[Joint House and Senate Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 114-131
FINANCING HIGHER EDUCATION: EXPLORING
CURRENT CHALLENGES AND POTENTIAL
ALTERNATIVES
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 30, 2015
__________
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Daniel Coats, Indiana, Chairman Kevin Brady, Texas, Vice Chairman
Mike Lee, Utah Justin Amash, Michigan
Tom Cotton, Arkansas Erik Paulsen, Minnesota
Ben Sasse, Nebraska Richard L. Hanna, New York
Ted Cruz, Texas David Schweikert, Arizona
Bill Cassidy, M.D., Louisiana Glenn Grothman, Wisconsin
Amy Klobuchar, Minnesota Carolyn B. Maloney, New York,
Robert P. Casey, Jr., Pennsylvania Ranking
Martin Heinrich, New Mexico John Delaney, Maryland
Gary C. Peters, Michigan Alma S. Adams, Ph.D., North
Carolina
Donald S. Beyer, Jr., Virginia
Viraj M. Mirani, Executive Director
Harry Gural, Democratic Staff Director
C O N T E N T S
----------
Opening Statements of Members
Hon. Daniel Coats, Chairman, a U.S. Senator from Indiana......... 1
Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative
from New York.................................................. 2
Witnesses
Hon. Mitchell E. Daniels, Jr., President, Purdue University, West
Lafayette, IN.................................................. 5
Dr. Andrew P. Kelly, Resident Scholar and Director, Center on
Higher Education Reform, American Enterprise Institute,
Washington, DC................................................. 7
Mr. Rohit Chopra, Senior Fellow, Center for American Progress,
Washington, DC................................................. 9
Submissions for the Record
Prepared statement of Hon. Daniel Coats.......................... 36
Prepared statement of Hon. Carolyn B. Maloney.................... 36
Hon. Mitchell E. Daniels, Jr., President, Purdue University, West
Lafayette, IN.................................................. 39
Dr. Andrew P. Kelly, Resident Scholar and Director, Center on
Higher Education Reform, American Enterprise Institute,
Washington, DC................................................. 46
Mr. Rohit Chopra, Senior Fellow, Center for American Progress,
Washington, DC................................................. 60
Questions for the Record for Mr. Rohit Chopra and Responses
submitted by Representative Maloney............................ 70
Questions for the Record for Mr. Rohit Chopra and Responses
submitted by Senator Amy Klobuchar............................. 70
Questions for the Record for Hon. Mitchell E. Daniels, Jr. and
Responses submitted by Representative Alma S. Adams, Ph.D...... 71
Questions for the Record for Dr. Andrew P. Kelly and Responses
submitted by Representative Alma S. Adams, Ph.D................ 72
Questions for the Record for Mr. Rohit Chopra and Responses
submitted by Representative Alma S. Adams, Ph.D................ 72
FINANCING HIGHER EDUCATION: EXPLORING
CURRENT CHALLENGES AND POTENTIAL
ALTERNATIVES
----------
WEDNESDAY, SEPTEMBER 30, 2015
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to call, at 10:10 a.m. in Room
562 of the Dirksen Senate Office Building, the Honorable Daniel
Coats, Chairman, presiding.
Representatives present: Brady, Paulsen, Hanna, Maloney,
Beyer, and Delaney.
Senators present: Coats, Lee, Cassidy, Klobuchar, Casey,
Cotton, Heinrich, and Peters.
Staff present: Connie Foster, Harry Gural, Colleen Healy,
Christina King, Kristine Michalson, Viraj Mirani, Brian Neale,
Thomas Nicholas, Robert O'Quinn, Leslie Phillips, Ansley Rhyne,
Stephanie Salomon, Aaron Smith, Sue Sweet, and Phoebe Wong.
OPENING STATEMENT OF HON. DANIEL COATS, CHAIRMAN, A U.S.
SENATOR FROM INDIANA
Chairman Coats. The Committee will come to order.
I would like to welcome our witnesses and thank them for
being here this morning to discuss how we can improve our
current system of higher education financing. Most of us, if
not all of us, will agree that the current framework is far
from ideal.
From a student's perspective, rising student debt means
greater difficulty in obtaining financial stability early in
their careers, impacting important life decisions such as
buying a house or starting a family. This is particularly true
in light of the slow economic recovery where lower paying
entry-level positions create additional pressures for young
Americans.
From a taxpayer's perspective, the free flow of federal
student loan dollars to higher education institutions without
proper incentives to control costs will continue to lead to
higher tuition prices charged to students.
While loans to cover tuition are relatively easy for
students to obtain, many are not adequately informed as to the
implications of this debt for their ability to achieve post-
graduation financial success.
Greater system-wide accountability and transparency are
needed and our witnesses will be sharing their thoughts with us
today on how to best achieve these goals.
I am pleased to have Purdue University President Mitch
Daniels, former Governor of our State, before us today to talk
about his several initiatives to control costs, to improve
financial literacy, and to create value for students attending
Purdue. President Daniels will be outlining, among other
incentives, the ``Bet On A Boiler'' Income Share Agreement
Pilot Program and how Congress can assist similar higher
education financing reforms.
I am also looking forward to hearing Dr. Kelly's thoughts
on how our current student loan system distorts the higher
education market and the role competitive principles can play
in making higher education more affordable for everyone.
And finally, we are also pleased to welcome Mr. Chopra, who
will outline the need for proper safeguards as Congress
considers alternatives to the current higher education
financing arrangement.
With that, I look forward to discussing these issues in
more depth with our witnesses today, and now want to recognize
Ranking Member Maloney for her opening statement.
[The prepared statement of Chairman Coats appears in the
Submissions for the Record on page 36.]
OPENING STATEMENT OF HON. CAROLYN B. MALONEY, RANKING MEMBER, A
U.S. REPRESENTATIVE FROM NEW YORK
Representative Maloney. Well thank you, Chairman Coats, for
calling this hearing today, and welcome to all of the
witnesses.
Rapidly growing student loan debt is a significant
challenge facing our country. Student loan debt grew steadily
through the Recession, more than doubling from the start of the
Recession in 2007 to today, and is now close to $1.3 trillion.
Student loan debt is now almost twice the size of credit
card debt, which is a staggering statistic. More than 40
million people have, on average, more than $27,000 in debt. The
recent explosion in student debt risks the economic security of
Americans and threatens our economic growth. As debt levels
increase, young people are forced to delay buying a car,
purchasing a home, starting a business, and saving for
retirement. And some end up paying back their loans well into
their 30s, 40s, and 50s. Now how in the world did we get to
this burden on our young people?
Part of the story is that many American families have
struggled in recent decades and have had trouble saving money
for their children's college education, and many were hit hard
by the recent Recession--the most severe economic crisis since
the Great Depression.
When parents have less savings, students are forced to
borrow more, substantially more. In fact, borrowing has gone up
sharply in recent years with the average debt at a four-year
public institution, climbing from $21,000 in 2006 and 2007, to
over $25,000 in tuition in 2012 and 2013.
Another critical part of the story is that tuition has
risen dramatically especially at public colleges and
universities, which educate the vast majority of our students.
States have also been hit hard by the Recession, and in
response many have slashed funding for higher education.
Median state funding per student, for example, fell by
almost one-fourth from 2003 to 2012. Cuts in state funding for
higher education forced public universities to charge more. As
a result, this forces students and their parents--they have to
pay more. And this means that students have to borrow more
money to go to college.
With a declining state investment, tuition increases have
far outpaced inflation since the 1980s. After adjusting for
inflation, tuition and fees at a public four-year university
more than tripled in the past 30 years.
The Bush-era Recession increased the overall amount owed by
students in another way. As job opportunities shrank, more and
more young people opted to enroll in school and they had to
take out loans to pay for it.
The recent Recession also accelerated the loss of many
higher paying jobs that did not require a college degree,
further increasing the demand for college or other post-
secondary education.
For-profit institutions, in particular, saw their
enrollments surge, quadrupling between 2000 and 2011. A new
report finds that 75 percent of the increase in student loan
defaults between 2004 and 2011 results from the increase in
borrowers at for-profit institutions.
Student debt is a big problem. And how do our Republican
colleagues suggest that we respond to this problem? By
restricting the availability of federal student loans and by
expanding the private student loan market.
As recent history has shown us, private student loans pose
significant risk to borrowers. These loans lack--these loans
often lack consumer protections. They typically carry higher
interest rates, some greater than 18 percent.
Many borrowers have been forced into default when lenders
would not renegotiate, or negotiate viable repayment plans,
income-based repayment, and extended loan terms. These plans,
which are available with federal loans-typically are not
available with private student loans. And there are many, many
examples of private lenders really preying on student
borrowers.
Defaults can affect employment background checks and cause
lasting damage to a person's credit and their future ability in
their professions. There is probably broad agreement in this
room about the need to continue to clean up the abuses in the
student loan industry. It has been the Wild West with providers
marketing their loans to students desperate for financing
through every conceivable channel: Pandora, YouTube, on-campus,
off-campus, and in many different ways.
As we consider new private options for financing a college
education, we must make absolutely sure we have strong
safeguards in place to prevent private lenders from using any
type of predatory practices to take advantage of students.
Today we will discuss a new private lending mechanism--
Income Share Agreements--that could offer some students an
alternative way to finance their college education.
I would like to hear from our witnesses what they have to
say about this issue. I would also like to know specifically
how they would protect students from any predatory practices
that have been a part of the existing private student loan
market.
Rather than look to the private sector to magically solve
the student debt problem, we should strengthen public support
for higher education. It is important to remember that an
educated workforce is a public good, and thus without
government involvement we would under-invest in education.
There are four steps that we can take right now.
First, we should make tuition free for students at
community college. Students would then be able to build their
skills and perhaps obtain an associates degree without taking
on huge debt.
Second, states need to partner with the Federal Government
to reinvest in higher education, and to begin to reverse the
years of budget cuts at the state level.
Third, at the Federal level we should increase investment
in Pell Grants to give low-income students a real shot at a
college education. Despite recent increases, Pell Grants now
cover just one-third of the cost of going to a public
university. Finally, we need to reform the system so that
universities and colleges have some ``skin in the game,'' some
consequences when a student is unable to pay back a loan. And
colleges should be rewarded when a student does succeed.
Before we take the advice of my Republican colleagues and
scale back federal student loans and increase private lending
to students, let's take a minute to remember how much students
benefit from federal loans: Much lower rates. Better consumer
protections. Income-based repayment. Extended loan terms.
College has been a gateway to opportunity for generations
in our country, but for too many Americans as the price of
college rockets up, the dream of an affordable college
education slips away. Our goal should be college education that
is more accessible and more affordable.
The Federal Government, state governments, universities,
colleges, community college, the private sector, and families
all have a role to play. I look forward to our discussion
today.
I thank the witnesses for their commitment to this issue. I
look forward to their testimony. I might say that it's good to
see a former leader here in Congress. Welcome back, President
Daniels.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 36.]
President Daniels. Thank you.
Chairman Coats. Thank you. Let me introduce our witnesses.
President Mitchell Daniels is a long-time friend coming from my
home State of Indiana. He became the 12th president of Purdue
University in January 2013 at the conclusion of his second term
as Governor of the State of Indiana. President Daniels also
comes from a successful career in business, holding numerous
top management positions. He is a member of the board of
numerous nonprofit organizations, including the Urban Institute
and the American Academy of Arts and Sciences Commission on
Post-Secondary Education.
Additionally, he serves as co-chair of the Committee for A
Responsible Federal Budget. Mitchell Daniels earned a
Bachelor's Degree from the Woodrow Wilson School of Public and
International Affairs at Princeton University, as well as a Law
Degree from Georgetown University.
A warm welcome to you, President Daniels.
Dr. Andrew Kelly is a Resident Scholar In Education Policy
Studies and the Director of the Center for Higher Education
Reform at the American Enterprise Institute where he works on
higher education policy, innovation in education, financial aid
reform, and the politics of education policy.
Dr. Kelly received his Doctorate and Masters Degree in
Political Science from the University of California at
Berkeley, and a Bachelor's Degree in History from Dartmouth
College, and we thank you, Dr. Kelly, for being here today.
We're going to have to have a cell phone turnoff.
[Laughter.]
We're going to get a screen like they have at the movies,
you know, so if everybody would silence their phones that would
be helpful.
Finally, Rohit Chopra, who is a Senior Fellow at the Center
for American Progress. Previously Mr. Chopra worked to
establish the Consumer Financial Protection Bureau, and served
as part of the senior leadership team.
Mr. Chopra earned his Bachelor's Degree from Harvard
College and a Master's Degree in Business Administration from
the Wharton School at the University of Pennsylvania.
With that, let me turn to President Daniels as the first
witness, followed by Dr. Kelly, and Mr. Chopra. And I thank the
witnesses for being here this morning and apologize for being
late. We had a vote at ten o'clock in the Senate and I was the
first to vote and the first out of the chamber. So we are doing
the best we can.
Representative Maloney. And I have just been called to a
vote. I will be back.
Chairman Coats. President Daniels.
STATEMENT OF HON. MITCHELL E. DANIELS, JR., PRESIDENT, PURDUE
UNIVERSITY, WEST LAFAYETTE, IN
President Daniels. Thank you, Mr. Chairman (off
microphone).
Chairman Coats. Would you press that [button]. Thank you.
There you go.
President Daniels. The two thoughtful opening statements
that we just heard make it plain there is no need to rehash the
dimension of the problem we are facing, except to affirm that
it is still getting worse. Last year by close to a billion
dollars, 7 or 8 percent on top of the astonishing number that
Ranking Member Maloney reminded us of.
Our research partners, Purdue's research partners at Gallup
just yesterday released the second installment of the biggest
study ever of college graduates and documented the blight on
young lives that the debt is causing--postponing housing,
postponing purchase of cars and durable goods, postponing
starting businesses, postponing having the children this Nation
is going to need to meet its obligations decades from now.
That is our principal concern, economic and personal costs.
It is also of course a fiscal catastrophe, or should I say
another one. It has overrun its projections in six of every
seven years by my reckoning, the debt programs that we have
today, and you saw the biggest write off ever, $22 billion. We
all know it is just the first of many to come.
These same people who were indebted, or are indebted to the
tune of almost $60,000 for public debt that has been run up,
not for investment in their future but for current consumption,
and we should not forget that this issue we are discussing here
today contributes very directly to the buildup of that.
But we are here to concentrate on the constructive. I have
three things, among many, that we could talk about:
transparency and information, very important. Secretary Duncan
was on the Purdue campus two weeks ago. We commended him and
thanked him for the new scorecard. It could be improved. It,
for instance, would help to see data on earnings program by
program, because averages can be deceiving. But that is a good
start.
At Purdue where debt is down $50 million in the last three
years, or about 23 percent, a major factor has been a four-year
freeze on tuition. We are halfway through it. But we have found
that a little information and a little counseling goes a very
long way in helping young people and their families make better
decisions at the front end. So things the Federal Government
can do to encourage that are very important.
Accountability, which the education system lacks end-to-end
and everywhere is a factor here, too. I completely agree with
Congresswoman Maloney's suggestion that colleges share in the
risk that their graduates will not be able to meet their
obligations based on the education they received. And you can
sign Purdue up for one. We're more than willing and find that
more than appropriate.
And many of us believe that some new approaches are in
order. And just to center on the one that we were invited to
talk about, the so-called ``Income Share Agreements,'' it is
very important, by the way. They were loosely mentioned a
minute ago as ``lending.'' They are not lending. That is their
principal distinctive feature, in my opinion. Think of them as
equity as opposed to debt. We see them not as a panacea but as
an important addition to the portfolio, maybe a replacement for
PLUS and most private loans which I quite agree are the biggest
locus of the problem we have.
They shift the risk from the students to the investor--not
the lender but the investor. They provide limits, and they
provide some certainty to the obligation that a graduate will
have. They would know that never more than an agreed-upon
negotiated, and freely chosen percentage of their future income
in any given year would go to pay back the investor.
You want debt-free education? Here it is. So we want to
thank Congressman Young, Congressman Polis for this bipartisan
House initiative, and I am very encouraged to hear that it has
some prospects. It will be necessary, in our opinion, to
provide clarifications on subjects like state usury laws, and
tax treatment and, as was mentioned by Ms. Maloney, protections
for--reasonable protections and boundaries for those who might
participate.
I will say there is one thing about the bill that I
recommend a closer look at. We do not believe--I'm sorry, we
do--I would believe that, like other equity investments, income
share agreements should be dischargeable in bankruptcy. As you
know, student loans are not. It is another way in which they
are--can fairly be described as indentured servitude. They are
the most onerous form of debt we have.
I would suggest changing the bill to indicate that ISAs are
dischargeable in bankruptcy. But we thank the sponsors, and we
appreciate the bipartisan nature of the look that has been
taken.
[The prepared statement of President Daniels appears in the
Submissions for the Record on page 39.]
Chairman Coats. President Daniels, you have not lost your
touch. You spoke for exactly five minutes.
[Laughter.]
You ended at five minutes on the second. I appreciate the
content of what you said, and the brevity with which you said
it.
Dr. Kelly. I am not trying to put too much pressure on you,
Dr. Kelly, but . . .
STATEMENT OF DR. ANDREW P. KELLY, RESIDENT SCHOLAR AND
DIRECTOR, CENTER ON HIGHER EDUCATION REFORM, AMERICAN
ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Kelly. Setting a very high standard, as always.
Good morning, Chairman Coats, Ranking Member Maloney, and
distinguished Members of the Committee:
Thank you for the opportunity to testify. My name is Andrew
Kelly. I am the Director of the Center on Higher Education
Reform at the American Enterprise Institute. We are a
nonprofit, nonpartisan public policy research organization, and
my comments today are my own and do not necessarily reflect the
views of AEI.
I am here because the federal approach to financing higher
education is on an unsustainable path and too often fails to
help those who need it most. While federal per-pupil aid
increased 46 percent over the past decade, net prices and out-
of-pocket costs at most institutions have never been higher.
Simply pouring more money into the system will not solve
these problems and may make them worse. That is because the
Federal Student Aid System suffers from four design flaws.
First, it essentially empowers colleges to capture as much
federal aid as they can. Aid eligibility is based in part on
the cost of attendance, which colleges control. In addition,
colleges use detailed financial information about their
applicants furnished by the Federal Government to price
discriminate, often substituting federal grant aid for their
own institutional resources.
Second, a lack of clear comparable information on costs and
quality makes it difficult for consumers to identify the most
valuable options. Systematic data on student outcomes like
learning, job placement, and earnings are rare, hindering
consumers' ability to make prudent borrowing decisions. This
reduces market pressure on colleges to compete on price and
quality.
Third, there is almost no underwriting of federal student
lending. Any high school graduate can borrow to attend any
accredited college at almost any price. Federal loans and
grants provide no signal to students about the value of
different offerings and allow them to enroll in poorly
performing schools.
Fourth, existing policies do not exercise sufficient
quality assurance. Federal eligibility criteria are far too
generous, meaning few schools ever lose access to grants and
loans no matter how poor their outcomes. Continued access to
aid props up colleges that would never pass a market test.
In short, the problem is not only that we make so much
money available in student aid, but that we make so much money
available with very few strings attached. One potential
consequence is the Bennett Hypothesis, the notion that
increases in federal aid cause increases in tuition. Existing
research on this question is mixed, but most studies find that
at least some types of colleges raise prices in response to
federal aid.
A recent study found that for every dollar in subsidized
student loans colleges raise tuition prices by about 65 cents.
It is difficult to identify whether aid causes tuition
increases, but it certainly seems to relax the incentive to
keep tuition low.
The Bennett Hypothesis has helped explain why federal
investments have not kept tuition low. But the focus on price
increases ignores a more pressing problem: the failure of
federal aid to promote higher education quality.
Aid policy provides colleges with plenty of incentives to
enroll students but less reason to worry about whether they are
successful. New college scorecard data suggests that at a
majority of colleges at least half of the alumni earn no more
than a high school graduate six years after enrolling. Default
rates are highest among borrowers with low balances, and even
inexpensive institutions like community colleges have low
repayment rates. These patterns indicate that higher
education's problems go beyond tuition inflation. For far too
many students, federal aid is providing access in name only.
With these challenges in mind, there are several reforms that
would encourage colleges to compete on price and value.
First, capping PLUS Loans to parents and graduate students
which allow unlimited borrowing up to the cost of attendance
seems like a straightforward way to curb tuition inflation.
Second, federal policy should empower consumers with better
information about costs and student outcomes. The College
Scorecard's new earnings data is a start, but the Federal
Government should expand on this effort to collect and make
public program-level outcome data.
Third, policymakers should create two simple accountability
mechanisms based on loan repayment rates: A performance floor
that would exclude the worst performing institutions from
federal aid programs; and a risk-sharing policy that would give
institutions above that floor greater skin in the game. If all
colleges were held responsible for a percentage of their
students' unpaid loans, they would have incentive to contain
their tuition, maximize rates of student success, and
reconsider their admission standards.
Fourth, reform should create space for private financing
that can inject more market discipline into higher education.
In theory, private investors could underwrite on the basis of
program quality and future earnings, driving students toward
valuable opportunities. Existing private student loans do not
appear to be forward-looking in this way. More than 90 percent
of new private loans feature a co-signer. An alternative is an
Income Share Agreement under which students obtain funding for
school in exchange for a percentage of their after-school
income over a set period of time.
Because an investor's return is directly tied to his
student's success, ISA providers have incentives to help
students navigate toward valuable opportunities. There are a
number of for-profit and nonprofit entities trying to offer
this option to students, but a lack of legal and regulatory
clarity has limited the growth of this market.
Policymakers like Senator Marco Rubio and Representatives
Todd Young and Jared Polis have introduced bills that would
provide such clarity and put common sense consumer protections
in place.
I appreciate the opportunity to provide testimony and I
look forward to the discussion.
[The prepared statement of Dr. Kelly appears in the
Submissions for the Record on page 46.]
Chairman Coats. Dr. Kelly, you almost--you were three
seconds over.
[Laughter.]
I think we have set a standard here now.
Mr. Chopra, you really are under a lot of pressure, but we
look forward to hearing from you.
STATEMENT OF MR. ROHIT CHOPRA, SENIOR FELLOW, CENTER FOR
AMERICAN PROGRESS, WASHINGTON, DC
Mr. Chopra. Thank you, Mr. Chairman, and Members of the
Committee, for having me today.
I am someone who has always been a big believer in the
power of competition, whether it is Olympic runners training
for a big race, or a burger joint looking to be the best in
town.
Competition can push us and help us be our best. But like
many others, I am also someone who believes that competitions
and markets do not reward the best when competitors cheat
rather than compete.
Today I want to talk about our student loan market and the
need for common sense rules of the road to promote fair
competition that protect consumers and honest businesses. Now
we do not have to go very far back in history for an example of
what happens when businesses cut corners.
This month marks the seventh anniversary of the collapse of
Lehman Brothers and the acceleration of the financial crisis.
Sketchy lenders and mortgage brokers pushed borrowers into
exotic new products, sometimes using bait-and-switch tactics
that led to surprises on closing day.
We did not get the benefits of competition. What we got was
catastrophe. Families across the country saw their home values
plummet, their retirement savings crater, and their jobs
vanish.
With state budgets squeezed, support for higher education
slashed and household wealth slipping away, more families could
not pony up to pay for college, making more and more seek out
student loans.
Since the collapse of Lehman, outstanding student debt has
doubled, with debt-per-borrower far outpacing the growth in
tuition. While most of our student loan market consists of
federal student loans, private competition has played a big
role in the student loan industry, but with mixed results.
For example, there are upwards of $500 billion in student
loans originated using private capital still outstanding. Now
in theory private lenders could have participated in the
federal loan program and competed on price and service, but it
turns out it did not work as planned.
An investigation by the New York AG did not find lenders
competing, he found them cheating. Lenders gave kickbacks to
schools, and even transferred company stock to keep financial
aid personnel.
By the end of 2007, the eight largest lenders in the
market, including some of the biggest names in Wall Street,
signed codes of conduct and many paid millions to settle
charges for wrongdoing.
Our private student loan market, the one operating outside
of the federal program, is not doing much better. Like the
subprime mortgages that skyrocketed in the boom years, Wall
Street securitization of private student loans surged, giving
lenders the ability to sidestep schools and aggressively target
families without clearly explaining that private student loans
did not include some of the key protections of federal loans,
like income-driven repayment plans which would prove to be a
lifeline for students who graduated in a tough economy.
Recently regulators have started to crack down on some of
the worst abuses. The Justice Department fined Sallie Mae and
Navient millions for ripping off military families.
The FDIC tacked on even more for their illegal student loan
servicing practices and violations of anti-discrimination laws.
And just this summer, the CFPB fined Discover for illegal debt
collection tactics and for inflating billing statements.
None of us like the outcome of the game when athletes are
doping, or when the ref is in cahoots with the bookie to favor
one competitor over another, and in the marketplace we are all
better off with sensible, well-tailored rules and a fair
referee.
In the student loan market, honest actors and consumers
will all benefit if we make disclosures clear, ensure that
servicing and credit reporting are accurate, and free of
conflicts of interest, and repayment plans in times of distress
are not gimmicky band-aid solutions.
That is how competition can help every student reach the
finish line, instead of being part of a race to the bottom.
Thank you, and I look forward to your questions and the
discussion.
[The prepared statement of Mr. Chopra appears in the
Submissions for the Record on page 60.]
Chairman Coats. Dr. Chopra, thank you.
I will start with just some questions. I will try to adhere
by my own rules. As a quarterback or point guard looking at the
play clock, as I get down to zero I will have my staff poke me
in the back and say time's up.
President Daniels, Dr. Kelly listed several things here,
and you did also, relative to responsibilities, accountability,
transparency, a number of things as we address this. What I
would like to hear you talk about is what is the responsibility
of the university relative to these tuition costs, other
related costs that are rising two, three, four times the rate
of inflation?
What is the role of the university in the accountability
that it must engage in? You suggested a couple of things, and I
think you have done more from what I understand at Purdue to be
accountable from the management side of the educational
institution in getting control of its costs, because ultimately
that drives up the costs to students and to the parents and
students that are having to repay these loans.
President Daniels. Well up until recently, I guess you
would say that the responsibility was purely an ethical or a
professional one, and it was not very often honored. Colleges
raised prices year on year on year because they could. And they
were certainly wind-assisted by the gusher of federal money. It
is perfectly well documented now that this has been a driver of
higher costs and made it easy, far too easy, for those
increases to happen.
I think that, belatedly, market pressure has begun to
assert itself, and none too soon. As I mentioned, at our
university we froze tuition the last two years. We have pledged
to keep it there the next two years. Don't know beyond that. It
cannot go forever, but we take that very seriously, and we are
aggressively promoting our university on a value basis, quality
of the education divided by its cost.
And our partners at Gallup yesterday revealed that among
those graduating from college in the last few years, there is a
very big difference in how they value the education they got,
whether they think it was worth it or not, compared to those
who graduated 10, and 20, and 30, and 40 years ago.
So there are signals that universities would be well
advised, not to mention better stewards of their
responsibility, if they were more careful about their costs.
And I think those that are not are going to be taking an
increasing risk in what could be a shakeout in higher ed
coming.
Chairman Coats. In reference to that, there was a Wall
Street Journal article yesterday about the Gallup Purdue Index.
I might just quote from that, that the steep decline in the
perception of whether a degree was worth the cost startled
Brandon Busteed, Gallup's Executive Director for Education and
Workforce Development. He said, ``When you look at recent
graduates with student loans, it really gets ugly really fast.
If alumni don't feel they're getting their money's worth, we
risk this tidal wave of demand for higher education crashing
down.'' That is quite a statement. You, Purdue, participated in
that effort, and with all our well-intended goals of educating
our young people for the challenges of, employment challenges
of the future here, if this persists that certainly puts us in
an ever more difficult position in terms of that.
And whether you, President Daniels, or Dr. Kelly, or Mr.
Chopra want to just quickly comment on that, I have got one
minute left, I would like to get your response to that.
Dr. Kelly. Sure. I will just say three things, quickly.
There are three important trends to keep in mind here.
Number one, we all know what has happened to tuition
prices.
Number two, the labor market outcomes of recent college
grads have not looked good. And it is not just function of the
Recession. If you look at wages for the youngest workers with a
bachelor's degree, they have been on the decline since about
2000.
But the third trend is also really important, which is that
the fortunes of high school graduates have been even worse.
They have done even worse in the labor market. So people are
paying more for a degree that is earning them less money, but
having a degree is more important than ever before because the
out--the counterfactual is worse. And so we need to keep that
in mind when we are thinking about debt and whether debt is a
net negative. The counterfactual of not having the debt is not
having the degree, which is much worse in many cases.
Mr. Chopra. I think there is a lot of talk about the
college wage premium. That is, the difference you earn over
your life between getting a degree and not. And it is very
interesting. This is all fully explained not by the increase in
wages for college graduates but the decline in wages for
everybody else.
So what we have is a combination on an inflation-adjusted
basis of flat or declining wages for college graduates, and
more and more and more debt. And the combination of those two
is not really good for the credit capacity of our country in
terms of formation of small business loans, mortgages, and
others. So it is both sides we have to look at, the debt and
the wages.
Chairman Coats. Thank you. My time has expired.
Congresswoman Maloney has designated Congressman Beyer as
ranking member, which entitles you and those of us up here will
be followed by Vice Chairman Brady and Senator Klobuchar, and
then we will get the titles out of the way.
[Laughter.]
And the rest of you can engage. So, Congressman Beyer,
you're on.
Representative Beyer. Thank you, Senator, very much.
So thank you very much for coming. Senator, Governor
Daniels, President Daniels, in my prior life as an automobile
dealer I spent an enormous amount of time arranging loans,
which very greatly varied, depending on the credit history and
the credit scores, of the customer who is before us.
On the ISAs, why wouldn't they only go to the most credit
worthy, or to the people, that the private investors who have
an equity stake in this person see to have the greatest
possible return? What will this mean for--especially if we dial
back on PLUS, what will this mean for the lower income, or the
lower expectation student?
President Daniels. Well we will have to see, Congressman.
My belief and supposition is that if the market does take off
and begin to mature, you will see a spectrum of those who have
the very best prospects, yes, will maybe be the first approach
for these contracts. They will also be able to negotiate the
very best terms.
I still think it could be, at least up to some point, much
more advantageous than other options like PLUS loans for those
who might have to commit a higher percentage of their income,
or for a slightly longer time, but would still get the benefits
of having shifted the risk in a way that debt does not. And
having secured some certainty and some limits to that
percentage of their future wages that would be taken up paying
for college.
You know, as I have described it elsewhere, working your
way through college after college. And those who wound up or
chose a less remunerative career quite naturally would have a
different set of terms. It does not mean it would not be better
for them.
Representative Beyer. Governor, why the need to have
exemption from state usury laws?
President Daniels. Because it is not debt. This is an
equity investment by every--and by the way, that is why I do
not think--why I do think it should be dischargeable in
bankruptcy. But if we are really going to shift the burden and
shift the risk away from the partner, the student, graduate
here, then we should treat it in that fashion all the way
around.
Now the bill as drafted does have upper limits. I think
that is just fine. It does have extensive consumer protection.
I think that is just fine. But I think it would probably
strangle the plan in the cradle if we let it be subject to
usury laws, which 50 different flavors which really do not
apply.
Representative Beyer. Great. Thank you, Governor.
Mr. Chopra, in the move away from PLUS loans and their
relying on the private sector, I am concerned about the many
things you read that the private sector loans have higher
interest rates, that they do not have some of the other options
that the federal borrowers enjoy, income-based repayments,
flexibility for forbearance, financial hardship deferments.
That typically federal loans are fixed interest rates; the
private loans are often floating.
Is there any reason to think that moving away from the PLUS
system to the private would make the problem worse?
Mr. Chopra. Well I think unlike a lot of other consumer
products, there are really not many consumer protections when
it comes to these consumer loans that are marketed as private
student loans.
In my testimony I mention some of those issues, everything
from credit reporting, to the treatment of service members, to
anti-discrimination laws. And I think we will need to think
about updating that.
One of the things we learned in the lead up to the
financial crisis is that regulators failed to exercise decent
judgment on when the market was spiraling out of control for
subprime mortgages. Disclosures were not working well. There
were problems from beginning to end.
And I think it is good for us to take another look at the
student loan market, particularly if we are thinking of new
products entering. I appreciate Governor Daniels' distinction
that it is equity versus debt, but for a student the difference
between the products, it is a different financing transaction.
And I do not want all of them to need a Ph.D. in finance before
they even enter college.
Representative Beyer. Great. Thank you.
And very quickly, I read that a third of all college debt
is actually post-graduate, mostly law school and medical
school, and another third of the for-profit colleges, which
leaves you only a third that are the traditional undergraduate
college educations. And that most of that is related to the
increasing number of kids going rather, than the debt per
person.
Is that accurate, Dr. Kelly? And are we overstating the
crisis?
Dr. Kelly. In terms of the big growth in student debt over
the past decade that people tend to cite, the aggregate number,
that is a function of growing enrollments in large part. It is
also a function of growing enrollments in graduate school.
Some estimates of graduate school peg it at more like 40
percent. And I do think that that raises a really important
point for policymakers as they think about the student debt
problem writ large. Disaggregating the grad school debt from
undergrad debt, and the struggles there, I think is really
important.
Representative Beyer. Thank you, Doctor. Mr. Chair, I yield
back.
Chairman Coats. Thank you.
Vice Chairman Brady.
Vice Chairman Brady. Mr. Chair, thank you for calling this
hearing. Thank you for the witnesses. This is a bipartisan
issue, and I also appreciate Representative Hanna's nearly
daily interest in student debt and college financing.
I had a young man in my office the other day talking about
health care issues. He is in graduate work in the medical
profession. He has $600,000 in debt. His fiance is also in
health care, $400,000 in debt. The reason I cannot remember the
topic he wanted to talk about is I kept looking at him thinking
``you've got a million dollars of student debt.''
And thankfully that is not the case with everyone, but it
illustrates where we have come. This committee is about the
economy. We had a tough Recession. The good news is we have had
many months of job creation. The problem is, it is very low. It
is like a car that is stuck in first gear at 15 miles an hour.
The problem is that this is the most disappointing recovery
in half a century. We are missing about 6 million jobs that
should be in the economy right now, many of those available for
college graduates. We are missing an economic hole in America's
economy about the size of Canada's economy. And for a family of
four, we are missing about $1,100 a month from our family
paycheck that ought to be back right now, which is a lot of
savings for college.
The challenge is the adults in the workforce is almost at
what it was seven years ago. So college graduates are having
trouble finding a job. They have high student loans. They are
postponing purchases, which also hurts the economy. So today
how do we tackle this?
We can go with the stale old ideas you always hear up here,
which is more federal regulations at state colleges and
universities. Or encouraging students to borrow more so they
can go deeper in debt. Or, free everything, which almost always
comes with a bill later on.
We are looking for fresh, new, 21st Century solutions. That
is what this hearing is about. I wanted to ask Governor
Daniels, one of the keys on financing seems to be much greater
knowledge about what degree you are pursuing and what income
that generates later so you can make good decisions.
That is starting, it seems to me, the doors cracked open at
the state level but nowhere near what it needs to be from our
level. What can we do to encourage at the state level that type
of knowledge for students and parents so, just as we have a
skills' gap today--you know, jobs versus the skills we need, so
we do not have that dream gap of what that degree might
generate versus the loans they might pick up. What advice would
you have for us?
President Daniels. First of all, I would not underestimate
the extent to which today's young people and their families are
focused on that. Overwhelmingly they tell us, almost, I think
to an excessive extent, that is why they are going to college.
That is what they are looking for. What will get me a good job
at the other end?
There are other very important aspects of higher education
that I hope we do not lose sight of. Nobody should think of it
as vocational school. But there is a real fixation on that now.
At Purdue University we teach--this is readily available
information--we teach 11 of the 12 most highly paid degrees,
careers by most often associated degree. We are, unlike a lot
of other schools, experiencing a surge of applications, up 15
percent last year after a record increase the previous year.
And when we ask why, it is because I think students are
newly concentrating on the likely benefits of a degree, and
they are also looking at, you know, at price on the bottom of
the fraction.
So the other thing I would say, though, and as Andrew made
reference, one benefit of adding to the inventory of possible
financing tools an equity-like tool like we were discussing is
it would serve as a signaling mechanism back to the
Congressman's previous question, you bet. Those who would
invest will bid more aggressively for the degrees and the
likely careers that they see as strongest in the market.
Vice Chairman Brady. And it seems to almost dictate, demand
almost a cost/benefit analysis for a family, or a student
looking at where they want to head, what they can pay, afford
to pay, and so all that seems--this is a fascinating solution.
And your point I think this is not the only solution. It ought
to be another tool for families and students to finance their
education.
President Daniels. That's right. I mean, I favor broad
reform. It is not the subject of this hearing, but broad reform
of the student financing scene we have today. Andrew has
written, and really both have written persuasively on those
subjects.
Vice Chairman Brady. All right. Thank you, Mr. Chairman.
Chairman Coats. We welcome back the Ranking Member in time
to do your questioning.
Representative Maloney. Thank you. There seems to be a
general agreement that tuition increases are driving the
explosion in student debt, and I would like to understand why
it is jumping up so much.
I know, Governor Daniels, that you froze tuition when you
went to Purdue I believe in 2013, and that is a wonderful thing
to have done. But I am interested in your perspective on the
tuition increases prior to your coming over the past decade.
And tuition and fees for an in-state undergraduate at Purdue
increased from just over $6,000 in 2004-05 to almost $10,000 in
2013 and 2014. So that is an increase of almost $4,000 in nine
years, a 64 percent increase, roughly two-and-a-half times the
annual rate of inflation during that period.
Could you give us some perspective? I know that was when
you were not there, but why did Purdue raise tuition rates so
dramatically during this period? What were the causes for this
64 percent increase?
President Daniels. They wanted to spend more money. They
did it because they could. I am not being critical. They were--
our university was no different in either the long, in that
case 36 year history of continuous increases, from almost any
other you could find. Neither did the go up as much by degree
as many others did.
A lot of reasons for that. Separately I have been asked a
lot of questions about the cost of federal regulations as a
contributing factor among many others. I will tell you what I
do not believe it can be attributed to, at least in our case.
Indiana has been assessed, now retrospectively, as the third
best State in the country for maintaining its public support of
higher education.
Representative Maloney. That's good.
President Daniels. Tried to send even more money than that,
but a reluctant legislature didn't agree with a couple of our
ideas.
But with only one very modest reduction, we were not one of
those states that had the big real-dollar cuts in public
support. So that can't explain it. I think regrettably the
number one reason was discussed earlier, was the now well-
documented contribution of free and easy federal dollars,
followed by trends in higher ed in which competition has been
based too often on nonacademic factors, amenities and so forth.
Representative Maloney. So it was because the federal loans
were easy for students to get, and would you say that was the
contributing----
President Daniels. I would say that was not the whole
explanation, but it was a----
Representative Maloney. But was it state budget cuts?
President Daniels. In some states I don't doubt that it
contributed, but the Indiana experience shows that it is not a
complete explanation, probably not even the--as large an
explanation as the so-called Bennett Hypothesis which is no
longer a hypothesis. I think it has pretty much been
empirically proven. The New York Fed I think is the most recent
to find validity in that.
Representative Maloney. So in other words, Purdue was
taking advantage of students because they had federal student
loans and it was easy to get, you know?
President Daniels. Well I think to a much lesser--that's a
fair statement--to a lesser extent than most other schools I
can point to, our school remains even at the time that those
increases went in place, one of the least expensive in our peer
group. And so I tend not to look back at what was but try to
look ahead in an era in which I think value for money finally
will become a decisive factor in higher ed.
Representative Maloney. Well that is a little discouraging
that they just used the student federal money just to raise it
and make it harder for more children to come to school.
I would like to ask Mr. Chopra, you know, many students you
read about they are being forced into default because of these
high loans that they have and it has lasting negative
consequences for us. What are the main differences in consumer
protections between federal student loans and private student
loans?
What is the contrast between them and any protections that
are there with federal loans, any predatory practices with
private loans? Could you give us an overview as this is your
area of expertise?
Mr. Chopra. It really is like comparing apples and oranges.
One of the things that--and you listed some of them earlier--
but one of the ones I really want you to think carefully about
is the ability to restructure that debt if you happen to
graduate in a tough economic cycle.
People who entered college in 2005 during the boom of the
private student loan market, they graduated in a time that was
much different, when an economy was not doing well. And so they
had a tough time of avoiding default because those private
student loans do not include income-driven repayment and term
extensions, as you mentioned earlier.
It is made even worse by securitization structures, where
the servicer, the bond holder's trustee, they do not talk to
each other and they cannot get to solutions. And this is not
just bad for the student; it is also bad for the investors. But
it is a symptom of very poor design and thinking up front.
Representative Maloney. My time has expired. Thank you.
Chairman Coats. Senator Klobuchar.
Senator Klobuchar. Thank you very much, Mr. Chairman. Thank
you to our witnesses.
Governor Daniels, unemployment in Minnesota is somewhat
similar to Indiana. I was just in your state a few months ago,
and there are some commonalities between Minneapolis and
Indianapolis besides the ``apolises.'' And you are at 4.6
percent. We are at 4 percent. And I think one of the things we
have found is that we are starting to have job openings in
everything from graduate degrees, four-year degrees, one- and
two-year degrees. They tend to be more in science and
technology and the medical areas.
And I would like to get your perspective, as former
Governor and a college president, what you think we need to do
to get students into these areas where we have job openings and
make sure they are getting the kinds of degrees we need them to
get.
President Daniels. I do think the news is spreading. We
have a very detectable increase in interest, an appreciation by
parents and young people of the importance of math, and
science, and the technical education that flows from them.
And as I mentioned a minute ago, if we are any indicator--
and we are the third most STEM-centric university, public
university in the country already, and investing to become even
more so--so at least temporarily, and encouragingly, I think
there is a growth in appreciation for this. We have got a lot
of work to do at the K-12 level to have students ready for the
rigors of today's scientific education.
I know from talking extensively with the president of the
University of Minnesota, and we share a concern about--every
college president will tell you that K-12 improvements are
absolutely----
Senator Klobuchar. Right.
President Daniels [continuing]. Essential.
Senator Klobuchar. Because they just keep thinking to make
these degrees more relevant, and with the costs and those kinds
of things, when you need to make sure that they are training
the kids in the areas where we have the openings.
President Daniels. Well as we have been discussing, more
transparency, and I commended on stage a couple of weeks ago
Secretary Duncan for the most recent efforts there. We need to
go further.
Senator Klobuchar. And how would you go further?
President Daniels. Well the first phase there shows, for
instance, average income of graduates of school A versus B
versus C, and we need to drill down into the specifics. Because
as you know at any given university there's a wide spectrum of
career prospects based on what a student decides to study.
So, and again, one of the virtues I think of a more equity-
like financing option is it would send us a market signal, the
market would bid differently for the chem-E grad than it might
for a graduate of a different discipline.
Senator Klobuchar. Thank you.
Mr. Chopra, my dad is a graduate of a two-year degree, and
then went on to get the rest of his degree at the University of
Minnesota. My sister went to a community college as well. So I
have some sense of the importance of that. And I think we know
that by 2020 an estimated 35 percent of job openings will
require at least a bachelor's degree; 30 percent will require
some college or an associates degree. So how does this all fit
with the community colleges? And can you talk about that, the
cost there, and what can be done to make those degrees more
desirable since some of the openings we have that I mentioned
before, whether they are in welding or some kind of trades, are
one- and two-year degrees.
Mr. Chopra. Yes, I think this goes hand in hand actually
with our previous discussion about those who are defaulting
often are ones who do not complete college and have lower
balances. And many of them are going to pretty poorly
performing, often for-profit schools.
And I think we should think more about how community
college investments can be a gateway for people to in some ways
try college, get that first associates degree, without having
so much debt.
Senator Klobuchar. Exactly.
Mr. Chopra. And that allows----
Senator Klobuchar. And actually getting a degree where they
can work.
Mr. Chopra. That's right. And I think, to go on the
previous discussion, there is not right now a market incentive
for many schools to produce job--degrees that lead to jobs. We
have many, particularly in the for-profit sector, where the
market incentive is to revenue maximize with whatever degrees
there may be.
And in Dr. Kelly's testimony you can see that the
accountability structure is not there in that sector, as well
as others; that we need to remove some of these low-performing
schools that are just having people drowning in debt.
Senator Klobuchar. Okay, let's put them aside for a second.
I just really want to get at the one- and the two-year degrees
that are performing, and how we make it easier for kids to go
to those and incentivize them.
Mr. Chopra. Well part of that is investing more in those
degrees. I think too many people actually--a lot of people are
able to go for free, but a lot of people are not.
Senator Klobuchar. Okay. Thank you very much.
Chairman Coats. Congressman Hanna.
Representative Hanna. Thank you, Chairman.
I want to just quickly mention, Utica College, which until
recently was affiliated with Syracuse University in my
District, has lowered their tuition 43 percent, at a year when
they have had the largest enrollment and applications in their
history.
And it will take them 14 years, at a 3\1/2\ percent
interest rate, to get back to where they are today. And they
have done this on their own, so I think that is worth looking
at. I will give you some information on it.
The other thing I wanted to mention is Congressman Kilmer
and I, and along with Orin Hatch, Senator Hatch, have a bill
that will allow students, or teachers who stay in Title I
schools with poverty levels below 40 percent, or above 40
percent of the poverty line, to have a direct cash credit to
help them fund their college education debt. And in addition to
that, along with what Ms. Klobuchar was talking about, we also
have a bill that I want to ask you about in terms of allowing
people to capitalize their debt as if it were an expense like
any other business. It's called a STEM Education Opportunity
Act, something I wrote out of my office, that would allow
someone, regardless of when they pay off their debt, to write
off the cost of that--and I'm sure there are a lot more details
to be added--but throughout the course of their life based on
when they decided to take it.
So they would capitalize it as if a business bought a piece
of equipment. But for the moment, though, I want to ask, we
know that the implications for this huge amount of debt abroad,
across the economy, and I want to ask each of you if you have a
notion of what that means.
We know people are not buying homes as early. We know that
people are withholding--not getting married, not having
children, a whole host of things. And they owe a trillion
dollars or so.
President Daniels, would you like to speak about that?
President Daniels. Well you said it all, Congressman, or
most of it. I guess I would add, these are very, very real
problems. As I said earlier, we ought to worry most about the
damage to the prospects of young lives. But behind that, to the
near-term effects on the economy. And they are very real. We
are learning more all the time about postponement of purchases,
about the postponement of business startups, and so forth.
But we ought not neglect the fact, you are talking about
write offs, you know, ultimately we are writing off, and we are
going to write off, a ton of federal debt. It is all coming
back to visit--it will come back to visit itself on these very
same young people.
So if the average student loan--student indebtedness now is
$27- to $30,000, they already owe twice that in federal debt
that has been run up not by them, or not on their behalf, but
by their elders, us, for current consumption. And that is an
economic--it is a huge economic problem, the dominant one I
believe for the future of this country. And this subject we are
gathered on this morning is now a material contributing factor
to it.
Representative Hanna. Have you seen numbers on what
percentage, or part of a percentage it might be in terms of our
growth to our economy?
President Daniels. Yeah, I mean there is a mountain of
evidence that shows that debt burdens as they grow are a direct
penalty on growth. And if you ask me to name the single
dominant problem facing the country now, it is that we are
staggering along at, as was made mention, at historically low
growth rates coming out of a recession that deep, and no other
problem we face is susceptible to a satisfactory solution while
that is the case.
And so the debt anchor that we are already carrying, let
alone the one that is right in front of us, is a very real
problem for the growth of this country and everything means in
terms of upward mobility, hopes for low income people, and
commitment, frankly, to the democratic process, which has
always produced that hope.
Representative Hanna. Dr. Kelly.
Dr. Kelly. I would caution against making too many
inferences about the effect of debt on the economy from this
period in particular, just because two trends covary does not
mean that one necessarily causes the other.
The best study on how debt affects home ownership finds
very small effects among student debt on getting a mortgage or
obtaining a mortgage. That's a longitudinal study by a
researcher at the University of Wisconsin, as one of the
authors.
I will say that part of the problem we have is that the
composition of who has student debt has actually changed
dramatically as a function of the Recession. People went back
to college. People left their jobs and they went back to
college, lower income people often. And so those people are
going to be less likely to own homes in the first place, and
also they are likely to have lower credit scores, and so on.
So one of the ways to interpret those trends is as part of
the access story. That is, we invited more people to go back to
college. People with debt are going to look like they are
struggling more in the economy.
Representative Hanna. Thank you. My time has expired.
Chairman Coats. Thank you. Senator Peters.
Senator Peters. Thank you, Mr. Chairman.
And thank you, our panel, for your excellent testimony here
today. President Daniels, I just have a question for you,
particularly given some of the comments you have made
particularly about the increases that we saw at Purdue prior to
your tenure, and Dr. Kelly as well talking about large
increases in tuition with colleges and universities across the
country.
A disturbing trend that I have seen in universities is the
increased use of adjunct professors as opposed to having full-
time faculty, often tenured faculty who are doing substantial
research and other types of activities. I think some of the
statistics I have seen is that roughly 50 percent of
instructors now in universities across the country are part-
time instructors. And a majority of these folks are not in a
career somewhere and then teaching part-time, this is actually
their job and they have to cobble together their teaching at
several universities, or having many classes, often earning
very, very low wages.
And if you look at overall wages for professors, I think
last year was the first increase of 2 percent, the first one
above inflation in five years. So it does not seem as if the
money is going into the classroom, particularly when we have
this incredible trend to part-time instructors who are living,
some of them, not much above the poverty level even though they
have Ph.D.s and substantial education.
So where is all the tuition increase--where is that money
going if it is not going into the classroom and going into the
professors who are actually teaching our students?
President Daniels. Yes, Senator, I think you have put your
finger on something very important. I am happy to tell you that
at Purdue we have very, very few adjunct faculty, a high ratio
of tenured and tenure track and clinical or research faculty.
But nationally, I believe you are quite correct. This has
been the trend, and it simply indicates, and I made quick
mention earlier that too often in higher ed the terms of
competition lately have not been academic excellence, and they
certainly have not been affordability. In fact, quite the
contrary.
The terms of trade, oddly enough, were that in the absence
of other evidence people associated a higher sticker price with
more quality. And I don't know the Utica situation directly,
but where we see these dramatic--a few dramatic reductions in
tuition, they weren't collecting it in the first place. They
were backdoor discounting through, you know, scholarship
assistance and so forth.
But the dollars that were getting collected too often were
invested or spent on amenities, and creature comforts, and
things that people who went to college even 10 or 20 years ago
would not recognize.
So I think that is all changing. I think the terms of
competition are, as they were bound to, shifting. And I hope
they will shift very much in the direction of those schools
which are maintaining and can prove educational quality and
academic excellence for the dollars they are charging.
Senator Peters. Dr. Kelly.
Dr. Kelly. I think this concept of shifting the terms of
competition is actually the most crucial insight here as to how
to right this system. I think this is partly why simply adding
more money to the system without changing the incentives that
colleges face and how they compete with one another is not
going to change a whole lot. It will be sort of gobbled up by
the system as it always is, and then we will maybe reset the
clock for a year and be back where we started.
I think the rise of adjunct instructors really helps to
crystallize this incentive structure, that colleges are not
judged on the basis of how much students learn and how well
they do once they are out in the labor market. Instead, they
are judged on amenities, and student-faculty ratios, and so on.
Those things cost money, and hiring adjuncts allows you to
save, to redistribute some of the money you were spending on
teaching to do other things.
Senator Peters. No, I want to push back a little bit. My
comments, I didn't mean that adjunct is an inferior professor.
In fact, adjuncts can be highly skilled, very good instructors.
They just simply do not get paid adequately for their services.
They are being shortchanged. And so if there is money that a
university is raising, it is going somewhere else other than
paying faculty members who are the people who are actually
educating our students.
Dr. Kelly. That's right. And, you know, please interpret my
point to mean that the university is signaling its priorities
by where its money is going, and it is not necessarily going to
teaching, often, because they are paying adjuncts less money.
There is some research as to the difference between adjunct
faculty and full-time faculty. It tends to find that full-time
faculty, you know, have higher performing students. I would not
push that too far. There has been, to my knowledge, no
randomized controlled trial of that. But I think your point
remains that simply spending more money, the concern is that it
will not actually reach the classrooms, that it will go to
other functions and other things without changing the terms of
competition.
Senator Peters. Thank you. I'm out of time.
Chairman Coats. Thank you, Senator.
Representative Paulsen.
Representative Paulsen. Thank you, Mr. Chairman. Thanks for
calling this hearing, to identify some of the current
challenges we have in the higher education system. But it is
also refreshing to talk about some new ideas and some new
solutions.
It seems that too often the conversation that we have here
in Washington focuses on whether or not the student loan
interest rates should be 4\1/2\ percent, or they should be 5\1/
2\ percent. That is an important conversation to have, but we
are missing the opportunity really to focus on the real driver
of student debt. And that is the rising cost of college.
I think we would all agree that while the difference
between an interest rate of 4\1/2\ percent or 5\1/2\ percent is
noticeable, there is a much larger difference between needing
to borrow $15,000 to complete your college education, or
borrowing $100,000 to complete that education.
And with more and more jobs today requiring a college
degree, it is likely we are going to continue to see more and
more American students choosing to go to college. And so we
should be focusing on reigning in college costs.
And, President Daniels, you have become very well known
across the country for cutting costs at Purdue, for freezing
tuition now for four years. Can you talk a little bit more
about how you have been successful in getting the Purdue
community on board with trimming costs?
President Daniels. Thanks, Congressman. First of all, I am
not particularly impressed with anything we have done so far. I
think there is much, much more to do, but it is a start. But I
would not overclaim at all.
But I like your question because I think it was a central
one. I would say this. One of the beauties of our campus or any
campus I know is the wide variety of views on almost every
subject. It is one of the joys of working at a place like that.
But if I could identify one thing that I think is a matter
of consensus on our campus at least, it is that we want our
doors to remain open, as they have been for 150 years, to
people of all social and economic backgrounds.
We are a land grant school. A lot of people do not know it
because of our name and, frankly, I think a great academic
record, but we are. And it is very much a core principle for
us. And so from the beginning we have asked everyone to
contribute.
We have a fund, by the way. Many of our faculty,
administrators, and staff forego raises voluntarily and
contribute it to a fund which we use to buy down the cost of
next year's tuition.
So, yes, we are doing those things which I hope will
conserve dollars for the real core purpose, which is excellent
faculty and facilities for them to teach in. But I am happy to
tell you, and I believe this would be true on most campuses,
that when people are asked to think about it they very much
want to work at and teach at places where no-one is denied the
opportunity based on economics.
Representative Paulsen. You know, you also talked about
one-sided accountability. Can you elaborate a little bit more
on what you mean, and how you can create a system that actually
focuses on shared accountability among government,
universities, and students. The NY Federal Reserve study
showing, every dollar of increase in federal student aid is a
65 cent increase in tuition. We know that it is the same for
Pell Grants, 47 cent increase for every dollar that we put in
the student loans.
President Daniels. I think it is pretty straightforward.
You know, I was in the health care business for a long time,
and the parallels are pretty plain. When someone else is paying
the bills, or large portions of the bills, the buyer is
immunized or insulated against the full, at least temporarily
in the case of student loans, against the sense of value that
they are acquiring for it.
So the schools had it going both ways. A lot of free money
coming in one way. Nobody measuring that value on the other
end. And now fortunately, and thanks to this committee and
other leaders here, Secretary Duncan and others, we are
beginning to see scrutiny of the results, more public
information about the results, and I hope likewise some sharing
at least of the risk and accountability on the front end.
As I said, we for one institution would be willing to step
up to that.
Representative Paulsen. Dr. Kelly, maybe you can add a
little bit on how to have a better accountability system that
focuses on shared accountability?
Dr. Kelly. So the problem of the current federal rules
around financial eligibility that are based on the cohort
default rate, which is the percentage of your students that
default after three years--three years after entering
repayment.
It is a binary variable. You are either above the measure
and you are out of the system, or you are just below it and you
are in with full access to the system. And so that creates
little incentive for people below that floor to improve.
There are also lots of ways to appeal the Department's
decision as to whether to kick you out. The result is that very
few schools ever lose eligibility, despite horrible outcomes in
many cases. So one of the things we have proposed is a risk
sharing system where colleges would be on the hook financially
for loans--for some percentage of the loans that go unpaid by
their students.
It does not have to be a large percentage. In the mortgage
market they found that risk retention of 3 to 5 percent changes
behavior. So--and there is a bipartisan push to do this now,
and I applaud that.
Representative Paulsen. Thank you. Thank you, Mr. Chairman.
Chairman Coats. Thank you. Senator Heinrich.
Senator Heinrich. President Daniels, one of the areas where
there seems to be some agreement is that shifting the terms of
competition is really going to be key to beginning to arrest
some of these unsustainable increases both in terms of tuition
and in terms of student loan debt.
In addition to apples to apples kind of comparisons and
scorecards like you have talked about, do you see other tools
that can get at that same issue and make sure that we are
measuring value?
President Daniels. Yes, sir. In our state, and in a growing
number of states, at least a portion of state aid is now
predicated on performance. It is in early stages. These are
imperfect measurements. They do lead to occasionally some
anomalous outcomes, but it is the right direction to go, which
is to say that when some percentage--and I hope it will be a
growing percentage--of government assistance, state or for that
matter federal, is based on the value of the product being the
service being delivered, the graduation rates, the retention
and progress rates, and maybe one day the success of graduates
elsewhere, you will have another incentive pushing in the right
direction.
Senator Heinrich. Mr. Chopra, I want to get at another
issue that I think, in the case of New Mexico may not look
exactly like the rest of the country but which is very
important to our students. I am very proud of the fact that a
number of our higher education entities--the University of New
Mexico, New Mexico State, New Mexico Tech--have actually done a
very good job of managing their tuition costs. We have not seen
the kinds, the scale of change and increases that we have seen
in other places.
And I have certainly talked to a lot of students who talk
about the incredible importance, oftentimes first-generation
students, in Pell Grants and being able to access those
relatively modest cost institutions that provide a high value.
It led me in some case to introduce S. 1998, the Middle
Class Chance Act, which updates Pell Grants to a little over
$9,000, allow recipients to use those for 15 semesters instead
of the current 12, and use them year-round.
Do you have thoughts for some of the traditional financing
tools and whether, how important they continue to be,
especially for low income students to get in the door? And in
particular with first-generation students.
Mr. Chopra. As we discussed earlier, an entry point of
community college and using a Pell Grant, many of those
students are able to go almost for free. And I think more of
that should occur as long as we are getting good performance
out of it.
One of the things that I would encourage you also to think
further about is how we structure the post-9/11 GI Bill
benefit. We have a lot of people that are nontraditional who
have served, and in some ways they are not necessarily getting
to use those benefits in the most high-value way.
So, and to echo what others are saying here, you know,
accountability to ensure that poor performing high-cost schools
are not grabbing most of the dollars is critical. And part of
that is rigorous enforcement that if we have standards that
people are failing, they need to be kicked out and not be able
to get the benefit, whether it is federal aid or the GI Bill or
what have you.
Senator Heinrich. I suspect, certainly in my case and I
suspect many of my colleagues would love to know your thoughts
on improving those post-9/11 GI benefits. And I've got a little
bit of time here, so why don't I ask you quickly, could you
remind us and elaborate a little more than in your limited
testimony some of the unique financial pitfalls that our
Service Members and our Veterans face when trying to finance
higher education, and some of the abuses that we have seen in
recent years within that sector of the market?
Mr. Chopra. Yeah, the Congress funds the DoD Military
Tuition Assistance Program, as well as the post-9/11 GI Bill
benefit. There are also specific programs for military spouses,
as well. And I have been personally troubled at the very
aggressive recruiting of people with these benefits.
There is a law, a requirement called ``the 90/10 Rule''
which requires certain institutions to get 10 percent of their
revenues from non-Title IV sources. And so many of these
service members or veterans are seen as nothing more than a
dollar sign in a uniform. So I think some of the same
principles we are talking about with accountability and risk
sharing we need to think about that more broadly, too, to make
sure that people are not just enrolling students to get those
GI Bill benefits, but they are actually succeeding.
Senator Heinrich. Thank you all for your testimony. It is
very much appreciated.
Chairman Coats. Thank you, Senator.
Senator Lee.
Senator Lee. Thank you, Mr. Chairman.
Thanks to all of you for being here. It is an honor to have
you here, and we always benefit from your insight. You know,
this is an exciting time to be involved in a discussion about
higher education. I happen to believe we have got the best
higher education system in the world here in the United States.
It has challenges, yes, and we have got to confront those,
but it is an exciting opportunity to be part of this
discussion. I look at some of the things that are happening in
this area, and I am encouraged by steps that a lot of people in
this field are taking, including for instance President Matt
Holland, the president of Utah Valley University, who recently
set up a financial services initiative within this University,
a big school and a rapidly growing school within the State of
Utah. He set this up for the purpose of providing guidance to
students, giving them information to make sure that they know
what they are getting into, the implications, the ramifications
of their different student financing options.
And he did this not in response to a high loan balance
among his graduates. In fact, Utah Valley University has a very
low loan balance among its graduates, perhaps the lowest in the
State of Utah. He did this, rather, because he wants to provide
a valuable service to his students. I appreciate what he is
doing there and the insight that you have given us today.
I would like to start with President Daniels. You were
asked, I believe, a few minutes ago about what kind of
transparency is offered to students at your university. I
wanted to ask you, what kind of a burden would it be for
institutions like yours administratively and financially to
have to provide information like that, information regarding,
you know, average debt load per major, average time to graduate
per major, average starting salary per major, and things like
that?
President Daniels. Approximately zero. I mean, these things
we know or should know. And we do provide it. I was not
surprised to hear your account of what that one university has
done. It is very like what we have seen, and some other
schools. I know our sister school, Indiana University, has had
good luck, too.
I said earlier a little counseling, a little financial
advice goes a very long way, and we have seen a number of
families realize they either do not need to borrow, or really
would be wise not to borrow as much as they originally
intended. So I think it is a responsibility, frankly, not
particularly a burden, and it is always easier when you do not
have to do it, but my sense is that any of the things you just
mentioned we know now and it would not be an expensive or a
burdensome thing to make certain that every student considering
financial aid was fully aware.
Senator Lee. Is there any aspect of existing federal law or
existing federal regulatory practice that makes it more
difficult to establish programs like that? In other words, is
there any change we could make to federal law or federal
administrative practice that would encourage universities to do
that sort of thing?
President Daniels. Yeah, lots of them. As in every other
realm, yeah, I was part of a hearing a few months ago on this
very subject, one which I think maybe a previous question
brought up, very important. We are trying to move to year-round
education. We are trying to move to progress-at-your-own rate
education. And it would be really helpful to have some of the
financial aid instruments modernized to accommodate that.
Most of them, or all were originally designed for the old
traditional start in September, finish in May, agrarian
calendar, which increasingly describes the educational
experience of a declining minority of our students.
Mr. Chopra. Senator, if I could add?
Senator Lee. Yes.
Mr. Chopra. The counseling piece is a really good
discussion to have. And it is not just at the front end when
students are coming in. It is also when they are repaying. That
is the case when they are outside of the confines of the school
gates. And that is one of the reasons I think we need to take a
close look at student loan servicing. These are the companies
that are hired to collect debt on behalf of the Federal
Government and other private actors, and they are required to
provide students options on how they navigate their debt. And
unfortunately I think we find too many borrowers are being
rushed off the phone, rather than giving honest and clear
information. And this just reminds me too much of what we saw
in the foreclosure crisis where there were options to avoid
foreclosure that would have been good for investors and good
for the homeowner, and instead we had businesses cutting
corners and it hurt us all.
So we should look at not only in school but after school as
well. Some people have thought about how housing counselors who
are now dealing with less or fewer foreclosures, how they might
play a role in assisting student loan borrowers, as well.
Senator Lee. Thank you. Thanks for that insight. I see my
time has expired. Thank you, Mr. Chairman.
Chairman Coats. Thank you, Senator. Senator Cassidy, you're
on.
Senator Cassidy. President Daniels, we have heard a lot of
testimony that although you say that many of your parents and
families are very interested in knowing the cost of education
and the value thereof, to me that just shows you have got a
bunch of engineering students coming to your school, right? The
liberal arts person may not be quite as kind of into the
numbers--it's not like a stereotype--but apparently the data
shows that, that most students do not pursue that.
So I am intrigued by your ISA. That would be a clear market
symbol. But on the other hand, you can imagine that if you move
beyond philanthropy and loyal alums, and you move into the kind
of financier, there is going to be some program that says, oh,
this person had a tiger mom. We're going to bet on this person.
And this person came from a disadvantaged background from
this zip code and they are less likely to complete their
education and go far. You see where I'm going with that. Any
thoughts about that? Because again this would be a great market
signal, but I can see you want to have some protections, if you
will.
President Daniels. Well, we will only know when we know,
Senator, but I can imagine in a fully developed market these
things would, would work themselves out in very interesting
ways. For instance, I suspect that at least initially, and
maybe always, the most frequent use of an ISA would be to in
essence recapitalize a student who maybe started with debt but
now has shown some real promise. They have progressed a couple
of years.
There is a lot of data that shows that those first-
generation students that you talked about, Purdue has built its
reputation on first-generation and low-income students who went
out and did great things after achieving a fine education. And
some of them might look to the market like the very finest of
prospects, and in essence as I say can convert debt, or a large
portion of it, to an equity like arrangement.
Another thing I would say is--and we have not made any
decisions yet. We are studying a whole variety of options. But
I think early on you would probably see a blended system in
which there would be some subsidization by let's say loyal
alums, or philanthropically minded individuals, of those
students with less certain prospects.
Senator Cassidy. Can I interrupt you for a second?
President Daniels. Please.
Senator Cassidy. Limited time, so I don't mean to be rude.
Now it also seems--I have read about the GRAD PLUS Program
which seems to be somewhat, you know, subject to abuse. Grad
schools have raised their tuition, and people can never hope to
get paid back to. So this seems like an ideal thing for kind of
the grad school component. And I'm just asking your thoughts on
that.
President Daniels. I agree completely. And in the written
testimony I say some pretty direct things about PLUS loans, and
both of these gentlemen have written about them, and I think
probably have similar thoughts. But, yes, I think that's the
way to get rid of the PLUS loan program and I think the ISAs
could be a partial replacement.
Senator Cassidy. Let me ask Dr. Kelly. Dr. Kelly, you speak
about this skin-in-the-game thing, but I have been told by
people who know far more than I that if you look at those
schools who have great repayment rates, oftentimes they have
very few Pell Grant students, if you will, indicative that they
have a kind of better-off student body to begin with. And, if
you will, they may even be deliberately avoiding the implicit
federal obligation to take on all social economic class, et
cetera, and that you should kind of scale your skin-in-the-game
by how many Pell Grants or some other kind of marker for what
you are doing for the lower income. Any thoughts about that?
Dr. Kelly. Sure. I think it is crucial that any risk-
sharing system acknowledges that tension. The way that we have
dealt with it in our writing and our proposals is to suggest
that you couple a risk-sharing system with bonuses for Pell
Grant graduates.
Now we don't want to just premise the bonus on enrolling
Pell Grant students because that is going to lead to just more
enrollment, rewarding them for enrollment. We want them to be
successful. That is one way in which you would still maintain
the incentive for institutions to seek out and enroll Pell
Grant students, and in fact to sort of hedge some of the risk
of doing that under the risk-sharing system. I think that gets
you 90 percent of the way there to sort of--getting into a
risk-adjusted, risk-sharing where different schools have
different standards, I think it is a slippery slope.
Senator Cassidy. Except, let me stop you there.
Dr. Kelly. Sure.
Senator Cassidy. Because there are some schools such as
historically Black colleges and universities who have taken as
their mission helping those who are disadvantaged and come from
a background, et cetera, et cetera--you know where I am going
with that--and then there are others who have a rich tradition
and frankly take very few Pell Grant students, and many of
their parents, you know, all the things you look for for a kid
who is going to do well. Should they really be kind of judged
on the same scale, if you will?
You really want some institutions taking that risk don't
you?
Dr. Kelly. I think you do. And I think that is why you
would incentivize them to do so by saying to them if you're
successful with these students, we are going to----
Senator Cassidy. Yeah, but I am going to your point where
you say you would not want to stratify the kind of risk
assessment. Maybe I misunderstood what you said.
Dr. Kelly. Yeah, I think that that is a slippery slope
toward having lower standards, frankly, for institutions that
enroll low income students. And I think that would be a shame.
Senator Cassidy. But--well, I am out of time. Thank you.
Chairman Coats. I can give you 10 seconds, because that is
a really, really good question.
Senator Cassidy. Well, I do think that if you have a
school, a second Ivy League school which has very few Pell
Grant students, and you compare it to a historically Black
college and university which is going to have a lot of Pell
Grant students, to put them on the same scale is unfair to all.
It really makes one look really good, and the other look pretty
bad, but their missions are quite different.
So knowing that it could be a slippery slope where you end
up with lower standards, at some point do we want to run that
risk? Because otherwise we don't have a good picture of what
the demographics of your incoming class, it may not be a great
education you've just got great demographics.
Dr. Kelly. I think this is a question about the Federal
Government's interest as a lender, frankly, and whether it
wants to lend money to institutions that it knows most people
do not graduate from----
Senator Cassidy. No, I didn't say that. You don't have
standards, so----
Dr. Kelly. So this is part of the tension here. Is that--if
we want to take--if we want to take access-oriented
institutions and make sure they have the incentive to maintain
their access, then we should subsidize that activity directly
rather than lend for it.
Senator Cassidy. Then let me flip it. Someone once told me
that the original inclusion of private schools in the whole
student loan program was conditioned upon their commitment to
taking lower income people, lower income students, but that
statistically they have not. And that if you take Pell grant as
a proxy for doing so, they have just not done it.
And so if you will, there is that flip side, right?
Dr. Kelly. Sure.
Senator Cassidy. You have not expanded access in any
appreciable way, and so therefore should the federal taxpayer
be subsidizing you? I am the proud graduate of a land grant
college. I will say that land grant colleges I think kind of
get to that sweet spot. But I do think that is the other side
of the tension that you are describing.
Dr. Kelly. I agree, and I think this is entirely in keeping
with this notion of changing the terms of the competition. I
think that we have encouraged elite colleges to become more
selective, hyper-selective often, and raised their tuition
prices to signal that they are a higher-quality alternative.
All of these things depress low income enrollment and low
income interest in the school because of sticker shock and so
on. So I think the point you are pointing out, the point you
are making is well taken.
Senator Cassidy. Mr. Chopra, I did not mean to ignore you.
Mr. Chopra. I'll take it, Congressman.
Chairman Coats. You raised an important question, actually
because I have a hearing on that subject alone. I appreciate
that, and appreciate the witnesses.
Senator Casey, you have been patient, but the last shall
now--maybe you can get extra time.
Senator Casey. Mr. Chairman, don't open up that door.
[Laughter.]
No, but I thank you for the hearing. We are grateful for
this opportunity. I want to thank our witnesses for being here.
Mr. Chopra, I will come to you in a minute not only to make
up time that Senator Cassidy wanted, but also to probe a little
more on the state's role here.
But I want to start with Governor Daniels. Governor, good
to see you again and appreciate your Pennsylvania roots. Am I
right? Monongahela?
President Daniels. That's right.
Senator Casey. We wish when people are born in Pennsylvania
they stay, but we lost you so we'll keep claiming you.
But I wanted to ask you about a program that does not get a
whole lot of attention, but it is the subject of some work here
in the Senate this week, the Perkins Loan Program.
In our State, it amounts to some 40,000 students that
benefit from Perkins. Across the country, right around 539,000
students. You know it well, and folks in the room know it well,
low-interest, fixed-rate loans for students with exceptional
needs.
What we are trying to do this week, and it is interesting
that we've got a bipartisan effort, about 25 co-sponsors to
extend the program for a year. Four of the co-sponsors are
Republicans. So we do have a good consensus in the Senate on
this.
The concern obviously is that the students that are
benefiting here are exceptional need, as I mentioned before.
One quarter of all loan recipients are from families with
incomes less than $30,000. So not a lot of income.
It is, as you know, a revolving loan program. And I am
told--I want to make sure I am right about this--Purdue in the
2013-2014 academic year issued nearly 3400 Perkins loans? Does
that sound right?
President Daniels. I don't know, but it sounds right.
Senator Casey. And what is your experience with the
program? And what is your sense of it in terms of the Purdue
experience?
President Daniels. Obviously it has played a very important
role over time. My--I am generally persuaded by the suggestion
of those more expert--a couple of them are here--that
ultimately reform here ought to be more in a Perkins-like
direction, that we ought to have maybe one loan program that
ought to be means' tested.
Among the many things we have not talked about this
morning, the current system subsidizes wealthy families in many
respects, and a country that is broke, and a program that is
consistently overrunning even its own projections and causing
more borrowing, you know, ought not to be in that business.
So I will defer to those who live in these issues all the
time, but my sense is that a simplified program, perhaps
offering a federal loan program, coupled with some other
vehicles of the kind we have discussed here today, would
probably wind up looking more like the Perkins Program than the
other ones that we have today.
Senator Casey. Interesting. Mr. Chopra, I will move to you
on that question. I want to raise another question as well
about the states' role here. But just for a moment on Perkins,
if you can speak to that?
Mr. Chopra. I think we need to be concerned particularly
for loans that are given to low income students that it is
clearly understood, and that it is simple, it works well with
the other loans they might have. So it feels like a place where
broader reform could be needed, and simple extensions might not
meet the goals you want, but I am happy to follow up with your
staff further about that.
Senator Casey. I appreciate that.
One of the issues that we discussed today, either by way of
the testimony or questions, was the diminution of state
investment in public colleges and universities. We are told, if
I have the data here, we are told that in a recent study by the
Center on Budget and Policy Priorities, state spending on
higher education nationwide is down to an average of $1,805 per
student, which is about a little more than 20 percent.
We are also told that in 2012, that year per-student
spending by states reached its lowest level in 25 years.
Mr. Chopra, I wanted to ask you about that. (A) do you
think that is a major driver of part of the problem we have?
And (b) how do we deal with that? What is the best way to deal
with that?
Mr. Chopra. Well one of the things that is always a
challenge is data in this area is so poor, but there is no
question that state budgets were killed, particularly with the
downfall of the housing market.
And so we now see the data showing that the percentage
paid, that consists of tuition from students as the overall
budget has increased nationally quite a bit and across most
states.
Senator Casey. So student share is up?
Mr. Chopra. The student share is up. So I think we have to
start questioning, given that many people are financing that,
how do we align the incentives of states not to keep
disinvesting, because someone will have to pay for it in one
way or the other, either the student through more loans, the
families through their own savings, or even the Federal
Government.
So I think it speaks to a bad trend, and probably many
states are going to regret some of that. And I think there is
good work in many states to try and hold their own schools more
accountable to make sure they are delivering results.
Senator Casey. Well since I am the only one between here
and lunch, I will stop there. Thank you, very much.
Chairman Coats. Well Senator Cotton popped back in. We are
glad to have you back, Tom.
Senator Cotton. No lunch for anyone.
[Laughter.]
Chairman Coats. You're up.
Senator Cotton. Thank you all for appearing before us.
Thank you for taking the time to help inform us on this very
important topic.
President Daniels, that sounds nice.
[Laughter.]
Many people wish they could have called you that years ago.
You have been in and around Washington, in addition to being
the President of Purdue now and a Governor as well, when we
think about what is driving the student loan crisis, we have
heard a lot of testimony today about the easy availability of
debt financing that students may not appreciate the terms of
repayment, or that may be driving the rate of tuition higher
according to the Bennett Hypothesis. Some of that is the
availability of debt financing from relatively low interest
rates that have been on student loans, in fact capped by
Members of Congress.
I mean, in your experience do Members of Congress and
Senators have the skill sets needed to determine what interest
rates should be paid on student loans?
[Laughter.]
President Daniels. Now, Senator, what kind of a loaded
question is that?
[Laughter.]
I admire the skill set of every Member of Congress. As you
know, my admiration is boundless. Oh, you know, I guess what
you are asking is, can we arbitrarily set interest rates which
therefore amount to subsidies? Are they best determined
arbitrarily or through some market system? And my answer would
be the latter, and whatever they can be.
And we have had a lot of good discussion this morning on
the ways in which the current system of financing, everything
you just mentioned, has contributed to distortions in the
market, and probably misleading signals to students, and has
certainly contributed very meaningfully to the runup in costs
which is the root of all this problem.
So I don't know that I am answering your question about the
aptitude and capabilities of our Members, but----
Senator Cotton. That's not a clear answer, but----
President Daniels. But I would say, you know, it is beyond
any of our human capabilities to know with certainty what the
right number is in a setting like that.
Senator Cotton. I mean, Hayek's main proposition is that no
matter how smart and capable any person is and how public-
spirited it is, that person will never have all the information
of millions of people distributed throughout a market.
President Daniels. Yes.
Senator Cotton. Dr. Kelly, given the rapid increases as
we've seen in student debts, and because of a slow economy the
difficulties so many students are having of the ability to
repay their loans, do you foresee a kind of student debt crisis
the way we saw in the mortgage finance sector in 2007-2008?
Dr. Kelly. I don't. I think they are very different
scenarios, and I think it is important to remember who is
actually struggling the most with their debt. And it is not the
people with the highest balances. The people with the highest
balances tend to have gone to graduate school and have
completed a bachelor's degree, and then gone on to graduate
school. They are doing very well.
They have low rates of financial hardship most of the time.
So I think the real crisis here is among people who tried to
enroll in a program that was going to expand their economic
opportunity, but without access to information about which
program was the most valuable, and which degrees were in
growing fields. I think they often made poor decisions, often
through no faults of their own, frankly.
There is downside risk to investing in higher education,
and that is why we have created robust protections for student
loan borrowers on the back end, like income-based repayment. I
think we could change some of the terms of loan forgiveness to
make them less perverse and potentially curb tuition inflation.
But I think allowing student loan borrowers to tie their
payments to their income is a reasonable safeguard against such
a crisis.
Mr. Chopra. Senator, if I could add, I don't think it is
the same type of crisis but we have some serious problems. We
have 8 million Americans in default, which is going to threaten
their ability to get on their feet economically. And I am
worried that we are acting way too slowly.
One of the reasons we acted quickly in the last crisis is
because it threatened the sustainability and livelihood of
large financial institutions, and I don't think students have
the same kind of political connections. So we need to make sure
that we are thinking about the long game and not just the
sanctity of a few.
Senator Cotton. One alternative means of financing higher
education that has been discussed here today is Income Sharing
Agreements, which you piloted at Purdue. I was sponsor of
legislation last year in the House that would have set up a
regulatory framework similar to what Congressmen Young and
Polis have done.
Do you think that that kind of ISA arrangement should be
available to all forms of higher education, four-year degree
institutions and students, but also maybe just a student who
needs to go back and get a couple of classes to build skills
for their local economy?
President Daniels. Instinctively I would say yes. We
probably ought to walk before we run and see if it works. We
talked earlier about the fact that it might well start among
the more secure, or more promising borrowers, but I can see
mechanisms, and we would like obviously to see mechanisms where
it was available more widely and possibly everywhere.
Senator Cotton. Dr. Kelly.
Dr. Kelly. If I could add, I think one of the virtues of
creating space for Income Share Agreements is that they could
finance things that currently do not have access to the federal
loan program without putting taxpayer dollars at risk, but
ensuring at the same time that there are back-end protections
by tying the payments to somebody's income.
Senator Cotton. Well my time has expired, and I do think I
am standing between everyone and lunch, so thank you all very
much for your time here today.
Chairman Coats. Thank you, Senator.
I want to thank our witnesses. I think this is one of the
more instructive, constructive hearings that we have had on
this Committee, and I appreciate the three of you being here to
deal with some interesting questions. I think my colleagues are
not here, but I think I can speak on their behalf, for their
interest in this.
Too often we arrive at Committee meetings and the
obligation of the Chairman and Vice Chairman to be there, that
is all that is sitting at the dias.
Obviously our witnesses can understand here there is a
significant interest in this particular issue, which has major
ramifications particularly as we are living ever more in the
global economy. Getting the right flow of talent and skills
into our economy is critical to the future of the United States
being competitive in an ever more competitive world.
The results from the Gallup-Purdue Index ought to give all
of us pause in terms of how we can provide better value for the
cost that is being endured by students and their parents. And
you know this goes beyond just macro numbers.
It goes to individuals who find themselves deeply in debt,
living at home, not able to pursue what their parents had
thought they had paid for, and that is their opportunity to
have the opportunities that we have had.
And I was happy that--well, not happy, but I think the
question relative to the macro issue here of our ever plunging
into more and more national debt is going to have significant
consequences not only in our education system, but just about
everything that we do here.
So whether it is medical research, or whether it is
education, or any of a number of other essential issues and
things that we ought to be engaged in as a Nation is at great
risk. And we have to keep our focus on that macro issue as well
as the micro issues, and there is an interaction between the
two of those.
So all in all, I think this was a very constructive day. I
thank you again, and with the fall of the gavel we are
adjourned.
(Whereupon, at 11:56 a.m., Wednesday, September 30, 2015,
the hearing was adjourned.)
SUBMISSIONS FOR THE RECORD
Prepared Statement of Hon. Dan Coats, Chairman, Joint Economic
Committee
I would like to welcome our witnesses and thank them for being here
today to discuss how we can improve our current system of higher
education financing. Most of us, if not all of us, will agree that the
current framework is far from ideal.
From a student's perspective, rising student debt means greater
difficulty in attaining financial stability early in one's career,
impacting important life decisions such as buying a house or starting a
family. This is particularly true in light of the slow economic
recovery, where lower paying entry-level positions create additional
pressures for young Americans.
From a taxpayer's perspective, the free flow of federal student
loan dollars to higher education institutions, without proper
incentives to control costs, will continue to lead to higher tuition
prices charged to students. While loans to cover tuition are relatively
easy for students to obtain, many are not adequately informed as to the
implications of this debt for their ability to achieve post-graduation
financial success.
Greater system-wide accountability and transparency are needed, and
our witnesses will be sharing their thoughts with us today on how to
best achieve those goals.
I am pleased to have Purdue University President Mitch Daniels
before us today to talk about several of his initiatives to control
costs, improve financial literacy, and create value for students
attending Purdue. President Daniels will be outlining for us the ``Bet
on a Boiler'' Income Share Agreement pilot program and how Congress can
assist similar higher education financing reforms.
I also look forward to hearing Dr. Kelly's thoughts on how our
current student loan system distorts the higher education market and
the role competitive principles can play in making higher education
more affordable for everyone.
We are also pleased to have with us Mr. Chopra, who will outline
the need for proper safeguards as Congress considers alternatives to
the current higher education financing arrangement.
With that, I look forward to discussing these issues in more depth
with our witnesses today.
__________
Prepared Statement of Hon. Carolyn B. Maloney, Ranking Democrat, Joint
Economic Committee
Chairman Coats, thank you for calling today's hearing.
Rapidly growing student loan debt is a significant challenge facing
our country. Student loan debt grew steadily through the recession,
more than doubling from the start of the recession in 2007 to today,
and is now close to $1.3 trillion. More than 40 million people have, on
average, more than $27,000 in debt.
The recent explosion in student debt risks the economic security of
young Americans and threatens our economic growth. As debt levels
increase, young people are forced to delay buying a car, purchasing a
home, starting a small business and saving for retirement.
And some end up paying back loans well into their 30s, 40s and even
50s.
How did we get here?
Part of the story is that many American families have struggled in
recent decades and have had trouble saving money for their children's
college education. And many were hit hard by the recent recession, the
most serious economic crisis since the Great Depression.
When parents have less savings, students are forced to borrow more.
Substantially more. In fact, borrowing has gone up sharply in recent
years, with the average debt at a 4-year public institution climbing
from $21,900 in 2006-07 to $25,600 in 2012-13.
Another critical part of the story is that tuition has risen
dramatically, especially at public colleges and universities, which
educate the vast majority of our students.
States have also been hit hard by the recession, and in response
many have slashed funding for higher education. Median state funding
per student, for example, fell by almost one-fourth from 2003 to 2012.
Cuts in state funding for higher education force public
universities to charge more. As a result, this forces students and
their parents to have to pay more. And this means that students have to
borrow more money to go to college.
With declining state investment, tuition increases have far
outpaced inflation since the 1980s. After adjusting for inflation,
tuition and fees at a public 4-year university more than TRIPLED in the
past 30 years.
The Bush-era recession increased the overall amount owed by
students in another way. As job opportunities shrank, more and more
young people opted to enroll in school. And they had to take out loans
to pay for it.
The recent recession also accelerated the loss of many higher-
paying jobs that did not require a college degree, further increasing
the demand for college or other postsecondary education.
For-profit institutions, in particular, saw their enrollments
surge--quadrupling between 2000 and 2011. A new report finds that 75
percent of the increase in student loan defaults between 2004 and 2011
results from the increase in borrowers at for-profit institutions.
Yes, student debt is a big problem.
And how do our Republican colleagues suggest that we respond to
this problem? By restricting the availability of federal student loans
and by expanding the private student loan market.
As recent history has shown us, private student loans pose
significant risks to borrowers. These loans lack the consumer
protections of federal loans. They typically carry higher interest
rates, some greater than 18 percent. And they offer fewer options for
loan modification.
Many borrowers have been forced into default when lenders wouldn't
negotiate viable repayment plans. Income-based repayment and extended
loan terms--plans that are available with federal loans--typically are
not available with private student loans.
And there are many, many examples of private lenders preying on
student borrowers.
Private lenders regularly declare borrowers' private student loans
in default after a co-signer dies or files for bankruptcy, even for
borrowers who paid their loans on time for years.
Of course, a default can affect employment background checks and
cause lasting damage to a person's credit.
There is probably broad agreement in this room about the need to
continue to clean up the abuses in the private student loan industry.
It's been the Wild West, with providers marketing their loans to
students desperate for financing through every conceivable channel--
Pandora, You Tube, on campus, off campus, at the gym and so on.
As we consider new private options for financing a college
education, we must make absolutely sure we have strong safeguards in
place to prevent private lenders from using predatory practices to take
advantage of students.
Today we will discuss a new private lending mechanism--income share
agreements--that could offer some students an alternative way to
finance their college education.
I would like to hear what our witnesses have to say about this
issue. I would also like to know--specifically--how they would protect
students from the predatory practices that have been a part of the
existing private student loan market.
Rather than look to the private sector to magically solve the
student debt problem, we should strengthen public support for higher
education. It's important to remember that an educated workforce is a
public good and thus without government involvement, we would
underinvest in education. There are four steps we should take right
now.
First, we should make tuition free for students at community
college. Students would then be able to build their skills, and perhaps
obtain an associate's degree, without taking on huge debt.
Second, states need to partner with the Federal Government to
reinvest in higher education, and to begin to reverse the years of
divestment at the state level.
Third, at the federal level, we should increase investments in Pell
Grants to give low-income students a real shot at a college education.
Despite recent increases, Pell Grants now cover just one-third the cost
of going to a public university.
Finally, we need to reform the system so that universities and
colleges have some ``skin in the game,'' some consequences, when a
student is unable to pay back a loan. And colleges should be rewarded
when a student succeeds.
conclusion
Before we take the advice of my Republican colleagues and scale
back federal student loans and increase private lending to students,
let's take a minute to remember how much students benefit from federal
loans.
Much lower rates . . . . Better consumer protections . . . ..
Income-based repayment . . . . Extended loan terms . . . .
College has been a gateway to opportunity for generations in our
country. But for too many Americans, as the price of college rockets
up, the dream of an affordable college education slips away.
Our goal should be college education that is more accessible and
more affordable.
The Federal Government, state governments, universities, colleges,
community colleges, the private sector and families all have a role to
play. I look forward to our discussion today and thank the witnesses
for their testimony.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions for the Record for Mr. Rohit Chopra Submitted by Hon. Carolyn
B. Maloney, Ranking Member, and Mr. Chopra's Responses
1. Last year, several private student loan lenders were ordered to
pay tens of millions of dollars for violating the Servicemembers Civil
Relief Act. This year, another private lender was fined for harming
student loan borrowers.
Going forward, what can we do to deter private lenders from
exploiting student borrowers? What incentives or disincentives would be
effective?
Recent enforcement actions taken against major players in the
student loan industry are not only bad for borrowers, they are bad for
the honest actors looking to serve their customers fairly. I am
particularly concerned that community banks, credit unions, and non-
profit lenders are disadvantaged by the culture of corner-cutting among
the industry giants.
One of the most important ways to remedy the marketplace is to
apply some of the reforms made by Congress to the credit card and
mortgage markets to the student loan market. For example, explicit
servicing standards to ensure borrower payments are processed properly
and servicing transfers run smoothly will be critical.
We must also explore the role that schools play. After the student
loan kickback scandal was uncovered, Congress restricted the ability of
schools to accept gifts and share revenue from private student lenders.
Congress should consider requiring schools with a preferred lender list
to warn prospective borrowers about legal violations by student
lenders. This would provide a strong deterrent for market players to
engage in illegal conduct.
2. In the upcoming reauthorization of the Higher Education Act,
what should Congress do to enhance consumer protections for borrowers
of private student loans?
Congress should enact reforms to address the following areas:
(1) Borrowers in distress: Requiring servicers to assess a
borrower in distress for a loan modification; adjusting the
treatment of private student loans in bankruptcy proceedings
(2) Servicing standards: Enacting consistent, privately
enforceable servicing practices to ensure adequate customer
service
(3) Credit reporting reform: Requiring lenders and servicers to
accurately furnish certain types of information to consumer
reporting agencies
(4) Data and reporting: Establishing public reporting of key
origination and performance data to protect against
discriminatory practices, similar to the Home Mortgage
Disclosure Act; implementing certain data standards to create
marketplaces and promote more vigorous competition
(5) Harmful contract clauses: Eliminating ``gotchas'' in fine
print, such as auto-defaults (where a borrower in good standing
is put in default when a co-signer dies), universal default,
and other clauses
(6) Servicemembers and veterans: Streamlining the
Servicemembers Civil Relief Act to ensure protections are not
lost when refinancing
(7) Disclosures: Implementing disclosures that allow borrowers
to understand and compare all types of student loans.
__________
Question for the Record for Mr. Chopra Submitted by Senator Amy
Klobuchar and Mr. Chopra's Response
Mr. Chopra, in your testimony, you touched on the securitization of
student loans--that is, when banks or other investors buy up student
loans, bundle them up into a security and then sell them to other
investors. I am concerned that a disruption in this market could affect
the ability of our young people to go to college and get the training
and education they need to compete in the workforce.
Can you describe how the securitization of student loans
works? What happens if someone defaults on their loan?
What protections are there for students who have loans
that are bundled?
What lessons have we learned from the market crisis that
we could apply to this market?
Most outstanding student loan asset-backed securities are
collateralized by government-guaranteed student loans under the Federal
Family Education Loan (FFEL) program. Fortunately, recent disruptions
in this market are not threatening the ability of students to access
new loans, since the Congress discontinued originations under this
program.
In a securitization, an issuer typically originates or purchases
loans which serve as collateral for bonds issued by a trust. Borrower
payments are sent to a servicer hired by the trustee and ultimately
flow to bondholders. When a borrower defaults, the servicer will file a
claim if the loan is guaranteed. In the case of ABS collateralized by
private student loans, a borrower will typically be pursued by a debt
collector or attorney after a default.
There are no explicit protections for borrowers whose loans have
been securitized. As we saw in the mortgage market, securitization can
lead to distortions that harm borrowers. For example, servicers and
trustees may not retain adequate documentation to prove to a borrower
that they have the requisite legal claim to collect on the loan. In
addition, a servicer may seek to maximize profits by not adequately
informing borrowers about loan modification options--instead steering
them to quick-fix solutions, such as forbearance.
Policymakers must take steps to ensure that borrowers are protected
against poor servicer practices, especially where incentives may be
distorted by securitization. We must also rethink the 2005 changes to
the treatment of private student loans in bankruptcy, which may be
inhibiting constructive workouts between borrowers and loan holders. We
should also enhance the quality of data by asking regulators to collect
and publish origination and performance information.
__________
Questions for the Record for President Daniels Submitted by Rep. Alma
S. Adams, Ph.D., and President Daniels' Responses
1. Being a graduate of a Historically Black College and University
(HBCUs), I can personally say that without the opportunity offered to
me by North Carolina A&T State University I would not be sitting before
you today, so it's absolutely important that we ensure these
institutions not only survive, but thrive.
This is why my colleague, Bradley Byrne and I launched the
Bipartisan HBCU Caucus earlier this week.
One of the issues we're exploring is the impact of the rising cost
of college tuition on often already cash strapped HBCUs.
To the panel, can you all discuss some policies that may be
implemented with regard to alternative forms of financing particularly
available for HBCUs?
The primary means to make college more affordable should be to rein
in spending and to encourage universities to operate more efficiently.
Congress should be careful to avoid policies that make it easier for
administrators to raise tuition prices.
After that, we owe it to the current and future students of
historically black colleges and universities to create alternatives to
the PLUS and private loans that leave so many students in high debt.
Income-share agreements, under which a student contracts to pay funders
a fixed percentage of his or her earnings for an agreed number of years
after graduation, offer a constructive alternative, both as an option
for new originations and for refinancing existing debt.
I am grateful to Rep. Young and Rep. Polis for introducing HR 3432,
the Student Success Act of 2015, as a bipartisan effort. This
legislation will make it possible for universities, including HBCUs to
test whether ISAs can give students a better deal than they now have.
The legislation is needed because it will provide important protections
for students and offer clarity for the ISA provider. It's also my hope
that the final version of the bill will make it clear that ISAs should
be dischargeable in bankruptcy, which will be an important distinction
from the current offerings.
Without this legislation, we will never see ISAs in use at a large
scale; with it, we have a chance to do something real for students. I
encourage the Senate to introduce and pass similar legislation to HR
3432, and to do it quickly. Legislative clarity will open doors for
universities to explore this in a way that is not currently feasible.
Follow-Up
What financing alternatives should be discussed with regards to
HBCUs when specifically considering student factors such as being low-
income and first generation?
There is something very American and progressive about ISAs that
contrasts with the existing alternatives. Consider that with private
and PLUS loans, access to higher education funding regressively depends
on family wealth. With an ISA, family credit is irrelevant to one's
worthiness to get funding. What matters is the future, and an
individual's promise to work hard, and pursue the American dream.
Research shows that low-income high school graduates are among the
most risk adverse student borrowers, causing some to pass up higher
education all together. ISAs address this need by shifting the risk
burden off of the student and on to the provider. If the graduate earns
less than expected, it is the funders who are disappointed. Education
payments will never be more than the agreed portion of their incomes,
no matter what life brings, including unemployment, underemployment and
health issues. This is true ``debt-free'' college.
Purdue University, like HBCUs, is committed to preventing
discrimination of any kind. ISAs should be available to students of all
backgrounds. Unlike other financing tools that often depend on a
student's family circumstances, such as Parent PLUS and private student
loans, ISAs are built around the investment students are making in
their future--not where they came from in the past.
__________
Question for the Record for Dr. Andrew Kelly Submitted by Rep. Alma S.
Adams, Ph.D., and Dr. Kelly's Responses
1. Being a graduate of a Historically Black College and University
(HBCUs), I can personally say that without the opportunity offered to
me by North Carolina A&T State University I would not be sitting before
you today, so it's absolutely important that we ensure these
institutions not only survive, but thrive.
This is why my colleague, Bradley Byrne and I launched the
Bipartisan HBCU Caucus earlier this week.
One of the issues we're exploring is the impact of the rising cost
of college tuition on often already cash strapped HBCUs.
To the panel, can you all discuss some policies that may be
implemented with regard to alternative forms of financing particularly
available for HBCUs?
It is important to note that income-share providers need not be
proft-making entities, but may well be non-profit funds that are
interested in increasing college access among particular demographic
groups or at particular institutions. HBCUs seem like a potential
target for such a non-profit model, where philanthropists could provide
the seed money to get a fund started, and that fund would then be
sustained by income-linked payments from alumni. Think about it as a
revolving fund or ``pay it forward'' arrangement for a particular
institution.
Follow-Up
What financing alternatives should be discussed with regards to
HBCUs when specifically considering student factors such as being low-
income and first generation?
In the non-profit revolving fund example laid out above, private
funders could also work with HBCUs to improve student services and
linkages to the labor market in ways that maximize student success.
__________
Questions for the Record for Mr. Chopra Submitted by Rep. Alma S.
Adams, Ph.D., and Mr. Chopra's Responses
1. I would like to ask you about Parent PLUS Loans.
As you know this program underwent some changes in 2011 that
resulted in students who were previously eligible for these loans being
denied.
This greatly affected many students' ability to pay tuition, and
had a dramatic effect on HBCUs.
When the problem first surfaced in 2012, 400,000 students
nationwide, including 28,000 HBCU students were negatively affected by
the change in PLUS Loan standards.
Mr. Chopra, do you believe the recent changes to the Parent PLUS
loan eligibility requirements are enough to fix the problem created by
the 2011 changes?
If not, what changes do you believe need to be made to address
these problems?
No, I do not believe the changes to the Parent PLUS program will
ultimately repair the underlying problems faced by many borrowers
attending Historically Black Colleges and Universities (HBCUs) and
other institutions that disproportionately serve low-income and first-
generation college attendees.
While many institutions benefit from sizable endowments built on
donations from wealthy alumni over many generations (sometimes over
centuries), most HBCUs and other Minority-Serving Institutions (MSIs)
do not have these resources.
While examining loan programs is important, we must also take steps
to ensure that HBCUs and MSIs have adequate resources to ensure
graduates and their families do not incur excessive debt. The upcoming
reauthorization of the Higher Education Act should include an
examination of a modernized funding model to recognize the unique
contributions of these institutions.
2. Being a graduate of a Historically Black College and University
(HBCUs), I can personally say that without the opportunity offered to
me by North Carolina A&T State University I would not be sitting before
you today, so it's absolutely important that we ensure these
institutions not only survive, but thrive.
This is why my colleague, Bradley Byrne and I launched the
Bipartisan HBCU Caucus earlier this week.
One of the issues we're exploring is the impact of the rising cost
of college tuition on often already cash strapped HBCUs.
To the panel, can you all discuss some policies that may be
implemented with regard to alternative forms of financing particularly
available for HBCUs?
Follow-Up
What financing alternatives should be discussed with regards to
HBCUs when specifically considering student factors such as being low-
income and first generation?
As noted in my written testimony, the market for private financing
products should be free of discrimination. For regulators to ensure
that creditors are not violating the Equal Credit Opportunity Act,
Congress and the industry should consider requiring a data reporting
framework similar to the Home Mortgage Disclosure Act. This will help
to ensure that creditors are not unfairly denying or charging higher
prices to students and HBCUs and MSIs.
[all]