Inside Higher Ed on March 14, 2013
By Libby A. Nelson
WASHINGTON — The first results of the Bill & Melinda Gates Foundation’s effort to redesign the federal financial aid system are in: 15 white papers totaling 587 pages, nearly all calling for an overhaul of at least part of the nation’s system for helping students pay for college in order to improve graduation rates.
Taken together, the 15 papers represent a $3.3 million effort to influence the conversation about federal financial aid as Congress begins preparing to renew the Higher Education Act. (Two more organizations, which received their grants late, are expected to release their reports this spring.) The reports share a focus on using financial aid to increase the number of college graduates in the U.S. — the Gates Foundation’s holy grail. But the recommendations conflict and contradict each other more often than they reach any consensus on what an ideal financial aid system would look like.
When the foundation first announced the Reimagining Aid Design and Delivery project, Gates’s first major foray into financial aid policy, some critics feared that the papers would provide political cover for budget-cutting lawmakers, or that the emphasis on college completion would help some students while harming others — particularly low-income students who underperformed in the classroom. They warned that using federal grants and loans to boost college graduation rates could corrupt the historic focus of helping needy students. They feared a collective call to focus not on college access but on college completion, backed by the clout of the Gates Foundation.
In the end, many papers warned explicitly against such an approach, arguing that colleges and the federal government need to do more to increase completion without compromising access. Many papers (a full list with links is here, and the National Association of Student Financial Aid Administrators has created a chartcomparing recommendations) call for a radical overhaul of financial aid. All share some assumptions critical of financial aid in its current, access-oriented form. The organizations describe the system as broken: “inefficient, inequitable and inadequate,” in the words of the Education Trust; “based on a set of assumptions that no longer hold,” according to the Committee for Economic Development; a system that the National College Access Network wrote “cannot continue without change.”
But over all, the papers are more a cacophony of competing recommendations than they are a coherent policy agenda. The ideas that frequently recur might be politically ambitious (requiring colleges to disclose more data on graduates’ employment and earnings, or automatically enrolling all student borrowers in income-based loan repayment), but they are discrete, small-bore policy prescriptions, not a broad vision for the future of federal financial aid.
Colleges and universities that already complain of overregulation will find little to like here. Many of the white papers call for stronger accountability measures — new requirements that would hold colleges responsible for the prices they charge, their completion rates for low-income students, the repayment rates on student loans, or other criteria.
Some organizations recommended new requirements on a smaller scale, often using campus-based aid programs. Those programs make up only a small fraction of the billions of dollars the federal government spends on student aid each year, but some people — including President Obama, who proposed a similar plan in his 2012 State of the Union address — hope it is enough to serve as a lever to influence colleges’ behavior. Others called for new grant programs for colleges and universities, with plenty of accountability strings attached.
Recommendations for new methods to encourage students to complete, on the other hand, usually centered on getting students through college more quickly — not requiring them to meet specific benchmarks in order to receive aid. But few organizations agreed on whether students should be required to complete more quickly, rewarded if they exceed expectations, or punished for dropping out.
The organizations also paid varying amounts of lip service to political realism in suggesting how to pay for changes to and expansions of federal aid programs. And while the bulk of the policy recommendations stuck to loans, grants and tax benefits, the three main instruments the government uses to help students attend college, others went further afield to address other questions: whether private nonprofit colleges should be eligible for tax-exempt bonds, or how the government should enforce and define regulations for for-profit colleges.
Nearly all the groups receiving grants — a heterogeneous bunch that include higher education associations, think tanks and advocacy groups — have aggressively promoted their financial aid policy suggestions in meetings on Capitol Hill and with the Education Department. But the still-unanswered $3.3 million question is whether the white papers will influence legislative action or simply languish in staffers’ files.
Changing Context
The Reimagining Aid Design and Delivery project was conceived in an atmosphere of immediate fiscal crisis — a crisis that many would-be reformers did not want to waste. The Pell Grant was believed to be facing a multibillion-dollar shortfall this October. Congress has already trimmed grant eligibility and sacrificed other federal financial aid programs to maintain the maximum Pell Grant, and there was a growing agreement in some circles that the program’s cost and growth — it has more than doubled since 2006 — had to be contained. At the same time, tax credits for higher education were due to expire at the end of December 2012, and the interest rate on subsidized student loans was set to double in July 2013.
But circumstances have changed, making a financial reckoning for all student aid programs less likely. In December, Congress made some higher education tax credits permanent and extended the largest, the American Opportunity Tax Credit, for another five years. In February, a Congressional Budget Office report foundfears of the Pell Grant shortfall were overblown. The program is on sound financial footing for 2014 and faces a relatively small $1.4 billion shortfall in 2015.
That leaves the interest rate on subsidized Stafford loans, still scheduled to double in July, and — if a hearing Wednesday is any indication — Congress might take that opportunity to make broader changes to federal loan programs. Otherwise, many of the grant recipients’ recommendations are likely to wait until reauthorization of the Higher Education Act — which could happen in 2014, or not for several more years. (The last renewal, due in 2003, did not happen until 2008.)
The question going into reauthorization will be whether the growing clout of the Gates foundation (and other organizations with similar goals) will be enough to overcome a higher education establishment that has traditionally resisted calls for radical changes and new requirements for colleges.
Many of the ideas in the papers are not new. As reauthorization begins, their fate this time around will be determined by whether the political climate has changed enough for the proposals to gain traction.
Among them:
Greater simplification. If the papers have a unifying rallying cry, it is for a simpler financial aid system. Several papers — including those from HCM Strategists’ technical experts, the Chamber of Commerce’s Institute for a Competitive Workforce, Young Invincibles, and the New America Foundation — called for a “one grant, one loan” system that would fold all existing grant programs into the Pell Grant and create one federal loan without interest subsidies. In some cases, funds used for the Supplemental Educational Opportunity Grant would be used to boost the Pell Grant, providing a “bonus” for either colleges or individual students. (Federal work-study programs overall get little attention in the reports, although Young Invincibles suggests the program be changed to create co-op and internship opportunities aligned with students’ majors.)
While campus-based programs were frequently a casualty of calls for simplification, other organizations recommended that they be left in place because they give the federal government leverage on individual campuses without requiring broad changes to the criteria that determine whether colleges are eligible for their students to receive any financial aid at all.
Encourage (or require) more students to enroll full-time. One recommendation: redefining full-time as 15 credit hours, not 12 (as suggested in the HCM Strategists’ technical paper). Other groups recommend tighter time limits on eligibility: New America suggests limiting Pell eligibility to five years for a four-year degree or two and a half years for a two-year degree. The Alliance for Excellent Education, an advocacy group, calls for limiting eligibility for the Pell Grant to students enrolled at least half-time. The Institute for College Access and Success suggests relatively looser limitations: a 7.5-year lifetime limit for the Pell Grant and allowing students to enroll less than half-time for two semesters at the most.
Another idea: rewards for students who make progress toward completion. The Institute for Higher Education Policy suggests loan forgiveness for Pell Grant recipients who complete on time. The National Association of Student Financial Aid Administrators would keep the 12-credit hour definition of full-time, but rewarding students who pursue at least 15 hours with a “super Pell” grant. The Center for Law and Social Policy wants to create additional grants for students who meet federal satisfactory academic progress requirements and remain continuously enrolled.
Two papers want a much tougher approach, essentially eliminating grants for college dropouts. The Alliance for Excellent Education would require students who drop out or attend less than half-time for more than a year to repay their Pell Grants. The Institute for a Competitive Workforce suggests that financial aid could be initially issued as a loan, with portions forgiven each time students make progress toward completion — a plan the institute acknowledges would be a “drastic departure from the current system and carries downsides that are worth future discussion.”
Rethink — if not blow up — tax credits. Few papers have a kind word to say about tax incentives for pursuing higher education: they were criticized as poorly targeted, too likely to go to students who would attend college anyway, and arriving too late to help with college expenses. Groups split almost evenly between eliminating credits and deductions altogether and plowing the savings into grant programs, or streamlining the credits and changing them to better help low-income families. (The former was usually explained as better policy, the latter as more politically practical.)
The most comprehensive ideas for changing tax credits came from the Center for Law and Social Policy, which devoted most of its white paper to tax benefits. The group looked at several options, including making the American Opportunity Tax Credit more refundable; front-loading part of the credit, meaning taxpayers could get their refunds earlier; and ending the separate tax deduction for tuition and fees.
Use financial aid to nudge colleges’ behavior — and leverage institutional aid. Several groups, including the National Association of Student Financial Aid Administrators, the National College Access Network and the Institute for Higher Education Policy, argue that at least a portion of campus-based aid money should be awarded based on colleges’ completion rates.
Some Gates grant recipients go beyond federal aid to tackle institutional aid, proposing new grant programs (often paid for with money that used to be for campus-based aid or for tax credits) that would require colleges to match the money with need-based aid of their own. The New America Foundation, in one of the more detailed proposals, called for a Pell matching requirement for colleges that enroll relatively few Pell Grant students and require them to pay a high net price (the price of attendance after financial aid), while creating a Pell bonus for colleges that serve a substantial share of Pell recipients. The Institute for Higher Education Policy and the National College Access Network urged rules, or at least incentives, to require colleges spend more on need-based aid than on need based on other factors.
Find a lever to move state policy. A few groups looked at the completion crisis as an affordability crisis — a lens that makes it impossible to ignore declining state support for higher education. But giving the federal government the power to affect state higher education funding is tricky, because nearly all federal financial aid programs go directly to students or to campuses.
Several groups called for new state grant programs, or block-granting some federal dollars, to give the federal government more leverage over state policy. Two went further. The Committee for Economic Development, in one of the most radical proposals for changing the financial aid system, called for converting all federal grant aid to one grant for low-income students, administered by the states. States would have to match a portion of the money to get the aid, and would be required to hold down tuition increases at public institutions to be eligible. “Many states would likely push back against the federal government’s requirements,” the group wrote, but “no state would refuse to participate.”
The Education Trust called for turning 10 federal financial aid programs (all but the Pell Grant) into a block grant for states, requiring states to create mandatory college preparatory curriculums, maintain federal funding for state higher education systems and offer a debt-free college guarantee for families in the bottom 40 percent of family income nationwide.
Automatically enroll student loan borrowers in income-based repayment. The papers reached near-unanimity on a few points, and this was one. The income-based repayment program now enrolls only a small fraction of borrowers nationwide. Eight of the 15 groups offering policy recommendations urged the adoption of universal income-based repayment — in some cases with adjustments to compensate for the fact that the program could benefit high-debt, high-income borrowers at the expense of others.
Require disclosures of more, and better, data. This was the other point of near-unanimity. Almost every group called for improvements to the federal government’s data collection system, and for more information on persistence and graduation rate for low-income students. The National Association of Student Financial Aid Administrators, which has opposed the Obama administration’s college “shopping sheet” as too inflexible, nonetheless called for a requirement that colleges include wage and earnings information in consumer disclosures.
Given the unusual accord between the White House and some Congressional Republicans on the need for more consumer information for students, the data demands are perhaps the proposals most likely to become law in the near future. As for the rest, time — and reauthorization — will tell.