor or source of funding. The diverse
structure of the higher education system in the United States, combined
with the fact that institutions of higher education are complex, unique
organizations, makes it very difficult to isolate cost increases.
In a 2013 issue brief, ``Does Federal Financial Aid Drive Up
College Prices?'' \1\ Dr. Donald E. Heller stated that ``While the
Bennett Hypothesis may be intriguing, there is little compelling
evidence that it holds true with respect to the price-setting behavior
of colleges and universities in the United States. This complex process
involves far too many variables for it to be essentially explained by
the simplistic notion that tuition-setting boards sit around and say,
`Well, Pell grants are going up $200 next year, so we can raise tuition
$100.' While any change in Federal aid may be a very small piece of the
puzzle that leads to year-to-year tuition increases, there is scant
evidence that it is a major contributing factor.'' \2\
---------------------------------------------------------------------------
\1\ ``Does Federal Financial Aid Drive Up College Prices?''
Heller, 2013: http://www.acenet.edu/news--room/Documents/Heller-
Monograph.pdf
\2\ Ibid
Professors of economics at the College of William and Mary, David
Feldman and Bob Archibald, have also researched this topic extensively,
finding that there are a variety of reasons that lead to increases in
college prices. In their book, ``Why Does College Cost So Much?'' \3\
Feldman and Archibald discuss the myriad reasons institutions must
charge what they do.
---------------------------------------------------------------------------
\3\ ``Why Does College Cost So Much?'' Robert B. Archibald and
David H. Feldman, 2010.
For example, they argue that while technology has played a role in
decreasing output costs in other industries, the same has not held true
in higher education. \4\ Colleges and universities are expected to keep
up with the latest technological infrastructure--a costly endeavor--but
purposefully try to keep student-to-instructor ratios reasonable in
order to provide quality learning environments. Feldman and Archibald,
as well as several other renowned researchers, have also pointed to how
the interplay of different subsidies, and in particular subsidies at
the state level, can positively or negatively impact costs and prices.
As public state appropriations decrease, more of the costs of providing
higher education are passed along to students and families.
---------------------------------------------------------------------------
\4\ Ibid
In the 2015-16 year, public appropriations per full-time equivalent
(FTE) students were 11 percent lower in inflation-adjusted dollars than
they were a decade earlier, and 13 percent lower than they were 30
years earlier, according to the College Board. \5\ Put another way,
shouldering the cost of providing higher education has shifted away
from the public--mostly at the state and community levels--to
individual students and families. In 1975, for example, the states
covered 60 percent of the tab for a year in college while families
shouldered 33 percent, according to Feldman.
---------------------------------------------------------------------------
\5\ ``Trends in College Pricing 2017.'' The College Board, 2017:
https://trends.collegeboard.org/sites/default/files/2017-trends-in-
college-pricing--1.pdf
``Today,'' Feldman states, ``the states pay only 34 percent while
families bear 50 percent of the cost,'' and the Federal Government's
share--through grants and tax credits--has risen to around 16 percent.
\6\
---------------------------------------------------------------------------
\6\ ``Myths and Realities about Rising College Tuition.'' David H.
Feldman, 2012: https://www.nasfaa.org/news--item/4565/Myths--and--
Realities--about--Rising--College--Tuition
The theory that financial aid inflates college prices is also
weakened by the fact that the net price, the amount students actually
pay, has been decreasing over many years. At the same period of time,
Federal investment in the student aid programs has only grown modestly,
on a student-by-student basis. There has not been an increase in loan
limits in nearly 10 years, and in recent years the Pell Grant received
only nominal annual increases. Yet over the last decade the average net
tuition and fee price paid by full-time students at public 2-year
schools and private, not-for-profit 4-year schools has actually
decreased. \7\
---------------------------------------------------------------------------
\7\ ``Trends in College Pricing 2017.'' The College Board, 2017:
https://trends.collegeboard.org/sites/default/files/2017--trends--in--
college--pricing--1.pdf
It is tempting to try to reduce the complexities of college pricing
to some of the simplest, corollary variables available, such as Federal
student aid. Yet to do so would require us to ignore the complicated
intricacies of cross-subsidization, the myriad variables of college
costs, and net prices associated with college funding. As we look
forward to reauthorizing the Higher Education Act, we must rely on data
and evidence to guide our student aid policy, which also requires an
acknowledgement that any link between Federal student aid and college
---------------------------------------------------------------------------
price increases is unsubstantiated.
NASFAA members support conversations to modify the student aid
programs to work for today's students. Modifying existing programs and
funding--using evidenced-based research is vital. But NASFAA opposes
any proposal that seeks to decrease student aid under the faulty notion
that those decreases will in some vague, unsupported, and
counterintuitive way result in lower college prices.
Regards,
Justin Draeger
President & CEO
______
College of William & Mary
February 4, 2018
Hon. Lamar Alexander, Chairman
Hon. Patty Murray, Ranking Member
U.S. Senate Committee on Health, Education,
Labor, and Pensions,
428 Senate Dirksen Office Building,
Washington, DC.
Dear Chairman Alexander, Ranking Member Murray, and Honorable
Members of the Committee:
I am writing to offer my views on the contentious ``Bennett
Hypothesis'' that will no doubt make an appearance at Tuesday's
hearing. The Bennett Hypothesis is the supposed link between increases
in Federal higher education support and subsequent college tuition
increases.
The literature on the Bennett Hypothesis offers no firm conclusions
or consensus. One can find support for any position, so appeals to the
Bennett Hypothesis often derail efforts to find a sensible middle
ground where facts are agreed. This alone should lead you to steer
clear of altering Federal student support policies on the basis of any
particular study that purports to show a link between Federal student
aid and list price tuition.
Finding a correlation between Federal student aid and list price
tuition is easy. Over time the consumer price index, the level of
Federal aid spending, college operating costs, and list price tuition
all have moved in the same direction. The many strands of causality
that tie all of these things together are tangled and not well
understood. As a result, statistical correlations often are spurious
accidents even when researchers have tried to identify and control for
various confounding factors.
The current literature on links between Federal student aid and
list price also suffers from many methodological flaws. The schools
that make up the American higher education system are very diverse.
Elite private colleges, non-selective public branch campuses, and for-
profit institutions face different constraints and have differing
decision-making processes. Yet much of the work on the Bennett
Hypothesis ignores these differences in how institutions behave, and
many studies do not seriously explore college price-setting behavior at
all.
We should get away from the Bennett Hypothesis and its narrow focus
on list price tuition. Most undergraduates in the United States don't
pay the list price. Public and private non-profits offer need-based and
merit-based discounts. According to the College Board's ``Trends in
Student Pricing, 2017'' over half the students at the Nation's major
public research universities pay less than the listed in-state tuition,
and the average discount is 34 percent. At smaller private colleges
fewer than 20 percent of students pay the list price, and the average
discount is over 50 percent. List price tuition is a very poor measure
of the cost of attendance for most students.
The most important questions we face are about how Federal aid
policy affects access to the higher education system. There is a
serious social science research literature on the interaction between
Federal higher education support and college access and affordability,
and a number of conclusions from that literature are increasingly
supported by strong evidence.
Public universities and private colleges that serve
large numbers of the Nation's lower-income and 1st generation
students pass most or all of any increase in Federal aid back
to students as a lower net tuition. Net tuition is the list
price minus any government aid the student receives and any
institutional discount the school offers. In other words, extra
Federal support creates more access.
Highly selective private colleges do not pass all of
an extra dollar of Federal aid to students. They ``tax'' an
extra dollar of aid by reducing their own need-based discount.
But some of the aid does pass through as a lower net price.
The best evidence of a causal link between Federal
aid and list price tuition comes from the Nation's for-profit
higher education institutions.
These conclusions from the literature make sense if you think about
how non-profit and for-profit colleges actually behave.
Non-profits use tuition discounting, and part of the motive is a
mission-driven commitment to access. If Congress raises the maximum
size of a Pell grant, lower-income students bring that larger aid
package with them to any school that accepts them.
At a non-profit college or university, the school can claim some of
the extra Federal aid by cutting its own discount. The less it cuts its
own discount, the more the student's net price falls. But ``taxing''
the aid isn't all bad. By decreasing the discount, schools have extra
operating funds that they can use to build student support programs
that improve retention and graduation or build better programming that
benefits all students. They could also use the extra revenues to cut
the list price for higher-income students. They have no incentive to
raise it.
The evidence suggests that state universities and less-selective
private colleges choose to pass most or all of any increase in Federal
aid to students as a lower net price. These are schools that often do
not fully meet need because they are resource poor. The extra Federal
aid helps them to meet a greater percentage of student need. Doing this
would enlarge the pool of students who could afford to go. It would
also improve retention and graduation rates by reducing students'
financial stress. And public university tuition often is set by state
legislatures, so schools do not respond with tuition hikes when the
Pell maximum, for instance, is raised.
Highly selective schools already meet much or all of their
students' demonstrated need, so they have an incentive to allow a
portion of extra Federal aid to displace some of their own
institutional grant aid. Taxing the extra Federal aid in this way frees
up resources to improve programming.
The nation's for-profit colleges are different. There is more than
a touch of irony in the evidence that higher Federal tuition support is
linked to rising list price tuition in this sector of the higher
education market. But the causal pathway is clear. These schools often
receive eighty to one hundred percent of their revenues from Federal
student loans, Pell grants, and GI benefits. Almost all of their
students receive large amounts of Federal support. And these colleges
do not use need-based discounts to build and diversify an incoming
class of students. Like highly selective private universities, for-
profits can tax any increase in the package of Federal aid their
students bring to the table. But since they have little institutional
aid to reduce, they claim much of the Federal aid as revenue by raising
the list price that virtually all of their students face. Yet even at
for-profit colleges, a dollar of extra Federal support does not lead to
a dollar of tuition increase. Extra Federal aid creates access here
too.
I urge you to keep your eye on the real prize. The substantive
issues before you are about creating access to higher education for
more families, and enabling success by helping a greater fraction of
students move expeditiously through the higher education system. Of the
two, your greatest leverage is over access.
Improved access and greater success are needed if we are to help
more young Americans earn the skills and credentials that will add
value over their entire working lifetimes. This is how we fulfill the
promise of our higher education system as an engine of social mobility.
Sincerely,
David H. Feldman
Professor of Economics
______
QUESTIONS AND ANSWERS
Response by Jenna Robinson to Questions from Senator Sanders, Senator
Warren, and Senator Kaine
senator sanders
Question 1. What is the role of career and college counselors to
help students determine which college program of study and financial
aid package will help them graduate college sooner and with less
student debt?
Answer 1. College advising should be an essential part of ensuring
that students take the right number of credits to graduate on time and
the right courses to earn the credits they need for their degree. In
order for advising to be useful, it must also be proactive in
identifying and aiding students who are in need of assistance.
Financial aid advisors fulfill a separate role than academic
advisors. In most cases, they simply serve as a contact point between
students and their financial aid benefits. One way to improve
communications about financial information is to change financial aid
award letters. A recent study by New America found award letters to be
almost uniformly confusing and opaque. Colleges and universities should
change award letters so they are clear, transparent, and make obvious
distinctions between different types of aid.
Question 2. Post-Secondary education in the United States has
traditionally been funded through a mixture of Federal and state
government appropriations, institutional endowments, and student
payments of tuitions and fees. However, state investments in public
higher education paid for 83 percent of public college education costs
in 1980 but only paid for 23 percent of costs by 2012. This massive
reduction in state investment in public colleges has left students
bearing a larger proportion of the price of college. What has been the
impact of state divestment in public colleges on the affordability of
higher education and the ability of students to finance their education
with less student debt? Additionally, what role should state
governments serve in ensuring that students are guaranteed a high-
quality, college education with less student debt?
Answer 2. The limited research that exists on the effects of state
divestment on tuition prices (summarized here by the Brookings
Institution) show that between 6 and 28 percent of tuition changes can
be attributed to changes in state funding. Moreover, most students who
attend public colleges and universities leave with manageable debt: the
average debt per borrower at public schools from the Class of 2016 was
$26,828. Students who attend private institutions owe more: $30,281 for
the Class of 2016. Average debt is not the problem. Non-completion is.
A large proportion of students who default on their student loan debt
never completed a degree.
senator warren
Question 1. We heard many policy recommendations to make college
more affordable for future students, including strengthening the Pell
grant and establishing state-Federal financial partnerships. However,
we must not forget the approximately 44 million people who are
currently struggling with student loan debt. From your perspective,
what should Congress do to support these former students who have been
saddled with debt and ensure that their student loans do not prevent
them from saving for a down payment on a home, saving for retirement,
saving for their own kids' college education, or making other critical
financial decisions and purchases that help our economy?
Answer 1. Many students who have large amounts of student loan debt
never completed their degrees. Students who are close to completion in
terms of credit hours should be encouraged to return to college to
complete their coursework. Repayment plans should be simplified so
students can easily navigate their options. Private student loans
should be subject to bankruptcy laws.
Question 2. Multiple witnesses discussed that borrowers of color
are disproportionately impacted by student loan debt and student loan
default. What should Congress do to specifically address this fact and
specifically support these traditionally underserved populations? How
can Congress reduce the student debt burden of all students of color?
Answer 2. Successful college completion is the key to helping
students avoid default. Solutions to improve completion, including
better advising and instituting evidence-based teaching practices, are
institution-level rather than Federal-level reforms. At most, Congress
can improve colleges' incentives to help students avoid default.
Congress can give colleges skin in the game in student loans or begin
using repayment rates instead of default rates when measuring
universities' success and determining access to Federal financial aid.
Question 3. Authors at the Levy Economics Institute of Bard College
released a report in February 2018 that found huge economic benefits if
the Federal Government would make a one-time policy decision to forgive
all existing student debt. They found canceling all student debt would
increase U.S. GDP, increases job production, decreases unemployment,
and improves state budget deficits, with modest effects on interest
rates and a host of additional positive spillover effects. Please
respond to this report.
Answer 3. Canceling student loans would be extremely expensive;
there are more than $1.25 trillion of outstanding Federal loans right
now. It would also fail to target debtors who need help the most. In
2010, the median borrower would have had to spend about 6 percent of
his or her income after leaving school to pay back loans. Most
borrowers are not at risk of default or financial hardship. The highest
earning 20 percent of borrowers carry roughly 36 percent of outstanding
debt. Canceling these loans would be a hand-out to the wealthy.
Overall, canceling student loans would be a popular, but deeply
regressive, solution to the problems of student loan non-repayment and
default.
senator kaine
Question 1. Private student loans tend to lack some of the critical
protections built into the Federal direct loan program for borrowers.
This can leave struggling borrowers in the private student loan market
in financial distress with few options.
Question 1(a). Do you think private students loans should be
subject to bankruptcy laws? Please explain.
Answer 1. Yes, private student loans should be subject to
bankruptcy laws. Doing so would create the proper long-term incentives
for lenders, i.e. lenders would be more prudent in their lending.
However, I believe bankruptcy protection should only be available after
a certain time limit, perhaps 5 years after finishing a degree. (This
would encourage students to work toward repayment first and view
bankruptcy as a last resort.) I described my position on bankruptcy in
Inside Higher Ed, here.
Question 2. What can Congress do to drive more students toward
affordable options and help Federal student aid go further for at-risk
students?
Answer 2. Difficulty comparing options is one source of students
making sub-optimal decisions about college and university attendance.
One solution would be to improve student aid award letters so they are
clear, transparent, and uniform. A recent study showed that more than
one-third of student financial aid award letters omitted the total cost
of attendance. Others failed to differentiate between grants and loans.
This is an understandable source of confusion that can lead students to
choose less affordable options. Ideally, student aid letters would also
be uniform so that students could easily compare offers from different
institutions. The FAFSA should also be improved. More students should
be able to file the simple version and FAFSA should be available via
mobile app.
______
Response by Sandy Baum to Questions from Senator Sanders, Senator
Warren, and Senator Kaine
senator sanders
Question 1. What is the role of career and college counselors to
help students determine which college program of study and financial
aid package will help them graduate college sooner and with less
student debt?
Answer 1. Unfortunately, the current infrastructure for career and
college counselors is inadequate. Ideally, every student considering
post-secondary options would have access to a knowledgeable counselor
who could provide personalized information about available programs,
costs of attendance, financial aid, probabilities of success, and
career paths. But only students graduating from well-resourced high
schools now have this access. As Judith-Scott Clayton and I argued in
our 2013 Hamilton Project paper, Redesigning the Pell Grant Program for
the 21st Century, integrating federally funded services into the Pell
Grant program has the potential to increase success rates and make
investments in college more productive for both taxpayers and students.
Question 2. Post-Secondary education in the United States has
traditionally been funded through a mixture of Federal and state
government appropriations, institutional endowments, and student
payments of tuitions and fees. However, state investments in public
higher education paid for 83 percent of public college education costs
in 1980 but only paid for 23 percent of costs by 2012. This massive
reduction in state investment in public colleges has left students
bearing a larger proportion of the price of college. What has been the
impact of state divestment in public colleges on the affordability of
higher education and the ability of students to finance their education
with less student debt? Additionally, what role should state
governments serve in ensuring that students are guaranteed a high-
quality, college education with less student debt?
Answer 2. The failure of state appropriations for public higher
education to keep up with rising enrollments has contributed both to
rising tuition and fees and to a reduction in the resources available
to public institutions to provide high quality educational and support
services to their students. The results include both higher debt levels
and lower completion rates. Low completion rates at community colleges
and broad-access public institutions are among the most serious
problems related to the under-funding of higher education. The states
and the Federal Government share responsibility for ensuring access to
high quality post-secondary education to all who can benefit. Federal
incentives for increased and better-targeted state funding have the
potential to mitigate these problems.
senator warren
Question 1. We heard many policy recommendations to make college
more affordable for future students, including strengthening the Pell
grant and establishing state-Federal financial partnerships. However,
we must not forget the approximately 44 million people who are
currently struggling with student loan debt. From your perspective,
what should Congress do to support these former students who have been
saddled with debt and ensure that their student loans do not prevent
them from saving for a down payment on a home, saving for retirement,
saving for their own kids' college education, or making other critical
financial decisions and purchases that help our economy?
Answer 1. The problems with existing student debt are mounting as
the Department of Education stalls the processes designed to forgive
the debt of students who are the victims of fraud and abuse and of
institution closings that prevented them from completing their studies.
The former students struggling most with debt are not those who have
borrowed the largest amounts, but those who have left school without a
credential. Default rates are inversely related to amounts of debt and
are more than twice as high for non-completers as for completers within
each sector.
Some groups of students borrow much more than others for similar
degrees: older students, those who attend for-profit institutions, and
African-American students are particularly vulnerable. Efforts to
relieve existing debt burdens should focus on these groups, not on
borrowers with high levels of debt, the majority of whom have completed
bachelor's degrees and many of whom have professional degrees or other
credentials that are likely to generate high levels of earnings.
Question 2. Multiple witnesses discussed that borrowers of color
are disproportionately impacted by student loan debt and student loan
default. What should Congress do to specifically address this fact and
specifically support these traditionally underserved populations? How
can Congress reduce the student debt burden of all students of color?
Answer 2. African American students borrow more than others for a
variety of reasons. Hispanic students do not have the same borrowing
patterns. There is no doubt that the lower income and asset levels of
African American families explain much of this problem. But these
students also disproportionately enroll in for-profit institutions,
come to college with low levels of academic preparation, begin college
at older ages, and take longer to complete their credentials-if they do
complete them. African Americans also earn less in the labor market
than others with the same credentials.
All of these circumstances need to be addressed. It is probably not
reasonable to target debt relief at specific racial and ethnic groups,
but it is vital that we work to change the circumstances that create
these problems.
Question 3. Authors at the Levy Economics Institute of Bard College
released a report in February 2018 that found huge economic benefits if
the Federal Government would make a one-time policy decision to forgive
all existing student debt. They found canceling all student debt would
increase U.S. GDP, increases job production, decreases unemployment,
and improves state budget deficits, with modest effects on interest
rates and a host of additional positive spillover effects. Please
respond to this report.
Answer 3. This report basically asks what would happen if there
were an influx of money into the economy, targeted specifically at
people who borrowed for education and have not yet repaid their loans.
There is no doubt that these individuals would spend more on other
things if they did not have loan payments. But it does not address the
real questions. Why forgive student debt and not, for example, medical
debt? Would there be some compensation for people who recently
completed their loan payments? How would this cost to the Federal
Government be financed? Would there be a tax increase and how would the
distribution of that tax increase compare to the distribution of the
benefits to borrowers? About half of all education debt is held by
households in the top quarter of the income distribution, so this would
not be a progressive policy. And many of the loans causing problems are
nonFederal loans. Would these loans be included, using Federal funds to
make private lenders whole?
The expansionary impact of expanded government spending is well
established. This does not make the idea of forgiving the loans of
people with high levels of education a wise policy.
Question 4. In your testimony, you suggested the value of
developing a state-Federal Government partnership to make higher
education more affordable. How should Congress structure such a
partnership? What factors should Congress consider when developing
these partnerships and what should be avoided?
Answer 4. Designing a fair and effective policy would be
challenging, but there are strong arguments for the Federal Government
providing incentives for states to increase their investments in higher
education and reducing the inequities in educational opportunities
across the Nation. The goals should include both lowering the prices
students pay and increasing the resources available to institutions to
provide high quality education and support student success.
An exclusive focus on price-whether that price is zero or not-risks
reducing quality. Moreover, it is important to recognize that the
financial barriers facing low-income students are frequently associated
with living expenses rather than tuition and fees, which are often
covered by need-based state and Federal aid. Free tuition policies that
build on existing aid programs do not address this problem and instead
provide incremental funds to students whose resources prevent them from
being eligible for need-based aid. The Federal Government has
successfully built and maintained a Pell Grant program that diminishes
the inequality of resources available to students. Last-dollar free
tuition programs move in the opposite direction, providing identical
subsidies to students attending the same institution regardless of
their financial circumstances. Because low-income students tend to
enroll in lower-cost institutions and to stay in school for a shorter
time than their more affluent peers, low-income students actually end
up with the smallest public subsidies under this type of policy.
Debt-free tuition is a more reasonable target than ``free'' or
``debt free.'' Such a policy would use Federal funds to motivate and
supplement state funding, ensuring that all students can cover public
4-year college tuition with a combination of expected family
contribution and grant aid.
Question 5. You have argued that, ``We should worry a lot less
about 18-year-olds going off to college and borrowing $20,000, $25,000,
for a bachelor's degree'' because the investment pays off, and because
the median earnings for young bachelor's degree recipients is higher
than the median earnings for high school graduates.
Question (a). In an economy with stagnant wages, should Congress
care only about borrowers who are in economic distress?
Answer 5. The Federal Government should care about everyone who is
not able to find a job that supports a reasonable standard of living
whether or not they went to college and however they financed their
education. A stronger safety net would reduce food and housing
insecurity for all Americans.
Targeting subsidies at everyone with student debt does not help the
least well-off members of society, who do not have a college education.
It also penalizes people who worked more and borrowed less in college
and people who focused on quickly paying off their debts after
colleges.
Answer (a). The problem is inadequate wages. Tackling this problem
directly makes more sense than just alleviating one expense faced by a
segment of the population that actually includes many of those in the
upper segment of the income distribution.
Question (b). Should Congress also consider borrowers who can
afford their monthly payments, but don't have any money left over to
save for a down payment on a home, save for retirement, save for a
medical emergency, save for their own kids' college education, or make
other critical financial decisions and purchases that help our economy
grow?
Answer (b). Congress has taken important steps by implementing
income-driven repayment for Federal student loans. Allowing people to
repay their loans through a program that requires payments that are a
low percentage of discretionary income should ensure that only
borrowers in unusual circumstances face the choice between loan
payments and other critical expenses.
Congress should focus on strengthening this program. Simplifying
and consolidating the system and making enrollment automatic for all
borrowers would solve the problem of borrowers being unable to access
the program and being thrown out because of failure to verify income
annually. Using the payroll deduction system, as other nations do,
would allow payments to adjust immediately when borrowers lose their
jobs or suffer earnings declines. It would also greatly reduce default,
which carries severe negative consequences for borrowers.
Question (c). As long as a borrowers is able to afford her monthly
payments, and is able to earn marginally more than if she had never
attended college, is that borrower a success?
Answer (c). In order for education to pay off-and to be affordable
in retrospect-students should be able to live at a higher standard of
living than they would have if they had not gone to college, even after
both repaying their debts and making up for wages forgone because of
time spent in school. Much of the apparent student loan ``crisis'' is
attributable to students borrowing to enroll in programs in which they
have little chance of success and that are unlikely to lead to good job
prospects even for students who do graduate. Better Federal oversight
of the programs and institutions for which students are allowed to take
out Federal loans (and to which they are allowed to bring their Pell
Grants) would go a long way toward ameliorating this problem in the
future. No amount of assistance with loan repayment can compensate a
student for the lost time and resources dedicated to a fruitless
education.
A borrower doesn't just have to be able to repay her debts out of
her earnings premium. She also has to be able to cover forgone earnings
and other funds invested in her education.
Money is, of course, not the only measure of a valuable education.
Fortunately, many successful students do not focus on maximizing their
incomes, but on having satisfying and socially useful careers.
senator kaine
Question 1. Private student loans tend to lack some of the critical
protections built into the Federal direct loan program for borrowers.
This can leave struggling borrowers in the private student loan market
in financial distress with few options.
Question (a). Do you think private students loans should be subject
to bankruptcy laws? Please explain.
Answer 1. Private student loans are really just unsecured loans
from private lenders. There is no reason why lenders should be
privileged just because they put the word ``student'' on a loan. In
fact, having a legally recognized category of private student loans
confuses students, who do not understand the difference between Federal
student loans and these loans that do not have the same protections. It
encourages students to take loans that are likely to cause them
problems.
Answer (a). Borrowers should be able to discharge private loans in
bankruptcy as easily as they can discharge other loans. The whole
question would disappear if these loans were recognized as what they
really are-not a form of student financial aid.
Question 2. What can Congress do to drive more students toward
affordable options and help Federal student aid go further for at-risk
students?
Answer 2. The goal should not be just to help students choose
cheaper options, but to help them choose more promising options. No
matter how low the price, an education is not affordable if it is not
productive for a student. Congress should implement stricter rules
about which institutions and programs can participate in Federal
student aid programs. The Federal Government should not be supporting
students to enroll in programs that have a very small chance of helping
them achieve their goals. Allowing Federal aid to go to an institution
is essentially a Federal stamp of approval.
In addition to stronger regulation and thresholds for
participation, the government could increase access to high quality
counseling and personalized advice for disadvantaged students. As
Judith-Scott Clayton and I argued in our 2013 Hamilton Project paper,
Redesigning the Pell Grant Program for the 21st Century, integrating
federally funded services into the Pell Grant program has the potential
to increase success rates and make investments in college more
productive for both taxpayers and students.
______
[Whereupon, at 11:50 a.m., the hearing was adjourned.]
[all]